TMI Blog1962 (6) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, questions Nos. 1 and 3 have been raised at the instance of the department and question No. 2 at the instance of the assessee. The assessee is an unregistered firm. It was constituted under an oral agreement of partnership sometime in March, 1946, between three persons, namely, Amin, Valia and Kharas. The business of the firm was to deal in lacquer and oil paints and it was agreed between the three partners constituting the firm that, in the profits of the business, Amin was to get eight annas share and Valia and Kharas, four annas share each. The firm made a purchase of a consignment of paints for a sum of ₹ 1,79,000, and that was the only business purchase made by the firm. Sometime in September, 1946, Amin, who was to manage the business of the firm, represented to Kharas that the paints which they had purchased would not be profitably sold since the prices were falling down. He was, however, willing to purchase the goods from the firm at the cost price in order to save Kharas and Valia from incurring any further losses. He also suggested that the firm may be dissolved after the goods had been purchased by him from the firm. These representations of Amin to Kharas w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 1946. The commissioner appointed under the consent order made his award on the 24th April, 1951. According to the operative part of the award, Valia was declared entitled to a sum of ₹ 25,092 from the partnership, Amin to a sum of ₹ 32,237 and Kharas to a sum of ₹ 27,040, subject to the payment of costs of the suit, etc., including the costs of the arbitration. In pursuance of the award, payments were received by the parties during the accounting year 1952-53. The amounts which were alleged to have been received by the respective partners as stated in the statement furnished to the income-tax authorities were at variance with the amounts awarded under the award, but the Tribunal has not found it necessary to have the figures reconciled as it was not necessary to do so in view of the decision arrived at by it on the points involved in the case. In the return which Valia made for the assessment year 1953-54 on 4th November, 1953, he did not include his share of the profit from the partnership of Associated Commercial Corporation which he had received under the award in the accounting year 1952-53; but, in the return filed by M/s. Anantrai Jadhavji Co., in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and Kharas by their chartered accountants, informing him that the partnership had been dissolved on the 12th November, 1946, that as per the arbitrator's award, Valia and Kharas had each received a sum of ₹ 12,980-5-0 as their share of the net profit of the business of the partnership firm and that the same was included by them in their returns of the total income and total world income for the assessment year 1953-54. The letter also further stated that Valia and Kharas had no previous knowledge of any notice served on Amin under section 34 of the Indian Income-tax Act and that they would be contacting their solicitors for the necessary documents and other proof, which would enable them to file a return of the total income of the partnership firm for the assessment year 1947-48 in response to the notice under section 22(2) read with section 34. After having obtained further extension of time for filing the said return, it was thereafter submitted on the 4th April, 1956. In this return, the amount of profit falling to the share of Valia was shown to be ₹ 13,202 and that falling to the share of Kharas was shown as ₹ 12,981. These figures were stated as arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of Kharas on the return submitted by him and was not, therefore, entitled to proceed under section 34(i)( a) against the firm on account of an omission or failure to disclose fully and truly all material facts necessary for the assessment. This contention also was not accepted by the Tribunal. It was then urged that the profits were not the profits of the firm and that, at any rate, even if they were the profits of the firm, they had not accrued to the firm in the assessment year 1947-48 and could not, therefore, be assessed to tax in the said assessment. The Tribunal did not think it necessary to decide the question as to whether the profits were of the firm or of the individual partners, because it was of the view that, even if the profits were assumed to be the profits of the partnership, they had not accrued in the assessment year 1947-48 but in the assessment year 1952-53. A further contention was raised on behalf of the assessee that the Income-tax Officer had also erred in not allowing certain expenses incurred in the litigation in the High Court for establishing the title of the firm or the partners to such profits. The Tribunal thought it unnecessary to consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the profits were assessable in the assessment year 1947-48? We will now proceed to answer the said question in that reframed form. But, before dealing with the said question, it will be desirable to state a further clarification. As we have already pointed out earlier, the contentions urged by the assessee before the Tribunal were, firstly, that the profits were not the profits of the firm but of the individual partners and, secondly, even if they were held to be profits of the firm, they had not accrued in the assessment year 1947-48 but in the assessment year 1953-54. The Tribunal did not consider the first part of the contention as to whether the profits were the profits of the firm or of the individual partners and stated that it was expressing no opinion on that contention. It only dealt with the second part of the contention and came to the conclusion that, even though the profits were assumed to be profits of the firm, they had not accrued in the assessment year 1947-48 but in the assessment year 1952-53. Mr. Palkhivala has urged before us that we should also follow the same course as has been followed by the Tribunal and consider the second part of the contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e suit which Valia had subsequently filed. The agreement of 18th September, 1946, between Amin and Kharas had also purported to bring about a dissolution of the firm also on that date. Valia, however, contended that, since he was not a party to that agreement of dissolution of the firm, it was not a dissolution of the firm by the agreement of all the partners of the firm and that, since that agreement had not been conveyed to him, it could not amount to a notice in writing to him by the other two partners of their intention to dissolve the firm and could not have the effect of dissolving the same. Valia, therefore, in the suit, which he had filed, had asked the court to dissolve the firm and order taking accounts of the partnership. By the consent terms, the parties agreed that the agreement between Kharas and Amin should be ignored and, therefore, the sale by Kharas on behalf of the partnership firm to Amin, as well as the agreement to dissolve the firm, should be taken as of no legal effect. The parties also agreed that the firm should be deemed to be dissolved on the 12th November, 1946, which date was subsequent to the sale by Amin to the German, Andrew Gruenberg, and the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er passed in the said suit, the jeopardy in which the right set up by Valia on behalf of the partnership firm was involved had vanished. As held by the Punjab High Court in Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. [1961] 41 ITR 718 : The scheme of the Income-tax Act showed that only those sums were taxable which accrued as income, i.e., they must have actually accrued or arisen. No amount could be said to accrue unless it was actually due. A claim to an amount was not tantamount to the amount being due or having accrued. The learned judges observed in that case that the foundation of the claim was in jeopardy at the time when the claim was said to have accrued to the assessee, and included in his taxable income, and they pointed out that it was only when the claim was no longer in jeopardy as a result of having been decided in his favour that the amount could be said to have accrued to the assessee. In our opinion, a profit could be said to have accrued or a liability or loss could be said to have been incurred only when the profit is either actually due or the liability becomes enforceable. A mere claim to a profit or to a liability is not sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... senii, solvendum in futuro it cannot be said that any income has accrued to him. In our opinion, therefore, Mr. Joshi's contention that the profit accrued to the firm in October, 1946, when the sale by Amin to Andrew Gruenberg took place, cannot be accepted. The transaction when it took place was not the transaction of the firm. As we have already stated, it was subsequently that it was claimed on behalf of the firm that the benefit of the transaction must go to it. Until this claim of the firm was determined in favour of the firm, it could not be said that the firm had any right to the profit which arose under the said transaction. Whether the point of time when this profit accrued to the firm was when the consent order was passed by the court or when the award was made by the Commissioner appointed under the said order or when the parties actually received the amounts in their hands in pursuance of the award, is not necessary to be determined in the present case, for all these dates are admittedly much after the end of the assessment year 1947-48. In our opinion, therefore, the answer to the third question in the refrained form is in the negative. In view of our answer t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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