A L A FIRM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was a partnership firm consisting of four partners. THE firm constituted under a deed of March 26, 1960, was carrying on money-lending business in Malaya and in the course of such business acquired house properties, estates and gardens there. It was also dealing in properties by way of purchase and sale. THE profit and loss of these transactions of purchase and sale of estates was being reflected in the income-tax assessment.

(2.) THE firm maintained its accounts for the Tamil year. We are now concerned with the year that commenced on 13th April, 1960. THE firm closed its accounts on 13th March, 1961, as it was claimed that it was dissolved on that date. Along with the return, a profit and loss account, balance-sheet and profit and loss adjustment account were filed. In the profit and loss account the net profit transferred to the partner's accounts was shown at $72,196"47. This sum was arrived at by crediting, to the profit and loss account, the difference on revaluation of estates and gardens and house properties on dissolution of the firm on 13th March, 1961. THE difference on revaluation of estates and gardens and house properties on dissolution of the firm was written back with the result that the adjusted profit for purposes of income-tax was shown as $4,604'88. It was also stated before the Income-tax Officer that out of the four partners, Ramana-than Chettiar formed one group, and the other partners, another group, and that the two groups were carrying on business separately with the assets and liabilities that fell to their shares on the dissolution of the firm. THEse statements were furnished along with the return on 10th April, 1962. On the same day the Income-tax Officer issued a notice under Section 23(2), Indian Income-tax Act, 1922, posting the hearing for the same day. He completed the assessment on the same day by adding hack a sum of Rs. 2,083 representing municipal tax paid in respect of the properties in Malaya. According to the Income-tax Officer, this amount was not admissible as a deduction in arriving at the proper income. He did not issue any assessment order as such, but made a note in the order sheet as under:

(3.) AT the instance of the assessee, the following three questions have been referred for the opinion of this court: