1967 (2) TMI 15 - HC - Income Tax

Provision of section 44 clearly shows that even though a partner is liable the liability does not cease after dissolution. Therefore the assessment completed against the firm was a valid assessmen

Summary

Issues:
Validity of assessment against a dissolved firm before its dissolution.

Analysis:
The judgment pertains to a reference made by the Income-tax Appellate Tribunal, Allahabad Bench, regarding the validity of an assessment completed against a firm on February 24, 1955. The question raised was whether the assessment could have been made against the partners of the dissolved firm after its dissolution. The assessment year in question was 1950-51, and the assessee was a registered firm engaged in cloth and sarrafa business. The Income-tax Officer added a cash entry of Rs. 25,000 to the assessable income of the assessee, which was contested in subsequent appeals.

The Tribunal noted that notices under relevant sections of the Income-tax Act were issued to the assessee while the partnership business was still operational and before the firm's dissolution. The Tribunal distinguished a previous case and held that the legality of the assessment could not be raised before them as it was not brought up before the Appellate Assistant Commissioner. Consequently, the Tribunal dismissed the appeal of the assessee.

Upon further review by the High Court, it was highlighted that the liability of partners of a dissolved firm continues even after dissolution, as per Section 44 of the Income-tax Act. The court cited precedents to support this interpretation. Therefore, the High Court concluded that the assessment completed against the firm before its dissolution was valid. The assessee was directed to pay a sum of Rs. 200 as costs, and the fee for the department's counsel was fixed at the same amount.

In summary, the judgment clarifies that an assessment against a firm can be valid even after its dissolution, as the liability of partners extends beyond the dissolution as per the Income-tax Act. The decision was based on legal provisions and supported by relevant case law, ultimately upholding the assessment made against the firm in this case.