TMI Blog1965 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... tered partnership firm consisting of four partners, Roshan Lal, Ram Swarup, Jugal Kishore and Purshottam Das, each having a four annas share. The assessee was manufacturing sugar in its factory at Barabanki. For the relevant year of assessment the firm submitted on the 30th December, 1953, a return of Rs. 2,176 as its income from business. In response to a notice under sections 23(3) and 22(4), one L. D. Seth the authorised representative of the partners along with the two employees of the firm (who were subsequently employed as secretary and accountant of Messrs. Ram Chandra and Sons Sugar Mills Ltd., the successors to the business of the assessee, hereinafter referred to as the company) produced the assessee's accounts and furnished the information required by the Income-tax Officer. From the books of account and the information furnished, the Income-tax Officer found that the aforesaid private limited company was incorporated on the 2nd of August, 1951 (in the prior assessment year 1952-53), with the object of purchasing and acquiring the business of the assessee together with all its land, buildings, railway siding, plant, machinery and its liability with the Punjab National ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee, it was held that the business of the firm had " obviously not been discontinued ", and, therefore, section 44 will not apply to this case. A reference was also made by the Appellate Assistant Commissioner to his appellate order for the immediately preceding assessment year 1952-53, where he had held that section 44 did not apply and, therefore, it was not necessary for the Income-tax Officer to issue a notice to each of the individual partners of the dissolved firm. The Tribunal had also held that section 44 did not apply and the case was governed by the provisions of section 26(2) of the Act. Though the Appellate Assistant Commissioner was of opinion that the ground taken was a technical one, he annulled the assessment but declined to modify the assessments of the partners who, according to him, were " obviously chargeable on their share of income under section 3 of the Income-tax Act in their own assessment. . . . The assessments of the partners had, therefore, become final and conclusive. " On further appeals to the Tribunal by the assessee as well as the Income-tax Officer, the Tribunal reiterated the view that it had taken in the appeal by the assessee ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment made under section 26(2) of the Act was valid and, even assuming that section 44 applied, there was nothing improper or irregular in the assessment made by the Income-tax Officer. The assessee had appealed to the Tribunal contending that the Appellate Assistant Commissioner had erred in holding that the provisions of section 44 did not apply to this case and that on the dissolution of the firm the Income-tax Officer ought to have adopted the procedure laid down under section 44 and made an assessment against all the partners of the dissolved firm. The Tribunal, as already observed, repelled this contention and held that there was a succession and therefore there was a transfer of the ownership of the business of the partners of the firm to the limited company and that in such a case section 44 had no application ; that the case fell within the ambit of section 26(2) of the Act and, therefore, the successor and the succeeded were each to be assessed in respect of their actual share and the assessment on each of them must be separate and distinct. In this view of the matter, the order of the Appellate Assistant Commissioner was set aside and the case was remanded to the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scontinuance of the business. Use of the word " also " in the order of the Tribunal indicates that the validity of the assessment was being upheld on the alternate ground that it could also have been made under section 44, in view of the Supreme Court decision in Abraham's case. The alternative view taken by the Tribunal may be wrong but that would not justify ignoring the view taken by it that the assessment in a case, such as the present, fell also within the ambit of section 26(2) of the Act. It is, therefore, not possible, nor is it right, to accede to the submission of the learned counsel that the question posed should be restricted to a consideration of the applicability of section 44 of the Act. There cannot, now, be any doubt after the decision of the Supreme Court in Shivram Poddar v. Income-tax Officer, Central Circle II, Calcutta, explaining the decision in C. A. Abraham's case that a firm which has been succeeded to (sic) and the business has not been discontinued, the provisions of section 44 have no application and it is obligatory to make the assessment on such a firm under section 26(2) of the Act. It was pointed out : " Section 44 operates in two classes of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubtedly be correct. Similarly, the view taken by the Tribunal in the order under reference that section 44 in the alternative would also validate the assessment for the relevant year, therefore, is now clearly erroneous. It is also unnecessary to decide in these proceedings whether section 44, as amended by the Finance Act of 1958, has retrospective effect or not, as the question can be answered without doing so. In this view of the matter, the only point that has to be considered is whether, on the facts of the case, the assessment made in respect of pre-dissolution profits is valid in law ? The Income-tax Officer in the operative portion of the order had applied only the provisions of section 23(3) and section 23(5)(a) of the Act but in the title mentioned section 44 also and further held that dissolution had not taken place, but, as already observed, the finding that dissolution had not taken place was put right by the Appellate Assistant Commissioner and the correct section under which assessment should have been made was held to be section 26(2) of the Act. That was also the view which was taken by the Tribunal in the earlier year and upheld upon reference by this court. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry and notice on the karta alone will suffice (see Lakshminarain Bhadani v. Commissioner of Income-tax). Section 25 is also a specific provision for making an assessment in the case of a business which is discontinued. It provides for the making of a premature assessment. Sub-rule (1) covers a case of reconstitution or change in the constitution of a firm. Sub-rule (2) deals with a " succession " to the business. When there is a succession to the business, as in the present case, the mandatory provision of section 26(2) will come into play. According to the Supreme Court in Shivram Poddar's case, it is obligatory to make an assessment under that sub-section. As all the possible contingencies except a dissolution of a firm simpliciter was provided for, the legislature in section 44 made a provision therefor also. When the legislature has been at such pains to ensure that revenue is not lost merely because there is a change in the constitution of the firm or upon a succession or a dissolution simpliciter without a discontinuance of the business, it is difficult, if not impossible, to hold, that merely because the Income-tax Officer erroneously considered that the assessment could b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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