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TMI Blog1986 (10) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ird firm at Visakhapatnam. In all these firms Subba Rao was a partner. The three firms actually carried out the contract works and filed the income-tax returns in respect of the profits arising to them. The department had accepted that the firms were genuine and had granted registration. The construction work was over by 1976. Thereafter, the firms had no contract works. 3. Because of certain reasons which are not necessary to narrate the contracted amount was found to be inadequate to carry out the work tendered for. The assessee, therefore, approached the Electricity Board for certain additional payments. The Board was agreeable to make certain additional payments and had offered certain amounts but the assessee did not accept the same as satisfactory. 4. Thereupon as per the contract, the matter was referred to an arbitrator. The arbitrator awarded a payment of Rs. 7,46,471 by his award dated 19-12-1976. This award was subsequently confirmed by the city civil court. The assessee received the payment on 17-2-1979. 5. The ITO was of opinion that the receipt of Rs. 7,46,471 represented income assessable in the hands of the assessee under section 176(3A). Since the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mean that the business had ceased to exist. He pointed out that the three firms continued to keep the accounts open for collecting the additional amounts of claim sanctioned as per the arbitrator's award. So he gave a finding that there was no discontinuance of business and so the provisions of section 176(3A) must not be applicable. He also gave a finding that section 189 would also be not applicable. That was also for the same reason that there was no discontinuance of business. The firm has not been dissolved under section 40 of the Indian Partnership Act, 1932 and these partnerships were partnerships at will. Even if one can assume that there was discontinuance of the partnership business, the assessment according to the Commissioner has to be made of the total income of the concerned firms as if no such dissolution had taken place. In other words, the concerned firms must be assessed separately for the assessment years and in any event the entire additional contract amount awarded by the arbitrator cannot be treated as the income of the assessee. 9. The department has come on appeal. Shri Satyanarayana for the department submitted that the Commissioner (Appeals) had miss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 189 should be considered and not the provisions of section 176(3A) because the provisions of section 189 are special provisions relating to firms. 11. We have considered the submissions. The first question to be decided is whether the three firms had discontinued their business. If the business has not been discontinued, then the provisions of section 176 (3A) would not be applicable. For the same reasons as pointed out by the Commissioner, the provisions of section 189 also would not be applicable. We will consider each of the three firms separately. We will first take up Y.V. Subbarao Company. This firm was constituted by a partnership deed dated 7-1-1969. The preamble of the deed states that the business of the partnership shall be of contract works of civil, mechanical or electrical. It further states that Shri Madhava Rao who is one of the partners had tendered to obtain contract works from the Superintending Engineer, Jagtial and in view of the requirement of capital and persons he approached the other partners to join him as partners who accepted the offer and executed the same for the benefit of all. It will be seen from the narration that this firm was prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at present not concerned with the question whether the firm continues to exist. We are concerned with the question whether there is discontinuance of business. Discontinuance of business is synonymous with closure of business. In Gladstone Development Co. Ltd. v. Strick 30 TC 131 it was held that discontinuance connotes a complete closing down of the business or profession and a cesser of all the operations immediately. Now, the only activity of the assessee is maintaining books in anticipation that some further amounts can be collected on arbitration. This does not amount to any business activity. In CIT v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1 (SC) it has been laid down that activities intended for collecting of debts of business contracted earlier would not amount to continuing of business. This ratio had been applied by the Kerala High Court in the case of S. P. V. Bank Ltd. v. CIT [1980] 126 ITR 773. In that case also, a bank whose banking business had been taken over by another scheduled bank continued in existence and were taking steps for the realisation of the amounts outstanding. The Kerala High Court held that this would not amount to continuing business. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above two fictions, i.e., the receipts after dissolution is income and further that it is the income of the recipient is contained in section 176(3A). Thus, section 176(3A) takes of or continues from where section 189 leaves off. Thus, they operate entirely in two different fields. Section 176(3A) is a substantive provision insofar as it brings a liability to tax in the hands of the recipient. Therefore, we do not agree with the Commissioner's finding on this point. We also reject the submissions of Shri Parthasarathy on this point. 18. This takes us to consider whether the receipt of Rs. 7,46,471 is to be assessed in the hands of the recipient Shri Y.V. Subba Rao in his individual capacity. The entire argument of the department is contained in the provisions of section 176(3A) which we will reproduce below : " (3A) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance." This sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the bank will be the recipient. The department cannot try to assess the receipts in the hands of the bank on the ground that the bank was the recipient. Therefore, the question is not who was the actual physical recipient of the money. 20. In this connection, we may refer to the charging section, that is, section 5 of the Act which brings to charge any income which is received or deemed to be received in India. It is well settled that the words used in section 5 relate to the first receipt after the accrual of income. The receipt of income refers obviously to the first occasion when the recipient gets the money under his own control. In other words, the recipient should receive the money because he is entitled to it. His rights over the receipts should be such that after the receipt of money he is not answerable to anyone else. In other words, again he should be the beneficiary of the receipts. These are very well settled propositions in law and are based on very old and hoary decisions like B.M. Kamdar, In re [1946] 14 ITR 10 (Bom.) and Pondicherry Railway Co. Ltd. v. CIT 5 ITC 363 (PC) and CIT v. Diwan Bahadur S. L. Mathias [1939] 7 ITR 48 (PC). 21. If we understand the e ..... 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