1968 (3) TMI 25 - HC - Income Tax

ITO found that the income of the firm for the asst. yr. 1949-50 had escaped assessment and as he was of the opinion that by the two deeds of transfer executed on the July 21, 1952, which formed a composite part of a single transaction, the firm consisting of five partners was in effect dissolved on that date - Tribunal was justified in law in holding that there was no discontinuance or cesser of the business of the firm on July 21, 1952

Issues Involved:
1. Maintainability of the appeal under the second proviso to section 30 of the Indian Income-tax Act, 1922.
2. Applicability of the principles of res judicata and estoppel.
3. Discontinuance or cesser of the business of the firm on July 21, 1952.
4. Liability of the respondent for the amount of tax assessed on the firm for the year 1949-50.
5. Validity of the assessment on the firm after its dissolution.

Detailed Analysis:

Issue 1: Maintainability of the Appeal under the Second Proviso to Section 30
The Tribunal held that the second proviso to section 30 of the Indian Income-tax Act, 1922, did not apply to the case since the assessment was made on an unregistered firm. The proviso applies to cases where partners are individually assessable on their shares in the total income of the firm, which is relevant only for registered firms. The Tribunal also determined that each ex-partner, being served with a notice of demand, had a right to appeal against the assessment and demand, as they were considered assessees under section 2(2) of the Act. Consequently, the Tribunal concluded that the appeal filed by the respondent was maintainable.

Issue 2: Applicability of Res Judicata and Estoppel
The Tribunal found that the principles of res judicata and estoppel had limited application in income-tax proceedings. Since each ex-partner had a separate right to appeal against the assessment and demand, the subsequent appeals by other partners were not barred by res judicata or estoppel. The Tribunal referenced the case of Narkari v. Shankar, which supported the view that separate appeals by different parties from the same decree do not invoke res judicata. Thus, the Tribunal held that the appeals were maintainable and not barred by these principles.

Issue 3: Discontinuance or Cesser of Business on July 21, 1952
The Tribunal examined the deeds executed on July 21, 1952, and concluded that there was no discontinuance of the business on that date. Instead, the firm was merely reconstituted with the retirement of four partners and the introduction of four new partners, followed by the sale of the remaining partner's share. The Tribunal held that this constituted a change in the constitution of the firm, not a discontinuance of business. The business continued until November 11, 1953, when it was finally discontinued. Therefore, the Tribunal determined that section 44 of the Act was not applicable on July 21, 1952.

Issue 4: Liability for Tax Assessed on the Firm for the Year 1949-50
Given the Tribunal's finding that there was no discontinuance of the business on July 21, 1952, it followed that the partners as of that date were not liable for the tax assessed for the year 1949-50. The Tribunal reasoned that since the business continued until November 11, 1953, the liability for tax did not extend to the partners who had retired before the actual discontinuance of the business.

Issue 5: Validity of Assessment After Dissolution
The Tribunal referenced the Supreme Court's rulings in C. A. Abraham v. Income-tax Officer and Shivaram Poddar's case, which established that an assessment on a firm after its dissolution is valid under section 44 of the Act. The Tribunal concluded that the assessment on the firm after its dissolution was in accordance with the law.

Conclusion:
1. The second proviso to section 30 of the Indian Income-tax Act, 1922, does not apply to the appeal filed by the respondent, making the appeal maintainable.
2. The respondent's appeal is not barred by the principles of res judicata or estoppel.
3. There was no discontinuance or cesser of the business of the firm on July 21, 1952.
4. The question of the respondent's liability for the tax assessed on the firm for the year 1949-50 does not arise due to the finding on discontinuance.
5. The assessment on the firm after its dissolution was valid under section 44 of the Act.

The Tribunal's decisions were upheld, and the questions referred were answered accordingly. No order for costs was made.

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