TMI Blog1985 (11) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... the name and style of 'New Cawnpore Flour Mills' as aforesaid and to undertake and discharge all the liabilities in respect of any debt or obligation incurred or any contract entered into by, to, with or on behalf of the aforesaid partnership and the goodwill, if any, of such business." Article 2 of the articles of association of the assessee reads as under: "2. The business and assets specified in the schedule hereto shall belong to and become the property of the company and having regard to the obligations imposed and liabilities on the company by these presents shall be taken at their net book value and the shares to which the parties hereto are to be entitled as aforesaid shall be deemed to be fully paid up by means of the net assets so brought in." The schedule to the articles, among others, includes the following: "Cash money, bank balances, book debts, claims, receivables, securities, investments, deposits, stocks, and other assets whether mentioned or not, at 82/2, Cooperganj, Kanpur and Kejriwal Flour Mills, Gorakhpur or at any other office or offices of the said New Cawnpore Flour Mills, anywhere in India." 2. The firm whose business was taken over by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Act did not contain any provision making the successor in business or legal representative of an assessee to whom an allowance had already been granted, liable to tax under section 41(1) in respect of the amount remitted and received by the successor or the legal representative. This principle squarely applies to the present case. The present assessee who was sought to be taxed was not the assessee contemplated under the above section. It was the firm of New Cawnpore Flour Mills, which had paid the tax while the refund has been received by the assessee, which is a successor to the firm. A similar view was taken by the Allahabad High Court in Moti Lal Sons' case. The decision of the Supreme Court stated above was followed in this case. It was held that section 10(2A) of the Indian Income-tax Act, 1922 ('the 1922 Act') corresponding to section 41(1) of the 1961 Act can be applied only if two conditions are satisfied, firstly, it must be shown that an allowable for deduction has been made in this assessment in respect of a loss, expenditure or trading liability, and, secondly, the same assessee must have received the amount allowed in respect of such loss, expenditure or tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, observed as under: "... Moreover, as found by the ITO, which has not been challenged by the assessee, as per the deed of partnership, the liabilities and assets as well as the litigation of the proprietary concern were taken over by the assessee-firm. In the circumstances, it is not open to the assessee to raise the aforesaid contention and on merits also it has no substance." These observations no doubt have thrown some doubt on the view expressed earlier. A similar view was expressed by the Allahabad High Court in the case of T.N. Shah (P.) Ltd. v. Addl. CIT [1979] 120 ITR 354. The observations of the Court appear of the report as under: "If in a given case, the income of a business is computed by taking into account certain debt, it does not appear reasonable that in the absence of any statutory prohibition, allowance on account of the debt having become bad should be denied only because the assessee's identity has changed, though the identity of the business continues." However, keeping in view the decision of the Supreme Court in Hukumchand Mohanlal's case and the decision of the Allahabad High Court in Motilal Sons' case, which specifically dealt with the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Calcutta High Court in Krishna Hydraulic Press Ltd. v. CIT [1943] 11 ITR 504. Here the assessee-company had taken over the business of a firm. It was held that the assessee was the successor to the firm. 10. In view of the above authorities, there is no escape from the conclusion that the present is the case of a succession by the assessee to the business of the firm. It is not a case of discontinuance of the business. As such, the provisions of section 176(3A) cannot be applied in order to bring to tax the refund of the sales tax in the assessment of the assessee. 11. We will now deal with section 170(1)(b) which has also been relied on by the Commissioner (Appeals) for assessing the above amount. In our opinion, the application of this section is misconceived. It is a machinery section. It lays down the procedure where there is succession of business of one person by another person. The section says that the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession and the successor shall be assessed in respect of the income of the previous year after the date of succession. Unless the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly employed by him) only in computing the income of the business of that previous year in which such sum is actually paid by the assessee. In other words, the above amount according to the ITO is liable to be allowed only in the assessment year in which it is actually paid. Since it was not paid in the assessment year 1984-85, when section 43B is applicable, he was of the opinion that the assessee was not entitled to its deduction. The assessee contended that the above section did not apply to its case as it related only to a sum 'payable' by the assessee by way of tax. It was submitted before the ITO that since the amount was not payable to the Sales Tax Department up to 30-6-1983, i.e., up to the end of the assessment year under appeal, provisions of section 43B had no application and its allowability did not depend upon its actual payment. This contention was rejected by the ITO following the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. His view was upheld by the Commissioner (Appeals). The latter also observed that even otherwise the sales tax was a revenue receipt in the light of the decisions already cited in our order. 15. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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