Delhi High Court
Commissioner Of Income-Tax vs Bhagat And Co. on 9 August, 1989
Equivalent citations: 1990 182 ITR 212 Delhi
Author: Kirpal
Bench: B Kirpal, C Chaudhary
JUDGMENT
Kirpal, J.
1. The petitioner wants a direction to be issued to the Tribunal to state the case and refer the following questions of law to this court :
" (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in dismissing the Department's appeal against the Appellate Assistant Commissioner's order canceling the direct assessment made on the firm under section 143(3) of the Income-tax Act bringing to tax the sum of Rs. 10,13,388 in the hands of the firm ?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the sum of Rs. 10,14,388 is not taxable as income either under section 28(1) or under section 41(1) or under section 189 or even under section 176(3A) merely because section 176(3A) was added to the statute book with effect from April 1, 1976 ? "
2. The assessment year in question is 1971-72. The respondent was a partnership firm which was formed on November 26, 1963, but was dissolved on February 8, 1967. On November 1, 1967, the assets and liabilities of the firm were taken over by a private limited company.
3. There were certain outstanding bills/claims of the erstwhile firm which, then settled at a sum of Rs. 10,14,388, were received by the receiver of the dissolved firm. The amounts were received in two Installments : (1) in November, 1969, and (2) in December, 1971.
4. The receiver disclosed this income for the year 1971-72 but the partner of the firm filed a nil return. These returns were filed pursuant to notices issued by the Income-tax Officer under section 139(2) of the Act.
5. The Income-tax Officer assessed the respondents and also made a protective assessment on the receiver.
6. An appeal was filed to the Appellate Assistant Commissioner and, thereafter, the matter came up before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal finally disposed of the question of assessment of both the receiver as well as the respondent. Vide order dated January 25, 1979, the Tribunal came to the conclusion that the aforesaid amount of Rs. 10,14,388 could not be assessed in the hands of the respondent firm for the year 1971-72. Aggrieved by this, the petitioner filed an application under section 256(1) which was dismissed and then the present application has been filed.
7. It is contended by learned counsel for the petitioner that the said amount can be taxed in view of the provisions of section 189(1) of the Act. Section 189(1) reads as under :
"Where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Income-tax Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be, to such assessment. "
8. It is clear from a bare reading of the provision that what can be taxed is the income of the firm. In other words, the income, when it accrues and arises, must belong to the firm which is in existence. Section 189(1) only provides that if, at the time of assessment, the firm has been dissolved, then, notwithstanding the said dissolution, the assessment can be made as if the firm had not been dissolved. The fiction has limited application and it is only meant for completing the assessment. There is no decision brought to our notice, and there can be none which provides for an assessment to tax of a firm where any income has arisen after the dissolution of the firm.
9. There was this lacuna in the Act which has since been rectified with the insertion of sub-section (3A) in section 176 of the Act. It is submitted that section 176(3A) should be given retrospective effect or should be regarded as clarificatory. The amendment is with effect from April 1, 1976, and the provision being substantive in character, the question of its being given retrospective effect cannot arise. The said provision, namely, section 176(3A), cannot also be said to be clarificatory in nature because it is a substantive provision which has been brought in with a view to plug a loophole which existed in the Act. The fact that income had arisen after the dissolution of the firm is not denied. This being so and as there was in that year no provision which provided that the firm could be assessed in respect of profits arising after its dissolution, the answer to the aforesaid questions is self-evident and, therefore, no question need be called for. The petition is dismissed. There will be no order as to costs.
10. Petition dismissed.
