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TMI Blog1968 (3) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 1/30th share. The aforesaid five partners carried on the business of the firm till the 21st July, 1952. On that date a deed, described as a deed of transfer, was executed by and between the said Prithwis Chandra Biswas, Santosh Kumar Bose, Gostodhan Chatterjee, Krishna Chandra Chatterjee and Dhirendra Nath Banerjee described therein as parties of the first, second, third, fourth and fifth parts, respectively, and Bhagwan Shaw, Lachmi Narayan Shaw, Munilal Shaw and Sunitendra Mohan Tagore, described therein as parties of the sixth, seventh, eighth and ninth parts, respectively. The following are some of the recitals in the aforesaid deed : " Whereas the parties of the first to fourth parts are desirous of transferring and assigning their 29/30th share or interest in all the assets, goodwill, stock-in-trade, stage carriages and structures of the tenanted land and premises No. 14, Ultadanga Road, free from encumbrances and liabilities at or for Rs.one lakh forty-five thousand. And whereas the parties hereto of the sixth, seventh, eighth and ninth parts are willing to purchase the said undivided 29/30th part or share in the business of Popular Transport Service its goodwill, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,000." The deed went on to witness that in consideration of the payment of Rs. 5,000 the vendor granted, transferred, conveyed, assigned and assured unto the purchasers all that his undivided 1/30th part of or share in the business of Popular Transport Service its goodwill, book-debts, stock-in trade, public stage carriages, etc., and all other assets absolutely and forever free from all liabilities and encumbrances. There is no dispute that the firm of Popular Transport Service ceased to carry on any business on and from the 11th November, 1953. Longafter the firm discontinued its business, the Income-tax Officer found that the income of the firm for the assessment year 1949-50 had escaped assessment and as he was of the opinion that by the two deeds of transfer executed on the 21st July, 1952, which formed a composite part of a single transaction, the firm consisting of five partners was in effect dissolved on that date he issued notices under section 34 of the Indian Income-tax Act, 1922 (hereinafter referred to as " the Act "), to all the five ex-partners, of the dissolved firm as representing the firm requiring them to submit returns of the total income of the firm. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 21st July, 1952, there was no provision for taking over the liabilities, the business as a whole was not transferred as a going concern. The Tribunal further held that there was no succession as the purchasers were not date of sale. Accordingly, the Tribunal held that for all practical purposes the firm of the original partners was dissolved on sale, and, hence, under section 44, they would be liable for the tax on the pre-dissolution profits of the firm. This order is dated the 19th February, 1962. The remaining appeals, including the appeals preferred by S.K. Bose and P.C. Biswas, were taken up by the Appellate Assistant Commissioner after the decision of the Tribunal in the aforesaid appeal of Gostodhan Chatterjee and by four separate orders the Appellate Assistant Commissioner dismissed the appeals following the aforesaid decision of the Tribunal. Both Santosh Kumar Bose and Prithwis Chandra Biswas went up on further appeal to the Tribunal against the orders of the Appeallate Assistant Commissioner dismissing their appeals. The Tribunal heard the appeal preferred by Santosh Kumar Bose and for reasons stated in its order allowed the appeal. In the appeal preferred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the merits. The Tribunal's decision on the merits has been printed in the paper book as its appellate order. On a consideration of the provisions of section 44 of the Act, as applicable to the year of assessment under reference, the Tribunal was of the opinion that every person, who was a partner of the firm at the time of its discontinuance, would be jointly and severally liable to ent and for the amount of tax payable. The Tribunal, therefore, mooted two questions to be considered and answered, namely : " (1) Whether the business of the firm, M/s. Popular Transport Service, was discontinued an 21st July, 1952 ? (2) Was the appellant, as an ex-partner of the firm, liable to assessment for the year 1949-50 and for the amount of tax ? " After considering the terms of the two aforesaid deeds executed on 21st July, 1952, the Tribunal held that there was no discontinuance in the business of the firm on the 21st July, 1952, and what happened on that date was a mere change in the constitution of the firm. The Tribunal was unable to accept the contention of the department that on that date the five original partners transferred only the assets of the business to the four new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no discontinuance or cesser of the business of the firm on 21st July, 1952 ? (4) If the answer to question No. 3 is in the negative, was the respondent, Sri Santosh Kumar Bose, liable for the amount of tax assessed on the firm for the year 1949-50 ? " QUESTION SUGGESTED BY THE RESPONDENT " (5) Whether the assessment on the firm after its dissolution was in accordance with law ? " It would be convenient to deal with and dispose of questions Nos. 1 and 2 before dealing with the main question which is question No. 3 in this reference. Mr. B. L. Pal, the learned counsel for the Commissioner, submitted that under section 44 of the Act, as it stood on the relevant date, the assessment of the income of a firm, which has since been dissolved, must be made on the firm as if no such dissolution has taken place. As the assessment was on the firm, the firm was the assessee, though under the provisions of the aforesaid section the tax might be realised from any of the ex-partners. As such an appeal against the assessment could only be filed by the firm and once such an appeal has been filed on behalf of the firm by one of the partners, there was no scope for the filing of furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 30 and under the prescribed form for filing an appeal, the appellant is the firm, though the form of the appeal and verification is to be signed by a partner. There could, therefore, be only one appeal and once such an appeal has been filed there was no scope for the filing of any further appeals. We are unable to accept the above submission of Mr. Pal. The second proviso to section 30 has no application to the facts of this case, as the assessment in this case has been made on the firm as an unregistered firm. The aforesaid proviso applies to a case where the partners of a firm are independently assessable on their own shares in the total income of the firm under the provision of section 23(5) of the Act. It is only in the case of an assessment of a registered firm that the sum payable by the firm itself is not determined, but the total income of each partner, including therein his share income from the firm is assessed and the sum payable by him on the basis of such assessment is determined. The aforesaid proviso could, therefore, apply only in the case of the assessment of a registered firm or of a firm treated as such and not to the assessment of an unregistered firm. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of any principle of res judicata and estoppel, constructive or otherwise, barring the subsequent appeals filed by the other partners. In Narkari v. Shankar it was held that where two separate appeals are filed by two sets of defendants from one and the same decree and the appellate court hears and allows both the appeals and two decrees are drawn up in accordance with the judgment of the appellate court, the question of res judicata does not arise at all. It is to be noticed in this case that though five appeals were filed before the Appellate Assistant Commissioner against the order of assessment, the Appellate Assistant Commissioner did not consolidate the appeals, but passed five separate orders dismissing the said appeals. In the circumstances, we are of the opinion that the Tribunal was right in holding that separate appeals filed by the ex-partners were maintainable and that such appeals were not barred by the principles of res judicata and estoppel. Accordingly, question No. 2 must be answered in the negative and against the department. We now come to the main contention in this reference. Section 44, as it stood before its amendment in 1958, has been, considered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business and not when there is a change in the ownership of the firm, or in its constitution, because by constitution of the firm, no change is brought about in the personality of the firm, and succession to the business and not discontinuance of the business results." In view of the aforesaid observations of the Supreme Court Mr. Pal tried to convince us that on the 21st July, 1952, the business of the firm as then constituted was discontinued and a fresh business was started by the reconstituted firm. Mr. Pal referred to both the recitals and the operative part of the two deeds and submitted that under the deeds what were transferred were the vendor's undivided share in the assets, goodwill, etc., of the firm and as expressly the liabilities were not transferred, there was no transfer of the business as a whole. Mr. Pal is undoubtedly right when he contends that the vendors, under both the aforesaid deeds, purported to transfer the assets of the business free from encumbrarnces and liabilities. Mr. Pal submitted that where only assets are transferred and not the liabilities, there could not be a transfer of the business as a going concern. Mr. Pal wanted to support his c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , two fresh agreements of partnership were executed, the first of which recited that the manufacture and sale of soaps was being carried on by the three partners along with a fourth partner and the second deed recited that the three partners continued to carry on the business in banking, piece goods and yarn. Later, by an instrument executed in 1943, after the retirement of certain partners, new partners were introduced and the parties agreed to carry on as one single partnership the businesses carried on by the two partnership firms constituted under the deeds of 1939. By a subsequent agreement made in 1948 the business was taken over by a company. The firm claimed relief under section 23(4) on the basis of succession. It was in this connection that the Supreme Court observed that, the two instruments executed in 1939 clearly showed that the business that was carried on by the firm originally till that date was discontinued and its business was split up into two and carried on by two independent firms, then brought into existence. When this happens it is impossible to say that the pre-existing business was continued. We fail to see what relevance this case has with the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affirmative and in favour of the assessee. In view of our answer to question No. 3, question No. 4 does not arise for our consideration. In view of the pronouncement of the Supreme Court in the cases of C. A. Abraham v. Income-tax Officer and Shivaram Poddar's case, it must be held that an assessment on the firm after its dissolution was perfectly valid under section 44 of the Act and question No. 5 must accordingly be answered in the affirmative and against the assessee. Our answers to the questions referred, therefore, are follows: Question No. 1.-The second proviso to section 30 of the Indian Income-tax Act, 1922, has no application to the appeal filed by the respondent and as such the appeal filed by the respondent was maintainable. Question No. 2.-The respondent's appeal is not barred either by the principles of res judicata or estoppel. Question No. 3 is answered in the affirmative, that is to say, that there was no discontinuance or cesser of the business of the firm on July 21, 1952. Question No. 4.-In view of our answer to question No. 3, question No. 4 does not arise for consideration. Question No. 5 must be answered in the affirmative and againt the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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