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TMI Blog1964 (5) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember 31, 1947, of which the relevant assessment year is the assessment year 1949-50, the assessment order being made on January 30, 1954. The income assessed was apportioned between Sheo Nath Sharma and Pt. Deo Sharma, Smt. Chandan Devi being held to be the latter's benamidar. The assessee proceeded in appeal before the Appellate Assistant Commissioner and thereafter to the Income-tax Appellate Tribunal. It was urged before the Appellate Tribunal that the assessee-firm having been dissolved on December 31, 1947, no assessment order could be made against it thereafter. This contention was rejected by the Appellate Tribunal, which held that the business had not been discontinued, that certain changes had merely taken place in the constitution of the firm and that the firm as a unit of assessment had continued throughout. Apparently, the Appellate Tribunal placed reliance upon the provisions of section 26(1) of the Indian Income-tax Act. The Appellate Tribunal, however, referred to the decision in S. M.S. Karuppiah Pillai v. Commissioner of Income-tax [1941] 9 ITR 1 , which was a decision of the Madras High Court involving the application of section 26(2). Thereafter, upon appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave commenced on January 1, 1948. Now, merely because the parties to a partnership agreement agree that the partnership will be deemed to have come into existence retrospectively does not, so far as third parties are concerned, entitle a plea to be raised that the partnership must indeed be said to have commenced on a date before it was entered into. Lindley in his Treatise on the Law of Partnership, nth edition, page 116, declares the law to be: Again, persons may agree that as between themselves, the partnership between them shall be deemed to have commenced at some time before its actual commencement. Proof of such an agreement as this would not enable a stranger to make the parties to it liable to him as partners for what took place before the partnership in point of fact began. As to third parties, such an agreement is res inter olios acta, which does not affect them in any way... Reference has been made to Wilsford v. Wood [1794] 1 Esp. 181 and Vere v. Ashby [1829] 10 B C 288. To the same effect is the rule stated in the British Tax Encyclopedia, page 1226, paragraph 1466. An agreement cannot alter the position before it is executed. 'It is beyond the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurs throughout the Acts, and I think that it is most generally used to denote what may be termed an entity of assessment, i.e., the possessor or recipient of an income which the Acts require to be separately assessed for tax purposes. This seems to be the legal position in other British territories also. In a recent appeal from the Supreme Court of Hongkong in Inland Revenue Commissioners v. Four Seas Co. Ltd. [1962] AC 161 the Judicial Committee held that a partnership firm was a person under the income-tax law in force in that Crown Colony. In India, the same principle has been applied, and in Commissioner of Income-tax v. A.W. Figgies Co. [1953] 24 ITR 405 , 408, 409; [1954] SCR 171 Mahajan J., speaking for the court, declared: It is true that under the law of partnership a firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners... 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. Section 3 which is the charging section is in these terms ... The partners of the firm are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt under Chapter IV. This decision was further explained by the Supreme Court in Commissioner of Income-tax v. Angidi Chettiar [1962] 44 ITR 739 (SC). That the Supreme Court in Abraham's case (supra) decided not merely that the penalty imposed upon the firm was justified under section 44 but also that the assessment order in relation to which the penalty was imposed was a valid order was clearly brought out in its decision in Commissioner of Income-tax v. Raja Reddy Mallaram [1964] 51 ITR 285 , where Shah J., who had also delivered the judgment of the court in Abraham's case (supra) observed: It is true that the validity of the order assessing the firm was not expressly challenged, though at the date of the order of assessment stood dissolved, and its business was discontinued, but the court could not adjudicate upon the validity of the order imposing penalty without deciding whether there was a valid assessment, for an order imposing penalty postulates a valid assessment ... And further: If by section 44 the continuity of the firm ... is for the purpose of assessment ensured, no question of assessing the individual members of the association can arise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 1940, a Full Bench of the Madras High Court in S.M.S. Karuppiah Pillai's case (supra) construed the provisions of section 26(2) and applied them to a case where a firm had been dissolved but the business carried on by it had been transferred to another. It is true that the provisions of section 26(2) as they stood at that time were somewhat different from the provisions applicable to the case before us, but for the purpose of determining the question in issue in the instant case we are of opinion that there is no material difference. The Bench repelled the contention that section 44 applied, observing that that provision applied only where there was a discontinuance of the business, and not where the business was continued even after the firm had been dissolved. That section 26(2) and not section 44 applied to a case where the business had not been discontinued was also held by the Bombay High Court in B.M. Desai v. V. Ramamurthy, Income-tax Officer [1958] 34 ITR 409 . We are, therefore, of the opinion that upon the facts of the case, inasmuch as the business was not discontinued, it is the provisions of section 26(2) and not of section 44 which would apply. This questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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