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TMI Blog1965 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bank of Rs. 2,47,281. A sale deed was executed on the 15th January, 1952, which fell within the relevant previous year. The consideration was Rs. 41,69,681, and each of the abovesaid four partners was allotted 100 shares of Rs. 1,000 each in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 against its assessment for the earlier assessment year 1952-53, and quoted from its earlier order in extenso. Whatever mistake the Income-tax Officer or the Appellate Assistant Commissioner may have made in making the assessment, the Tribunal set that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Income-tax Officer to make a fresh assessment in accordance with law, i.e., under section 26(2) of the Act. Against that order for the assessment year 1952-53, a reference was filed in this court and a Division Bench of this court, of which I was a mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 cases : where there is discontinuance of business, profession or vocation carried on by a firm or association, and where there is dissolution of an association. It follows that mere dissolution of a firm without discontinuance of the business will not attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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. This view has now been affirmed by the Supreme Court in Shivram Poddar's case. That the mistaken mention of a particular section or the label or nomenclature used is not determinative of the validity of the assessment is clear from a decision of the Judicial Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be made under section 23(3) read with section 44 whereas it should have been read with section 26(2) of the Act, the assessment made is invalid, particularly when the Tribunal, which is the final court of appeal, had put the matter right by holding that the correc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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