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TMI Blog1973 (3) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ution under the name and style of " Indian Institute of Engineering Technology ". The accounting year adopted by the firm was the year ending 30th April. Up to the assessment year 1959-60, the firm applied for registration and was granted registration under section 26A of the Indian Income-tax Act, 1922 (hereinafter called " the Act "), and was assessed as a registered firm. For the assessment year 1960-61, relevant to the previous year ending April 30, 1960, the assessee on July 4, 1960, applied for renewal of the registration of the firm under section 26A of the Act and on October 25, 1960, filed a return showing a nil income. It had already filed on March 15, 1960, an estimate of income declaring the status as a firm and the income for year ending April 30, 1960, at Rs. 40,000. In response to the notice issued by the Income-tax Officer, the assessee produced its account books and other evidence in its possession to substantiate the correctness of the return and an advocate appeared representing the assessee. The documents, books of account, and other evidence produced, disclosed the following facts : On April 25, 1960, the partners of the assessee-firm executed an agreement wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssolution of partnership. The operative part of this deed reads as follows : "1. The partnership firm of Indian Institute of Engineering Technology shall be deemed to have been dissolved with effect from the 1st day of May, 1959. 2. The parties hereto have nothing to get from one another or from the partnership. 3. The profits and income of the Indian Institute of Engineering Technology that have accrued, accumulated or arisen up to the 25th day of April, 1960, or thereafter, shall belong absolutely to the said Institute and shall not belong to the partnership or to the parties hereto. 4. The parties hereto hereby release one another and each of them and their respective estate and effects and from all the covenants and provisions of the partnership deed dated 1st August, 1948, and from all claims and demands whatsoever in relation to the affairs of the said firm. " On December 27, 1960, the assessee informed its bankers of the dissolution of the firm with a request to transfer the funds lying with it in a current account to be opened. The governing body of the society held its meeting on June 21, 1962, checked the accounts for the year ending April 30, 1960, and accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the assessee-firm ? " The learned counsel for the assessee contended that though the governing body of the society (Indian Institute of Engineering Technology) was formed only on December 7, 1960, and the society itself was registered on February 1, 1961, there was a transfer and vesting of the income accrued or accruable up to April 25, 1960, and, thereafter, to the intended society as a charitable trust and the assessee was holding and deriving income only as the trustee of the said society. Though the income was derived by the assessee when it accrued, by reason of the dissolution of the partnership with effect from May 1, 1959, the income accrued right from May 1, 1959, shall be deemed to have been received by the partners not as a firm, but as trustees of the intended society and as such not assessable in their hands. In this connection he relied on the decision in Commissioner of Income-tax v. Bijli Cotton Mills Ltd. That related to the liability of a company to tax on its pre-incorporation profits. The facts in that case were these : A partnership firm acquired a cotton mill on behalf of a company which they were going to get incorporated. Possession of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee contended that the entire income for the accounting year ending April 30, 1960, should be assessed only in the hands of the society. We are unable to accept this contention. There is absolutely no evidence that at any time prior to April 25, 1960, when the agreement was executed there was any idea of forming a society or making the partnership accountable to such a society. Neither the assets of the partnership were acquired nor the income derived from the business on behalf of and for purposes of the society which they intended to bring into existence. The business was carried on by the partnership on its own account and deriving profits and gains. The partnership was carrying on business in the earlier years also and was deriving income. The partnership could not, therefore, be likened to or treated as promoters of a company. Even under the agreement dated April 25, 1960, there was no divestiture of the title of the partnership to the assets and other properties of the partnership. It only stated that the parties shall as soon as possible arrange to get the Indian Institute of Engineering Technology registered as a society and shall entrust the management o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income, therefore, on its own behalf and not on behalf of any intended society. We are also of opinion that there was no divestiture of the income earned to the society during the accounting year. The bank account of the business was in the name of the partnership right through the accounting year till December 27, 1960, and it was only on that day the transfer of the funds to the accounts of the society was effected. If really the vesting of the accrued income had taken place on April 25, 1960, the transfer of the funds should have been effected even on that date. If the transfer had been effected from the partnership accounts to the individual account on April 25, 1960, it might have been contended that there was a divestiture of the title to the funds by the partnership and the partners were holding the income for the benefit of a society that is to come into existence in future. It is seen from the finding of the Tribunal that in fact the three partners had been drawing substantial part of the income by way of salary and drawings right up to the date of transfer of funds and the minutes of the governing body showed that the three partners had been credited with a sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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