TMI Blog1963 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... y the revenue authorities. Appeal dismissed. - - - - - Dated:- 13-12-1963 - Judge(s) : A. K. SARKAR., M. HIDAYATULLAH., J. C. SHAH JUDGMENT The judgment of the court was delivered by SHAH J.--Balmukand Radheshyam (hereinafter called "the firm"), having its head office at Calcutta, carried on business in commission agency and cotton piece-goods. The firm which consisted of four partners, one of whom was Shivram Poddar, appellant in this appeal, was dissolved in February, 1950, and it appears that thereupon its business was discontinued. For the assessment year 1949-50, one of the partners of the firm submitted a return of its income and it was assessed on October 28, 1952, in the status of an unregistered firm. On March 28, 1955, the Income-tax Officer issued a notice under section 34 read with section 22(2) of the Indian Income-tax Act, 1922, addressed to the appellant as a partner of the firm at the time of its dissolution calling upon him to submit a return of the income of the firm for the year 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Abraham's case discontinuance of business of the firm was the result of dissolution upon the death of one of the partners. The primary question in that case was about the competence of the Income-tax Officer to order the levy of penalty against a firm, after it had discontinued its business upon dissolution, for concealing the particulars of income or for deliberately furnishing inaccurate particulars of income in a return of the income of the firm. The validity of the order of assessment of income of the firm was not cballenged in that case, though at the date of the order of assessment the firm stood dissolved and its business was discontinued. But the court could not adjudicate upon the legality of the order imposing penalty without deciding whether there was a valid assessment, for an order imposing penalty predicates, a valid assessment. We have reiterated this view in Commissioner of Income-tax v. Raja Reddy Mallaram in considering the application of section of the Indian Income-tax Act in relation to the assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociation. It follows that mere dissolution of a firm without discontinuance of the business will not attract the application of section 44 of the Act. It is only where there is discontinuance of business, whether as a result of dissolution or other cause, that the liability to assessment in respect of the income of the firm under section 44 arises. In the case of an association, discontinuance of business for whatever cause, and dissolution with or without discontinuance of business, will both attract section 44. The reason for this distinction appears from the scheme of the Income-tax Act in its relation to assessment of the income of a firm. A firm whether registered or unregistered is recognised under the Act as a unit of assessment (sections 3 and 2(2)), and its income is computed under clauses (3) and (4) of section 23 as the income of any other unit. Section 25(1) relates to assessment in case of a discontinued business--whether the business is carried on by a firm or by any other person. This is of course only an enabling 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement brings about an end of the relation. But the Income-tax Act recognises a firm for purposes of assessment as a unit independent of the partners constituting it ; it invests the firm with a personality which survives reconstitution. A firm discontinuing its business may be assessed in the manner provided by section 25(1) in the year of account in which it discontinues its business ; it may also be assessed in the year of assessment. In either case it is the assessment of the income of the firm. Where the firm is dissolved, but the business is not discontinued, there being change in the constitution of the firm, assessment has to be made under section 26(1), and if there be succession to the business, assessment has to be made under section 26(2). The provisions relating to assessment on reconstituted or newly constituted firms, and oft succession to the business are obligatory. Therefore, even when there is change in the ownership of the business carried on by a firm on reconstitution or because of a new constitution, 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 actua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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