TMI Blog1994 (3) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... tee Co. Ltd., for a sum of Rs. 6,50,000. By another agreement dated November 22, 1968, entered into on behalf of the firm, he agreed to sell the said land to one Messrs. Mercury Corporation for a sum of Rs. 13,51,000. Messrs. Mercury Corporation, in turn, entered into another agreement for the sale of the said land to one Vaibhav Co-operative Housing Society Ltd. Shri Radia, a partner of the petitioner-firm, who had paid initially a sum of Rs. 65,000 to the Central Bank Executor and Trustee Co. Ltd., paid a further sum of Rs. 1,00,000 in 1964-65. Though the sale was not completed within six months of the date of the agreement with the vendor-bank, the assessee paid interest on the unpaid balance of sale price amounting to Rs. 1,95,676 on March 31, 1970. On the other hand, the assessee also received a sum of Rs. 1,90,000 from Messrs. Mercury Corporation in pursuance of the agreement for sale entered into with them. The Central Bank Executor and Trustee Co. Ltd., vide its letter dated September 29, 1969, called upon the assessee to pay the full balance consideration within 10 days failing which it was stated that the agreement for sale would be terminated and the amount of advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Officer was erroneous, initiated proceedings for suo motu revision of the orders of assessment for the assessment years 1975-76 and 1976-77 under section 263 of the Income-tax Act and on hearing the parties, held that the orders of the Income-tax Officer for the above assessment years were erroneous and prejudicial to the interests of the Revenue since the Income-tax Officer had failed to bring to assessment in either of the two years the income of Rs. 12,90,000 received by the assessee-firm from Shri Desai as per agreement dated August 19, 1974. It was submitted by the assessee that it received the above amount in full from Shri Yogendra Desai in the financial year 1974-75 and financial year 1975-76 as under: Financial year 1974-75 : Rs. 16-9-1974 1,00,000 16-9-1974 2,10,000 ------------------ 3,10,000 ------------------ Financial year 1975-76: Rs. 11-4-1975 5,30,000 11-4-1975 1,00,000 17-7-1975 50,000 30-9-1975 1,00,000 10-11-1975 1,50,000 19-11-1975 50,000 ------------------ 9,80,000 ------------------ It was contended by the assessee before the Commissioner that the above amounts came to be received after the firm was dissolved and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Being aggrieved by the order of the Tribunal for the assessment year 1976-77, the Revenue applied for reference of the question of law arising out of the order of the Tribunal for the said assessment year. The Tribunal, on being satisfied that it was a referable question of law, referred the question set out above to this court. The controversy in this case is in a narrow compass. The facts relevant for the determination of the controversy are also brief. So far as the amount of Rs. 12,90,00 is concerned, the material facts are that the assessee-firm was dissolved on March 31, 1975, i.e., on the last day of the previous year relevant to the assessment year 1975-76. The amount of Rs. 12,90,000 was due to the assessee-firm in respect of a transaction entered into before its dissolution. A sum of Rs. 3,10,000 had been received by the said firm prior to its dissolution and the balance amount of Rs. 9,80,000 was received after dissolution. The contention of the assessee is that on the date of receipt of the said amount, the assessee-firm being not in existence, the said amount cannot be held to be the receipt of the assessee-firm and cannot be assessed to tax. We have carefully c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 189 and section 176(3A) and 176(4) makes it abundantly clear that the Income-tax Act contemplates that where a firm is dissolved, the assessment of the total income of such firm shall be made by the Income-tax Officer as if no such dissolution had taken place. The same is the position in the case of discontinuance of the business of the firm. Section 189 keeps the firm alive for the purposes of assessment under the Act despite its dissolution. It does not provide for the assessment of the partners of the dissolved firm which was the position under section 44 of the Indian Income-tax Act, 1922, prior to its amendment in the year 1958 and which is the position even today under section 159 of the 1961 Act in respect of the assessment of the legal representative of a deceased assessee. This section, on the other hand, clearly provides that the dissolved firm shall be assessed on its total income as if no such dissolution has taken place. The position is thus clear that despite its dissolution, for the purposes of levy of tax under this Act, the dissolved firm is deemed to be in existence. Sub-section (3A) of section 176 specifically provides that where any business is discontinued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution and discontinuance of its business by virtue of sub-section (3A) of section 176 read with section 189 of the Act. We are fully supported in our above view by the recent decision of the Supreme Court in Nagarmal Baijnath v. CIT [1993] 201 ITR 538, where the Supreme Court discussed at length the position of assessment of a dissolved firm under the law as it stood prior to 1958 and the law as it stands now. The Supreme Court quoted with approval the following observations of Shah J. in C. A. Abraham v. ITO [1961] 41 ITR 425 : "In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV." It was also observed that the above observations would squarely apply to a case where the dissolution of the partnership firm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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