Decided on August 14,1963

ITO Respondents

Referred Judgements :-



- (1.)THE short question arising for decision in this writ application is, whether petitioners 2 & 3, who were at the time of the filing of this writ application members of a partnership firm, which is a party to this writ application as petitioner No. 1, can be made liable for an assessment that has been made on a firm after its dissolution. That firm was admittedly dissolved on the 2nd of September 1950 , and the assessment was after that.
(2.)IT is admitted that the assessment has been made on a firm with the same name as the first petitioner, the Nava Kerala Trading company, which consisted of three partners, petitioners 2 and 3 here, and another person called Kunju Moideen. The assessments for the years 1949 - 50 and 1950-51 were made on 28-4-1951 and 17-5-1952 respectively as evidenced by exts. P2 and P5. These were also, it is clear from Exts. P2 and P5 assessments, on the firm as such. After making the assessments on the firm, the tax liabilities of the three partners were determined and assessments were also individually made on petitioners 2 and 3 and on Kunju. Moideen. Petitioners 2 and 3 have paid their share of the tax. The demand, that is now made on petitioners 2 and 3 relate to the tax that has been imposed on Kunju Moideen by the said assessment on Kunju Moideen and which it is alleged he had not paid.
It was contended by counsel that the assessments for the years 1949 50 and 1950-51 on a firm as such which had ceased to exist as early as 2-9-1950 is unwarranted by law. I must confess that I thought for a while that this was an argument which is well-founded and it is supported by authority. The Calcutta High Court in Manindra Lal Goswami v. Income-tax officer (1956) XXX I. T. R. 550 and R. N. Bose v. Manindra Lal Goswami (1958)XXXIII I. T. R. 435 has taken the view that there can be no assessment on a firm as such which had ceased to exist before the date of the assessment. That High court has also apparently approved the position in a recent pronouncement in shivarain Poddar v. Income tax Officer, Central Circle II, Calcutta (1962) XLVI i. T. R. 1076. But counsel for the Department brought to my notice the decision of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam AIR. 1961 sc. 609 and I think that decision concludes the matter. The specific point that was mooted before the Supreme Court, it seems to me, and as correctly contended by counsel, was whether penalty proceedings can be taken against a firm which had been dissolved, after its dissolution, by virtue of S. 44 of the Indian income Tax Act, 1922, which read: "44. Liability in case of firm or association discontinued or dissolved:- (1) where any business, profession or vocation carried on by a firm or other association of persons has been discontinued or where a firm or other association of persons is dissolved, the Income-tax officer shall make an assessment of the to total income of the firm or other association of persons as such as if no such discontinuance or dissolution had taken place. (2) If the Income-tax Officer the Appellate Assistant commissioner or the Appellate Tribunal in the course of any proceedings under this Act in respect of any such firm or other association of persons as is referred to in sub-section (1) is satisfied that the firm or other association is guilty of any of the acts specified in clause (a) or clause (b) or clause (c) of subsection (1) of S. 28, he or it may impose or direct the imposition of a penalty in accordance with the provisions of that section. (3) Every person who was at the time of such discontinuance or dissolution a partner of the firm or a member of the association, as the case may be, shall be jointly and severally liable for the amount of tax or penalty payable, and all the provisions of Chapter IV so far as may be, shall apply to any such assessment or imposition of penalty". And it was held that the penalty proceedings formed a part of the assessment proceedings and S. 44 enabled, therefore, penalty proceedings being commenced after the dissolution of the firm. Counsel for the petitioner is also correct in his contention that the conclusion whether a dissolved firm could be assessed as such after its dissolution by virtue of s. 44 of the Indian Income Tax Act was not mooted or specifically determined by their Lordships of the Supreme Court. Even so, I feel bound by the observations of Their Lordships at page 430 of the above decision. This is what Their lordships have said: "in effect, the Legislature has enacted by S. 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". The discontinuance of the business in that case, it is clear, arose out of a dissolution. In fact, the judgment makes that clear. At page 429, Their Lordships said: "that the business of the firm was discontinued, because of the dissolution of the partnership is not disputed". And the proceedings were against the firm as such is also clear from what is stated in the judgment. "by order dated November 29,1954, the Income-tax officer assessed the suppressed income of the firm in respect of the assessment year 1124 M. E. under the Travancore Income-Tax Act and in respect of assessment years 1949-50 and 1950-51 under the Indian Income Act and on the same day issued notice under S. 28 of the Indian Income-tax Act in respect of the years 1949-50 and 1950-51 and under S. 41 of the Travancore-Income-Tax Act for the year 1124 M. E. requiring the firm to show cause why penalty should not be imposed".

It is, therefore, that I said that proceedings against the firm as such were started after the dissolution of the firm and such proceedings have been sustained by the Supreme Court.

(3.)I therefore reject this writ application, but in the circumstances of the case, make no order as to costs.

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