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TMI Blog1970 (2) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... e then Punjab Government granted a licence to them described as " The Hoshiarpur Electric Licence, 1930 ". A copy of that licence is annexure " A ". According to clause 9 of the licence, the option to purchase the undertaking under section 7(1) of the Act was to be on the expiry of fifteen years from its date, and, thereafter, on the expiry of every subsequent period of twenty (sic) years. Of the three partners, Balmokand dropped out of the partnership by a document executed between the partners on April 29, 1930. The remaining two partners took with them two other partners, R. B. Mohan Lal and Mela Ram, and then, a new partnership deed was executed between those four partners on February 10, and registered on February 17, 1932. Copy of that partnership deed is annexure " B ". This change was approved by the Punjab Government according to section 9 of the Act by an endorsement of April 15, 1932, on the licence. On February 1, 1933, R. B. Mohan Lal having died, his minor son, Mohinder Lal, was admitted to the benefits of the partnership under the guardianship of his mother, Tara Wati. A new partnership deed was executed on June 6, 1933, but effective from February 1, 1933, the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, down to the date of his death on February 1, 1933, whereafter, his son, Mohinder Lal, replaced him, immediately from the very date of the death of his father, first as a minor having been admitted to the benefits of the partnership, and on attaining majority on August 14, 1942, as a full-fledged partner in his own right. The other original partner, firm Chamba Mal-Harkishan Das, remained in the partnership down to some time in June, 1940, when it transferred its three annas share to R. B. Jodha Mal Kuthiala through an intermediary firm, Budh Ram-Karori Mal, and from that time R. B. Jodha Mal Kuthiala continued to be a partner of the partnership. Only during one year of assessment for 1942-43, was this partnership assessed to income-tax as a registered firm, and for the remaining years it continued to be assessed in the status of an unregistered firm. The last extension of the partnership licence carried on in the name of " The Hoshiarpur Electric Licence, 1930 " came to an end on February 24, 1955. A little more than two years earlier, on February 20, 1953, the Punjab State Government gave notice under section 7(2) and (4) of the Act exercising its option to purchase the under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its case on the question that the taking over of the undertaking was not a sale and the statutory excess payment of 20 per cent. over the fair market value does not form part of the sale consideration. The reason for this will be given presently. There was an amendment of Act 9 of 1910 by the Electricity (Amendment) Act, 1959 (32 of 1959), and it is section 7 of the principal Act, before that amendment, which applied to the facts and circumstances of this case. Under sub-section (2) of the old section 7, the State Government was given the power to acquire an undertaking as of type in the present case, and when that sub-section is considered with sub-section (1) of that very section, then the licensee was under a duty to sell the under taking to the Government on payment of the value of all lands, buildings, works, materials and plant of the licensee suitable to, and used by him for the purposes of the undertaking. There was a provision for arbitration in the case of difference or dispute in regard to the value of the undertaking. Sub-section (3) then provided that where, a purchase had been effected under sub-section (2) at the exercise of the option of the State Government, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Punjab Act, 6 of 1939, on August 24, 1955, thus taking the matter out of the assessment year in question. The Income-tax Officer did not accept this contention and was of the opinion that any fictional date that the Punjab Government might have fixed or may be taken to have fixed under section 4 of the Punjab Act, 6 of 1939, did not affect the actual fact of the sale having taken place on a particular date, that is to say, on February 24, 1955, so far as the other laws or the general law are or is concerned. He, therefore, negatived this contention on the side of the assessee. On appeal, the Appellate Assistant Commissioner was of the opinion that " in this particular case, the fixed and the specified dates are one and the same, i.e., February 24/25, 1955 ". It is, therefore, that the interest was allowed on the unpaid amount of purchase money from August 24, 1955. So he was of the opinion that the deemed date of the sale under section 4 of the Punjab Act, 6 of 1939, was February 24, 1955. On further appeal by the assessee before the Income-tax Appellate Tribunal, the argument again failed, the order of the Tribunal being of November 2, 1963, and that was mainly on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r market value formed part of the sale consideration ? 4. Whether, on the facts and in the circumstances of the case, the assessee is liable to be assessed to tax in respect of depreciation allowed to it right from its inception in 1930? " It appears that before the actual undertaking was purchased by the Punjab State Government, the partnership had turned into a limited company and it was agreed on both sides that Question No. 4 be reframed in this manner: " 4. Whether, on the facts and in the circumstances of the case, the assessee is liable to be assessed to tax in respect of the depreciation allowed to Hoshiarpur. Electric Supply Company, since 1930? " The Fazilka Electric Supply Company Ltd.'s case was in appeal before their Lordships of the Supreme Court and is reported as Fazilka Electric Supply Company Ltd. v. Commissioner of Income-tax, and the decision of this court was upheld by their Lordships that the taking, over of the electrical undertaking in that case on July 23, 1949, by the Punjab State Government on payment of the valuable or price on that date was a sale within the meaning of section 10(2)(vii) of Act 11 of 1922. In the wake of that decision of their L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government under clause 9 of the licence read with section 7 and other provisions of the Electricity Act, was a sale within the meaning of clause (vii), then the amount which the Income-tax Officer determined to be Rs. 77,700 would be taxable in the hands of the appellant as profits within the meaning of the said clause, " and their Lordships held that it was a sale within the meaning of section 10(2)(vii) of Act, 11 of 1922. In the face of the decision in the Fazilka Electric Supply Company's case, this argument is not available to the assessee. The only difference between that case and the present case is that on the date on which the option to purchase was exercised by the State Government in the former case the full value was paid, and in the present case only a part of the value or price was paid, the balance having been paid later, but this will not detract from the nature of the transaction as sale or its completion on the exercise of the option by the State Government to purchase the assessee's electrical undertaking in the present case was on February 24, 1955. So on this consideration the argument on the side of the assessee does not prevail because full price was not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 24, 1955. This is as far as has been the argument of the learned counsel for the assessee on the second question, and the answer to that question is thus in the affirmative. In regard to the fourth question, the details of the changes in the partnership on various dates and the approval of the same by the Punjab State Government under section 9 of Act, 9 of 1910, have already been given. The first change when one of the original partners, Balmokand, dropped out is not material because by that time no depreciation had been gained by the partnership. Then there are the remaining changes : (a) two new partners were taken in under the partnership deed of February 10, 1932, (b) on the death of R. B. Mohan Lal, his minor son, Mohinder Lal, was given benefit of the partnership according to the new partnership deed on June 6, 1933, and on his attaining majority he became a full-fledged partner of the partnership on August 14, 1942, (c) in 1940 R. B. Jodha Mal Kuthiala purchased three annas share of one of the former partners and became a partner, and (d) on April 10, 1946, on the disruption of the joint Hindu family firm, Mela Ram Shiv Dial, its four members became partners in place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then refers to Lindley on the Law of Partnership, 12th edition, page 44, where it is stated that : " Another most important consequence of the principle, that on any charge amongst the persons composing a partnership there is in fact a new partnership, and not a mere continuation of the old one, is that although, upon a change in a firm, it may be agreed between the members of the old and new firms that the rights and obligations of the old shall devolve upon the new partners, this has no effect upon third parties unless they accede to it. " He has pressed that with the four changes in the partnership, as already referred to, every time there was a new partnership and that the assessee has not been a continuation of any of the previous partnerships. In regard to the change in the partnership on account of the joint Hindu family going out and its partners coming in, he had referred to Kshetra Mohan Sannyasi Charan Sadhukhan v. Commissioner of Excess Profits Tax, in which their Lordships in the Supreme Court held that : " A Hindu undivided family is included in the expression ' person ' as defined in the Indian Income-tax Act, as well as in the Excess Profits Tax Act, but it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an assessee under section 16(3)(a) of Act, 11 of 1922. The next case referred to in this respect by the learned counsel is Commissioner of Income-tax v. Dwarkadas Khetan Co., and in that case it was held by their Lordships of the Supreme Court that the admission of a minor as a full partner to a partnership was not valid and the partnership deed in that respect not being a valid document could not be registered under section 26A of the last-mentioned Act. It is apparent that neither of these two cases is of any assistance so far as the argument on the side of the assessee is concerned. On the effect of the other changes in the partners of the partnership in the present case, of which the detail has already been given, apart from what has already been said, the learned counsel also referred to Ghella Dayal v. Commissioner of Income-tax, to urge that each one of these changes among the partners led to the coming into existence of a new partnership on a new partnership deed having been executed after the change. But that was a case again, under Act 15 of 1940, and after the change in the firm by the addition of new partners, the change in the firm was taken to be a new firm for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same firm's name till dissolution. The law with respect to retiring partners as enacted in the partnership Act is to a certain extent a compromise between the strict doctrine of English common law which refuses to see anything in the firm but a collective name for individuals carrying on business in partnership and the mercantile usage which recognises the firm as a distinct person or quasi-corporation. But under the Income-tax Act the position is somewhat different. A firm can be charged as a distinct assessable entity as distinct from its partners who can also be assessed individually (after citing section 3 of the Act). The partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purposes of assessment. Sections 26, 48 and 55 of the Act fully bear out this position. These provisions of the Act go to show that the technical view of the nature of a partnership, under English law or Indian law, cannot be taken in applying the law of income-tax. The true question to decide is one of identity of the unit assessed under the Income-tax Act, 1918, which paid double tax in the year 1939, with the unit to whose business the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there being change in the constitution of the firm, assessment has to be made under section 26(1), and if there be succession to the business, assessment has to be made under section 26(2). The provisions relating to assessment on reconstituted or newly constituted firms, and on succession to the business are obligatory. Therefore, even when there is change in the ownership of the business carried on by a firm on reconstitution or because of a new constitution, assessment must still be made upon the firm." This was cited by their Lordships from an earlier case decided in the Supreme Court and reported as Shivram Poddar v. Income-tax Officer, Central Circle, Calcutta. Now even this case makes it clear that where the business of the firm continues, changes in its constitution still leave it as a unit of assessment for the purposes of the Income-tax Act. What the learned counsel for the assessee has said in reply with regard to these two cases is that the same have not been cases under the second proviso to section 10(2)(vii) of Act, 11 of 1922, which is correct, but their Lordships have laid down unmistakably that a firm is a unit of assessment as an independent unit with a persona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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