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TMI Blog1985 (7) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the sum of Rs. 44,395 was taxable under section 41 (1) of the Income-tax Act, 1961, in the hands of the applicant firm ? " The assessee, M/s. Banswara Electric Supply Co., is a partnership firm and had been carrying on the business of generation and distribution of electricity since 1947 and was a licensee of the Government of Rajasthan. The assessment year with which we are concerned in this case is 1962-63. In respect of the period up to March 31, 1960, the assessee claimed that sum of Rs. 84,121 was payable by it to the Government as royalty. As no actual payment in respect of this amount was made, the assessee made a provision for this liability by debiting its profit and loss account and by making a contra credit entry to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in favour of the successor firm but in favour of another firm, namely, M/s. Banswara Electric Supply Company. Thereafter, a notice under section 148 of the Act was issued to the assessee and in response thereto, a nil return was filed alleging that the assessee-firm ceased to exist from April 1, 1960, and, therefore, it had no income in the previous year relevant to the assessment year 1962-63. The Income-tax Officer assessed the amount of Rs. 44,395 in the hands of the assessee. The Income-tax Officer held that the alleged dissolution of the assessee-firm was never notified to the Department or the State Government and that the assessee-firm continued to deal in its own name with the different authorities in connection with its various c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-firm. Thereafter, the assessee made an application before the Tribunal under section 256(1) and on this the Tribunal has made this reference to this court for its opinion on the question referred to above. We have heard Mr. Rajesh Balia, learned counsel for the assessee, and Mr. B. R. Arora, learned counsel for the Revenue. The question which requires our answer is, whether the sum of Rs. 44,395 was liable to be taxed in the hands of the assessee under section 41(1) of the Act. Section 41(1) reads as under: " 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit in trading liability by way of remission. Thus, the only question that requires our consideration is, whether the benefit of this remission was obtained by the assessee to attract the provision of section 41(1). Mr. Balia has contended that its liability to pay royalty stood already transferred to the successor-firm and, as such, it was the successor-firm and not the assessee who derived the benefit of this remission. In support of this contention, the counsel has relied upon the following passage appearing in the statement of the case submitted to us by the Tribunal : " The successor-firm took over the assets and liabilities of the assessee including the liability of Rs. 84,121 in respect of the royalty payable to the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this case. No agreement evidencing the transfer of liability of royalty from the assessee-firm to the successor-firm has been brought on record. The assessee-firm at no stage informed the Government that it firm stood dissolved on March 31, 1960, and that its liability to pay royalty stood transferred to the successor-firm. The remission in the amount of royalty was made by the Government in the name of the assessee-firm. In the assessment proceedings of the successor-firm, it was urged before the Commissioner hearing the revision that the remission of royalty by the Government was in favour of the assessee, i.e., M/s. Banswara Electric Supply Co. We, therefore, find no infirmity in the findings of the Tribunal that it was the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Their Lordships of the Supreme Court rather observed (p. 626) " In the present case, if the husband of the assessee had been alive and had received the amount which had been remitted during his lifetime, he would certainly be liable to pay tax under the provisions of section 41(1). But Kanhaiyalal having died and his widow being the 'assessee', she cannot possibly be brought within the section." Moti Lal Sons' case [1975] 101 ITR 177 (All), decided by the Allahabad High Court, was also concerned with the tax liability of the successor firm. It was observed in that case (p. 179): "In the present case, the amounts standing to the credit of Motilal including interest thereon have been received by the sons and the widow, not in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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