1994 (3) TMI 74 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income-tax assessment could be filed for the assessment year 1976-77 if the firm was dissolved on March 31, 1975.

Summary:

Issue 1: Income-tax assessment for the assessment year 1976-77 despite firm dissolution

The court examined whether the income-tax assessment could be filed for the assessment year 1976-77, given that the firm was dissolved on March 31, 1975. The assessee, a partnership firm, was involved in a series of transactions concerning the sale of land. The firm was dissolved on March 31, 1975, but it received a sum of Rs. 12,90,000 from Shri Yogendra Desai after its dissolution. The Income-tax Officer initially accepted the firm's return showing "nil" income for the assessment years 1975-76 and 1976-77. However, the Commissioner of Income-tax, u/s 263, found the orders erroneous and prejudicial to the interests of the Revenue, as the Income-tax Officer failed to assess the Rs. 12,90,000 received by the firm.

The Tribunal upheld the Commissioner's decision for the assessment year 1975-76 but not for 1976-77, leading to the Revenue's appeal. The court analyzed sections 189 and 176(3A) of the Income-tax Act, 1961. Section 189 allows for the assessment of a dissolved firm as if no dissolution had occurred, while section 176(3A) deems any sum received after business discontinuance as income of the recipient, taxable in the year of receipt.

The court concluded that despite the firm's dissolution, the amount of Rs. 9,80,000 received after March 31, 1975, was assessable in the hands of the firm for the assessment year 1976-77. This decision was supported by the Supreme Court's ruling in Nagarmal Baijnath v. CIT [1993] 201 ITR 538, which emphasized continuity in tax assessment despite business discontinuance.

Thus, the court answered the referred question in the affirmative, favoring the Revenue, and rejected the notice of motion as infructuous.