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TMI Blog1963 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ear ending March 31, 1950. The appellant moved the High Court of judicature at Calcutta for a writ of mandamus under article 226 of the Constitution commanding the Income-tax Officer to forbear from giving effect to the notice. The petition was dismissed by D. N. Sinha J. and that order was confirmed in appeal under the Letters Patent by the High Court of Calcutta. This appeal is against that judgment of the High Court. The question which falls to be determined in this appeal is whether the income earned by the firm in the year ending March, 1950, could be assessed to tax under section 44 of the Indian Income-tax Act, 1922, after the firm was dissolved. Section 44, of the Indian Inccome-tax Act, 1922, before it was amended by the Income-tax (Amendment) Act, 1958, stood as follows : Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of an association of persons which is dissolved. Mr. Pathak for the appellant urged (and that was the only argument advanced in support of the appeal) that the notice addressed by the Income-tax Officer to the respondent was in law inoperative, since section 44 applies in relation to a firm only when there is discontinuance of its business and not when there is dissolution of the firm. Counsel submitted that members of an association of persons may be assessed under section 44 on discontinuance of business or upon dissolution of the association, but partners of a firm may be assessed under section 44 only on discontinuance of the business, profession or vocation carried on by the firm and not on dissolution. Discontinuance of business and dissolution of a firm are different concepts, urged counsel, for if discontinuance included dissolution it was plainly unnecessary to make an express provision with respect to the dissolution of association of persons. In support of his contention counsel relied upon the observations made by Chakravartti C.J. in R. N. Bose v. Manindra Lal Goswami : " That section [section 44 of the Income-tax Act, 1922] speaks,of a case where any business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling provision giving the Income-tax Officer an option to make a premature assessment on the profits earned up to the date of discontinuance, in the year of discontinuance : Commissioner of Income-tax v. Srinivasan and Gopalan. Even if no premature assessment is made, the assessment for the entire year will be on the income computed up to the date of discontinuance. Then there is the special provision relating to assessment when at the time of making an assessment it is found that a change has occurred in the constitution of a firm, or a firm has been newly constituted : section 26(1). The date on which the change has occurred is immaterial : it may be in the year of account, in the year of assessment or even after the close of the year of assessment. The Income-tax Officer has under section 26(1) to assess the firm as constituted at the time of making the assessment, but the income, profits and gains of the previous year have, for the purpose of inclusion in the total income of the partners, to be apportioned between the partners who were entitled to receive the same. Sub-section (2) of section 26 relates to assessment in the case of succession to a person (which expression includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessment must still be made upon the firm. When there is succession, the successor and the person succeeded have to be assessed each in respect of his actual share. This scheme of assessment furnishes the reason for omitting reference to dissolution of a firm from section 44 when such dissolution is not accompanied by discontinuance of the business. A firm after it has discontinued its business, whether it is dissolved or not, will therefore be assessed either under section 25(1) prematurely, or in the year of assessment ; in both cases the procedure of assessment is as under section 23(3) and (4) supplemented by sub-section (5). Section 44 provides an added incident that all persons who were partners at the time of discontinuance are jointly and severally liable to pay the tax payable by the firm. Under section 23(5) by the second proviso to clause (a) in the case of a registered firm the firm is liable to pay tax on the share of the income of a partner only in the case of a partner who is non-resident. On the discontinuance of the business of a firm, however, by section 44 a joint and several liability of all partners arises to pay tax due by the firm. Except the general pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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