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TMI Blog1981 (9) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... ents did not amount to the carrying on of business, he held that the firm did not carry on any business during the accounting year under appeal. He, therefore, held that the assessee-firm was not entitled to the benefit of registration for the assessment year 1975-76 under appeal. He, however, determined the status of the assessee as an AOP. The ITO also brought to tax the net income from house property of Rs. 26,425. The ITO also computed the long-term capital gains in respect of the sales of properties of the firm on the basis of sale proceeds received as per sale deeds executed in the accounting year, though registered later. He computed the long-term capital gains at Rs. 1,86,941. The assessee appealed to the Commissioner (Appeals) and contended before him that there was no justification for treating the assessee as an AOP. It was pointed out that the firm did not cease to exist merely because the business was discontinued, that realising business assets and payments of business liabilities would constitute carrying on business by the firm and that even if the business of the firm was discontinued, the assessment of the total income of the firm should be made as if no such disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner (Appeals) then considered another contention raised on behalf of the assessee to the effect that even assuming that the assessee should be treated as an AOP, the income from property and capital gains should have been assessed in the hands of the partners individually and not in the hands of the AOP. The Commissioner (Appeals) was of the view that section 26 of the Act would apply to the case only if the respective shares of the individual members in the properties were definite and ascertainable and that in this case it was not possible to say that the shares of the partners in the properties were definite and ascertainable. Taking the view that partners would be entitled to share the surplus, if any, of the assets of the firm after liquidation of the liabilities, he held that it cannot be said that the partners had any claim for specific shares in the house property in question. He, therefore, rejected this contention. The Commissioner (Appeals) also rejected another contention taken on behalf of the assessee to the effect that the assessee did not derive any gain on sale of properties as the proceeds were distributed to the creditors and no surplus remained with the firm af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the absence of a specification of the shares of the partners in the properties, section 26 would not be attracted. He submitted that even otherwise there was an AOP in this case. He referred to the following rulings---CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC), N. V. Shanmugham Co. v. CIT [1971] 81 ITR 310 (SC), CIT v. Laxmidas Devidas [1937] 5 ITR 584 (Bom.), CIT v. Krishna Reddy [1962] 46 ITR 784 (AP) and Dwarakanath Harischandra Pitale In re [1937] 5 ITR 716 (Bom.). He also referred to the ruling of the Andhra Pradesh High Court in the case of Deccan Wine and General Stores and submitted that at least there was a BOI in this case. The learned departmental representative further submitted that in any case the Tribunal should give a direction regarding the status in which the assessee should be assessed. In this connection he referred to the ruling of the Punjab and Haryana High Court in the case of Mangat Ram Hazari Mal v. CIT [1968] 67 ITR 788. In reply the learned counsel for the assessee submitted that he is giving an undertaking to the effect that the three partners of the erstwhile firm would file their returns, offering for assessment their individual share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, as receiver for the purpose of taking charge of the assets and accounts of the firm of Chittalur Pedda Venkata Subbaiah Co., to liquidate the immovables into cash and to realise all the assets, to ascertain the debts and after discharging the liabilities to pay the balance into court. The learned counsel for the assessee, as pointed out earlier, had urged that on the filing of the above suit there was a dissolution of the above firm in accordance with section 43 of the Partnership Act. This submission of the learned counsel is well-founded. Section 43(1) provides that where the partnership is at will the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. In Banarsi Das Kundanlal v. Kanshi Ram AIR 1963 SC 1165, the Supreme Court referred to section 43(1) and 43(2) of the Partnership Act and observed that the firm could be dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of communication of the notice. The Supreme Court, therefore, observed that the date of the service of summons accompanied by a copy of the plaint cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by merely serving a notice of his intention to do so on all other partners. The Punjab and Haryana High Court in Manohar Lal's case held at page 254 of the above volume as under : "It is also well-settled that even if no such notice is given, a partnership at will is automatically deemed to have been dissolved with effect from the date on which a partner of such a firm files a suit for its dissolution." In the instant case, as pointed out earlier, the suit in O.S. No. 43/1974 was specifically filed by one of the partners against the other partners of the firm praying for the dissolution of the firm and for accounts, etc. The Calcutta High Court in the case of Radha Kanta Pal had held that the institution of the suit in the case of a partnership at will operates as dissolution thereof. Respectfully following the above rulings, we hold that there was a dissolution of the firm of Chittalur Pedda Venkata Subbaiah Co. in January 1974 when the suit was filed by partner Shri C. Satyanarayana. It is common ground that all the properties under consideration, both in regard to the income from property as well as in regard to the computation of capital gains, were acquired by the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest but who are not actuated by a common design, yet it is necessary that one or more of whose members should produce or help to produce income for the benefit of all, In the instant case, on the suit in O. S. No. 43/1974 filed by one of the partners for dissolution of the firm, as pointed out above, a receiver has been appointed to take charge of the properties and to realise the income from the property, to sell the properties, etc., as per the extract of the authorisation given to the court receiver mentioned by the court above. There was no combination, association or common design of the erstwhile partners for earning the income from property. On the other hand, the receiver appointed by the order of the court was in receipt of the income in which the partners had shares in accordance with the profit-sharing ratio mentioned in the partnership deed, which was equal. We are, therefore, clearly of the opinion that the income from property and the capital gains arising out of the properties sold by the receiver appointed by the court could not be assessed in the status of an AOP. The properties under consideration, after dissolution, belonged to the three partners of the firm i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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