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TMI Blog1989 (8) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... firm took the original contract for the tunnel work and upon its dissolution in September, 1971, the partner of the said firm, Sri P. M. Paily Pillai, was authorised to complete the unfinished portion of the work. He gave a sub contract to the assessee-firm to complete the tunnel work. At the time when Messrs. Paily Pillai and Co. executed the work, they had taken on hire from the Government a compressor for completing the work. The compressor was continued to be used for completing the work by the assessee-firm as well. The privity of the main contract was between Sri P. M. Paily Pillai and the Government. The payment for work done by the assessee was used to be obtained by Sri P. M. Paily Pillai who, thereafter, passed on the proceeds to the assessee-firm after deducting his share of the payments received. For the period the compressor was used by the assessee-firm, a sum of Rs. 36,000 was deducted by the Government from the amount payable to the contractor towards hire charges of the compressor during the previous year relevant to 1972-73 assessment. As the work was done by the assessee-firm, the said hire charges were borne by the assessee-firm. The assessee-firm, in turn, clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The only contention of the assessee is that the firm was dissolved with effect from April 1, 1972, and, on dissolution, the assessee-firm ceased to exist. The receipt that has been considered for assessment in the hands of the assessee is a refund of the hire charges paid by the assessee when it was executing the sub-contract. The refund will certainly be assessed as the income of the assessee-firm, if the firm had continued to exist at the time when the refund arose and such an assessment will have to be made under section 41 (1). If the business of the assessee is discontinued either by dissolution or otherwise, the firm can be treated as continuing for the purpose of obtaining the refund as well as for assessment by virtue of sections 41 and 189 of the Income-tax Act read with section 47 of the Indian Partnership Act, 1932. Section 47 of the Partnership Act says that on the dissolution of firm, the authority of each partner to bind the firm and the other mutual rights and obligation of the partners continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV." It was held in the above case that the firm is deemed to continue by fiction for the purpose of the assessment. In CIT v. Raja Reddy Mallaram [1964] 51 ITR 285, the Supreme Court was considering the method of assessment of the assessee, an association of persons, after its dissolution of its pre-dissolution income. The Supreme Court held that (at p. 290) : "By virtue of section 44 the personality of the association is continued for the purpose of assessment and Chapter IV applies thereto. What can be assessed is the income of the association received prior to its dissolution and the members of the association would be jointly and severally assessed thereto in their capacity as members of the association. For the purpose of such assessment, the procedure is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The question was whether the amount got by way of refund could be taxed in the hands of the assessee-firm. It was held in that case that the act of receiving the refund itself is a business activity during the accounting year relevant to the assessment year 1952-53 and, therefore, the amount is taxable. But, in that case, the finding that the assessee should be assessed as a firm has not been challenged. The assessee had accepted its status as an unregistered firm and hence the amount in dispute was held to be the income of the assessee-firm and not the individual income of the partners. The other decision referred to on behalf of the Revenue is in Raghunathdas Kakani v. Addl. CIT [1980] 122 ITR 952 (MP). In that case, the brokerage received by the deceased up to the date of his death and by his legal representatives thereafter were directed to be clubbed together and assessed in the hands of the legal representatives so that one assessment could be made in the hands of the legal representatives. It was held therein that the arrears of brokerage received by the legal representatives is not income from the estate of the deceased and, therefore, the income received by the deceased ..... X X X X Extracts X X X X X X X X Extracts X X X X
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