TMI Blog1968 (3) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... h and fifth parts, respectively, and Bhagwan Shaw, Lachmi Narayan Shaw, Munilal Shaw and Sunitendra Mohan Tagore, described therein as parties of the sixth, seventh, eighth and ninth parts, respectively. The following are some of the recitals in the aforesaid deed : " Whereas the parties of the first to fourth parts are desirous of transferring and assigning their 29/30th share or interest in all the assets, goodwill, stock-in-trade, stage carriages and structures of the tenanted land and premises No. 14, Ultadanga Road, free from encumbrances and liabilities at or for Rs.one lakh forty-five thousand. And whereas the parties hereto of the sixth, seventh, eighth and ninth parts are willing to purchase the said undivided 29/30th part or share in the business of Popular Transport Service its goodwill, assets, properties, stage carriages fully described in the schedule free from liabilities and encumbrances at or for Rs. one lakh forty-five thousand provided the party hereto of the fifth part consent to such transfer and assignment and will agree, to admit them as partners in the firm and reconstitute the firm accordingly and whereas the party hereto of the fifth part has agreed to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m all liabilities and encumbrances. There is no dispute that the firm of Popular Transport Service ceased to carry on any business on and from the 11th November, 1953. Longafter the firm discontinued its business, the Income-tax Officer found that the income of the firm for the assessment year 1949-50 had escaped assessment and as he was of the opinion that by the two deeds of transfer executed on the 21st July, 1952, which formed a composite part of a single transaction, the firm consisting of five partners was in effect dissolved on that date he issued notices under section 34 of the Indian Income-tax Act, 1922 (hereinafter referred to as " the Act "), to all the five ex-partners, of the dissolved firm as representing the firm requiring them to submit returns of the total income of the firm. All the ex-partners, with the exception of S. K. Bose, filed returns showing nil income along with statements denying their liability to be assessed. S. K. Bose took the plea that he never represented the firm. As the returns submitted were on behalf of an " association of persons " and not on behalf of the dissolved firm, the Income-tax Officer held the returns to be invalid. He served a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey would be liable for the tax on the pre-dissolution profits of the firm. This order is dated the 19th February, 1962. The remaining appeals, including the appeals preferred by S.K. Bose and P.C. Biswas, were taken up by the Appellate Assistant Commissioner after the decision of the Tribunal in the aforesaid appeal of Gostodhan Chatterjee and by four separate orders the Appellate Assistant Commissioner dismissed the appeals following the aforesaid decision of the Tribunal. Both Santosh Kumar Bose and Prithwis Chandra Biswas went up on further appeal to the Tribunal against the orders of the Appeallate Assistant Commissioner dismissing their appeals. The Tribunal heard the appeal preferred by Santosh Kumar Bose and for reasons stated in its order allowed the appeal. In the appeal preferred by Prithwis Chandra Biswas the Tribunal followed its decision in the appeal of Santosh Kumar Bose and also allowed that appeal. Before the Tribunal a preliminary objection was raised by the departmental representative as to the maintainability of the appeal. It was contended, inter alia, that (i) as an appeal by the firm Popular Transport Service, filed by Gostadhan Chatterjee, an ex-partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the amount of tax payable. The Tribunal, therefore, mooted two questions to be considered and answered, namely : " (1) Whether the business of the firm, M/s. Popular Transport Service, was discontinued an 21st July, 1952 ? (2) Was the appellant, as an ex-partner of the firm, liable to assessment for the year 1949-50 and for the amount of tax ? " After considering the terms of the two aforesaid deeds executed on 21st July, 1952, the Tribunal held that there was no discontinuance in the business of the firm on the 21st July, 1952, and what happened on that date was a mere change in the constitution of the firm. The Tribunal was unable to accept the contention of the department that on that date the five original partners transferred only the assets of the business to the four new incoming partners. Such a contention was, in the opinion of the Tribunal, clearly ruled out by the express provisions of the said two deeds. The Tribunal held that, under the first of the laid two deeds, four of the partners of the firm retired and the firm was reconstituted with Dhirendra Nath Banerjee and the four purchasers as the partners. Later, in the course of the same day, Dhirendra Nath B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e convenient to deal with and dispose of questions Nos. 1 and 2 before dealing with the main question which is question No. 3 in this reference. Mr. B. L. Pal, the learned counsel for the Commissioner, submitted that under section 44 of the Act, as it stood on the relevant date, the assessment of the income of a firm, which has since been dissolved, must be made on the firm as if no such dissolution has taken place. As the assessment was on the firm, the firm was the assessee, though under the provisions of the aforesaid section the tax might be realised from any of the ex-partners. As such an appeal against the assessment could only be filed by the firm and once such an appeal has been filed on behalf of the firm by one of the partners, there was no scope for the filing of further appeals by the other partners also on behalf of the firm. There could not be several appeals in respect of the same assessment. Because the Act allowed any of the partners to file the appeal on behalf of the firm, it did not make the partners the assessees. Mr. Pal referred to the provisions of section 2(2), section 30(1) and the 2nd proviso thereto, and section 44 of the Act as applicable to the year o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts of this case, as the assessment in this case has been made on the firm as an unregistered firm. The aforesaid proviso applies to a case where the partners of a firm are independently assessable on their own shares in the total income of the firm under the provision of section 23(5) of the Act. It is only in the case of an assessment of a registered firm that the sum payable by the firm itself is not determined, but the total income of each partner, including therein his share income from the firm is assessed and the sum payable by him on the basis of such assessment is determined. The aforesaid proviso could, therefore, apply only in the case of the assessment of a registered firm or of a firm treated as such and not to the assessment of an unregistered firm. Further, under the provisions of section 44, even if the firm is to be assessed after its dissolution, the liability to pay the tax is on the partners who were partners at the time of the discontinuance of the business of the firm. In this case, the Income-tax Officer has served notices of demand for the entire amount of tax on each of the partners of the dissolved firm. If the assessment has been properly made under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of res judicata does not arise at all. It is to be noticed in this case that though five appeals were filed before the Appellate Assistant Commissioner against the order of assessment, the Appellate Assistant Commissioner did not consolidate the appeals, but passed five separate orders dismissing the said appeals. In the circumstances, we are of the opinion that the Tribunal was right in holding that separate appeals filed by the ex-partners were maintainable and that such appeals were not barred by the principles of res judicata and estoppel. Accordingly, question No. 2 must be answered in the negative and against the department. We now come to the main contention in this reference. Section 44, as it stood before its amendment in 1958, has been, considered by the Supreme Court on several occasions. In C. A. Abraham v. Income- Officer, the Supreme Court observed as follows : " Section 44 sets up machinery for assessing the tax liability of Arms which have discontinued their business and provides for three consequences : (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en constituted was discontinued and a fresh business was started by the reconstituted firm. Mr. Pal referred to both the recitals and the operative part of the two deeds and submitted that under the deeds what were transferred were the vendor's undivided share in the assets, goodwill, etc., of the firm and as expressly the liabilities were not transferred, there was no transfer of the business as a whole. Mr. Pal is undoubtedly right when he contends that the vendors, under both the aforesaid deeds, purported to transfer the assets of the business free from encumbrarnces and liabilities. Mr. Pal submitted that where only assets are transferred and not the liabilities, there could not be a transfer of the business as a going concern. Mr. Pal wanted to support his contention by reference to an observation of the Supreme Court in the case of Commissioner of Income-tax v. A.W. Figgies & Co. In that case the question was, whether, when some of the partners of a firm retired and new partners were taken in, there was a mere change in the constitution of the firm or a dissolution of the firm. In this connection a reference was made to the partnership deed in that case and the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties agreed to carry on as one single partnership the businesses carried on by the two partnership firms constituted under the deeds of 1939. By a subsequent agreement made in 1948 the business was taken over by a company. The firm claimed relief under section 23(4) on the basis of succession. It was in this connection that the Supreme Court observed that, the two instruments executed in 1939 clearly showed that the business that was carried on by the firm originally till that date was discontinued and its business was split up into two and carried on by two independent firms, then brought into existence. When this happens it is impossible to say that the pre-existing business was continued. We fail to see what relevance this case has with the facts of the case or the arguments advanced, before us. We are of the opinion that there is no authority for the broad proposition propounded by Mr. Pal that, where only the assets of the business are transferred and not the liabilities, there is no transfer of the business as a whole. Whether there has been a discontinuance of the business or whether the business as a whole has been transferred must be gathered from the two deeds of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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