1981 (9) TMI 187 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to registration continuation for the assessment year 1975-76.
2. Assessment of income from house property and capital gains.
3. Status determination of the assessee as an Association of Persons (AOP).
4. Distribution and assessment of income among partners post-dissolution.

Issue-wise Detailed Analysis:

1. Entitlement to Registration Continuation for the Assessment Year 1975-76:
The firm of Chittalur Pedda Venkata Subbaiah & Co. applied for continuation of registration in Form No. 12 for the assessment year 1975-76. The Income Tax Officer (ITO) observed that the firm had ceased business operations and only received rental income from properties. The ITO concluded that the firm did not carry on any business during the relevant accounting year and hence was not entitled to registration benefits. The Commissioner (Appeals) upheld this view, noting that the firm had discontinued business due to creditor pressure as early as December 1970. The Tribunal agreed with the lower authorities, stating that the firm was not entitled to continuation of registration for the assessment year under appeal.

2. Assessment of Income from House Property and Capital Gains:
The ITO assessed the firm's income from house property and computed long-term capital gains from the sale of properties. The Commissioner (Appeals) upheld this assessment, rejecting the assessee's contention that income should be assessed individually in the hands of partners. The Tribunal found that the properties and income belonged to the partners equally after the firm's dissolution, thus the income from house property and capital gains should be assessed in the hands of individual partners rather than as an AOP.

3. Status Determination of the Assessee as an Association of Persons (AOP):
The ITO determined the assessee's status as an AOP, which was upheld by the Commissioner (Appeals). The Tribunal, however, disagreed, stating that the partners did not associate themselves in an income-producing activity post-dissolution. The income was realized by a court-appointed receiver, not through a common design or association of the partners. Thus, the income could not be assessed in the status of an AOP.

4. Distribution and Assessment of Income Among Partners Post-Dissolution:
The Tribunal noted that the firm was dissolved upon the filing of a suit by one of the partners in January 1974. The properties were to be divided equally among the partners as per the partnership deed. The Tribunal held that Section 26 of the Income-tax Act applied, which mandates that income from property owned by two or more persons with definite and ascertainable shares should be assessed individually. The Tribunal accepted the assessee's counsel's undertaking that the partners would file their returns, offering their respective shares of income for assessment.

Conclusion:
The Tribunal allowed the appeal, ruling that the income from house property and capital gains should be assessed in the hands of the individual partners rather than as an AOP. The assessment made by the ITO and upheld by the Commissioner (Appeals) was deleted.