1968 (11) TMI 29 - HC - Income Tax

Firm - assessment - Tribunal was not right in holding that the income from July 1, 1959, to the date of dissolution should be assessed as income of the previous year relevant for the asst. yr. 1960-61 and that the firm should be registered for this assessment year - as there was no application for renewal of registration for 1961-62, the ITO was justified in assessing the firm as unregistered firm

Issues Involved:
1. Status of the assessee as a registered firm for the broken period between July 1, 1959, and March 31, 1960.
2. Applicability of section 25(1) of the Income-tax Act, 1922.
3. Validity of the Tribunal's conclusion regarding the assessment year for the broken period.

Issue-Wise Detailed Analysis:

1. Status of the Assessee as a Registered Firm for the Broken Period:
The primary issue was whether the assessee could be treated as a registered firm for the broken period between July 1, 1959, and March 31, 1960. The firm was initially registered for the assessment year 1960-61 based on an application filed on June 21, 1960. However, for the assessment year 1961-62, no renewal application was filed. The Income-tax Officer assessed the firm as unregistered for this period, rejecting the assessee's claim that the registration for 1960-61 should extend to the broken period. The Appellate Assistant Commissioner agreed, noting the correct assessment year for the broken period was 1961-62, as the books were closed on June 30, 1959.

2. Applicability of Section 25(1) of the Income-tax Act, 1922:
The Tribunal initially held that the registration for 1960-61 should cover the broken period, arguing that both the usual previous year and the period up to the dissolution fell within the assessment year 1960-61. They cited section 25(1), which allows for an accelerated assessment in cases of discontinuance. However, the High Court disagreed, stating that section 25(1) is discretionary and intended for the revenue's benefit, not the assessee's right. The High Court emphasized that section 25(1) does not imply an extended previous year covering 21 months but allows for an additional assessment within the same assessment year.

3. Validity of the Tribunal's Conclusion Regarding the Assessment Year for the Broken Period:
The High Court found the Tribunal's view incorrect. The assessment for the broken period could not be considered an accelerated one, as it was made in May 1962, well after the Finance Act, 1962, came into force. The Income-tax Officer was justified in treating the broken period as the previous year ending June 30, 1960, and assessing the firm as unregistered for 1961-62 due to the lack of a renewal application. The High Court clarified that section 25(1) does not allow for two previous years within one assessment year, nor does it imply merging two assessment years.

Additional Observations:
The Tribunal's reliance on the absence of a separate form for renewal of registration was misplaced. The High Court pointed out that separate rules and forms exist for renewal applications, and the certificate for the assessment year ending March 31, 1961, could not extend to the next assessment year. The High Court also referenced relevant case law, including Commissioner of Income-tax v. K. Srinivasan & K. Gopalan and Esthuri Aswathiah v. Commissioner of Income-tax, to support its interpretation of section 25(1).

Conclusion:
The High Court concluded that the Tribunal's decision was incorrect. The broken period should be assessed as part of the previous year ending June 30, 1960, and the firm should be treated as unregistered for the assessment year 1961-62. The question was answered in favor of the revenue, with costs awarded to the counsel.

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