V.S. Desai, J.
1. The question referred to us on this reference under section 66(1) of the Indian Income-tax Act relates to the order of assessment on the assessee for the assessment year 1946-47. The assessee in the case is described as the joint committee of action B group merchants, Bombay. this association came to be formed some time on or about 1st June, 1945, in the following circumstances : On the introduction of cloth control in the year 1945, the cloth dealers in Bombay were divided into four groups, viz., (1) group A comprised of wholesalers who obtained their quotas for selling cloth only in bales, (2) group B who were semi-wholesalers who received bales from A group dealers and sold cloth by whole takes to the retailers, (3) group C was comprised of the retailers, and (4) group D of commission agents for sales outside Bombay. There were three associations of the clothe dealers, viz., (1) The Bombay Piecegoods Merchants Association; (2) The Bombay Country Fancy & Grey Piecegoods Merchants Association; and (3) The Hindusthan Native Merchants Association ; and all the cloth dealers comprised in the four groups mentioned above belonged to one or the other of these three associations. The classification of the cloth dealers in the groups A, B and c was normally intended for the cloth to proceed from the wholesalers to the semi-wholesalers and then from the semi-wholesalers to the retailers, i.e., from A group dealers to the B group dealers and then from B group dealers to the C group dealers. It appears, however, that direct dealings took place between A and C dealers. It appears, however, that direct dealings took place between A and C groups in certain cases without the goods passing through the B group. The B group dealers, therefore, whose interest were prejudiced by these direct dealings between A and C groups, desired to have their interests protected. They sought the advice of the Government and were told that it was necessary in the interest of each of the three groups that they should form their own separate associations. On the 7th May, 1945, the small quota holders and semi-wholesalers held a meeting and resolved that a representation should be made to the Government that the goods kept for Government approved shops or for C group dealers for Bombay zone should also pass through the semi-wholesalers of Bombay. They sent letters to the various institutions and the authorities intimating to them their grievances and to their demands. On receipt of these intimations, the three associations, namely, the Bombay Piece goods Merchants Association, the Bombay Country & Fancy Grey Piecegoods Merchants Association and the Hindusthan Native Merchants Association, considered the grievances of the B group dealers and decided to appoint sub-committees to protect the interests of the small quota holders and B group dealers. Thus each of these three associations appointed sub-committee consisting of seven of its members. The B group dealers thereafter held a meeting on 30th May, 1945, at which they appointed three of their members to be on the joint committee to be formed of the sub-committees appointed by the three associations. Thereafter, on the 1st June. 1945, the members of the sub-committees appointed by the three associations as representing the three associations, and also took on the said joint committee of action the three members of the sub-committee appointed by the three associations as representing the three associations, formed the joint committee of action of the three associations, and also took on the said joint committee of action the three members of the sub-committee appointed by the B group dealers. The joint committee of action appointed three of its members as their secretaries, and authorised one of them, namely, Wadilal Chaturbhuj, to act as the president of the joint committee of action until the appointment of the president was made in due course and further resolved that the expenses incurred by the joint committee of action should be borne by the three associations equally. On the 7th June, 1945, the B group dealers at a general meeting decided that they should combine themselves into one group and take delivery of the goods in one group and issue supplies in accordance with the permits issued by the office of the Provincial Textile Controller and the group as well as B dealers individuals should keep a specific account of every piece of cloth received by them. They also decided that a request should be made to the Provincial Textile Controller to give them a reasonable margin to maintain their existence and further resolved that the Provincial Textile Controller should be requested that, until such time as the licences were issued to all the B group dealers, quota permits may be given in the name of the president of the joint committee of action, and the president should hold the B group dealers' profit on such goods in a pool in trust for the B group dealers, and distribute the same amongst such of them to whom the licences may be issued on applications received by the Provincial Textile Controller on or before the 31st March, 1945. Thereafter, the joint committee of action of B group merchants, Bombay, which was thus formed (which will hereafter be referred to as the assessee), obtained from the Provincial Textile Controller, a quota of 7,421 bales of which it took deliveries from about 27th June, 1945, and distributed the said goods amongst all the B group dealers at actual cost without loading any profit. The price of these bales was produced by the B group dealers and it was paid to the A group dealers through the assessee, who recorded both the receipts and payments in its own books. The B group dealers themselves who got the bales in this distribution recorded as the purchases in their own books and also the profits which they later on made on selling them to the C group dealers. The total number of B group dealers was 261; 69 out of these 261 made a profit of less than Rs. 1,500, on the allotments which they had obtained in the distribution of the 7,421 bales through the assessee. Some time thereafter, the assessee obtained a further quota of 1,844 bales from the Government. But when this quota was allotted, Government directed that it should be distributed directly to the C group dealers without distributing them to the B group dealers. The assessee accordingly distributed these goods directly amongst the C group dealers and also received payments in respect thereof from the C group dealers directly. In this transaction of 1,844 bales, there was a profit of Rs. 48,537. These were the only two transactions which were carried out by the assessee. They were completed before the 31st March, 1946. It appears that, thereafter, the joint committee of action, i.e., the assessee association, ceased to function, since the B group dealers formed a regular association of their own. Now, so far as the profit of Rs. 48,537 was concerned the assessee appropriated and distributed it as follows :
Rs. 1,398 Lost on failure of the Exchange Bank.
Rs. 35,285 To the 69 B group dealers who had made a profit of
less than Rs. 1,500 as aforesaid.
Rs. 7,500 To charity.
2. These items totalled Rs. 44,183, leaving a balance of Rs. 4,354 as cash in hand with the assessee. After the association of the B group dealers was formed, it took over the cash on hand with the assessee, and also ratified the appropriation and distribution of profits made by the assessee, and the assessee ceased to function as an association.
3. On the 24th January, 1955, the Income-tax Officer issued a notice under section 34 of the Indian Income-tax Act, on Wadilal Chaturbhuj as ex-president of the association described as 'the Joint Committee of Action, B Group Merchants, of M. J. C. Market, in front of Market, Bombay (present address c/o Mr. Wadilal Chaturbhuj, Krishna Chowk, M. J. C. Market, Bombay). ' In the assessment proceedings, which were initiated on the said notice, the Income-tax Officer assessed the assessee on a total income of Rs. 1,65,250. This assessment was reduced to Rs. 49,786 by the Appellate Assistant Commissioner. In the appeal to the Tribunal, the decision and order of the Appellate Assistant Commissioner was confirmed. In the appeal before the Tribunal, the assessee's contentions were, firstly, that the assessment was bad in law, as the assessee was incorrectly described; secondly, the profits, if any, did not belong to the assessee but to the three associations which had formed the joint committee of action, and for which and on whose behalf it was functioning, and was not a separate assessable entity apart from them; thirdly, the assessee organization was brought into existence for a non-trading purpose, which was only to help the Government in the scheme of distribution. It was not functioning for carrying on any business or for earning profits, and the profit which was left on its hands was the mere result of a Government order and not profit from business, and was, therefore, not assessable either because it was in the nature of a windfall or because it was not the result of a trading activity in the strict sense of the term. All these contentions were negatived by the Tribunal. Thereafter, at the instance of the assessee, the following question was drawn up by the Tribunal and referred to this court under section 66(1) of the Act :
'Whether there are materials for the Tribunal to hold that the sum of Rs. 49,786 is assessable in the hands of the assessee under section 10, no part of which is exempt under section 4(3)(vii) ?'
4. Mr. Kolah, learned counsel appearing for the assessee, has raised two main contentions before us on this reference. His first contention is that the present assessment which has been initiated and made on the association after its dissolution is invalid and bad in law. His second contention is that, even assuming that assessment could be made on the assessee, the association had not carried on any business and had no business income which was assessable to tax. In addition to these main contentions, his further argument was that even if it were held that the assessee had carried on a business, such business was carried on by it not for itself, but for and on behalf of the B group dealers as their trustees or agents, and the income which it has received is the income held by it in the capacity of a trustee for the B group dealers, and, consequently, such income can be brought to tax only under the provisions and in the manner laid down in section 41 of the Indian Income-tax Act. Since the present assessment has not been made in the manner provided by section 41, it cannot be allowed to stand.
5. Now, with regard to the first contention raised by Mr. Kolah, Mr. Joshi, learned counsel for the revenue, has raised an objection in the nature of a preliminary objection that the contention cannot be allowed to be raised since it has not been raised before the Tribunal and does not arise out of its order. Mr. Joshi points out that the only ground urged before the Tribunal, so far as the invalidity of the proceedings initiated under section 34 is concerned, was that the notice was issued to an entity which did not exist as described therein. The basis of the contention was that the association described in the said notice was 'the Joint Committee of Action, B group Merchants, of M. J. C. Market, in front of Market, Bombay,' while the assessee was not the joint committee of action of B group merchants, but of the three other distinctly different associations. Mr. Joshi, therefore, has urged that the present contention sought to be raised by Mr. Kolah that the assessment is invalid since it has been made on the association after it has been dissolved is a new contention which has been sought to be urged for the first time in this reference. According to him, even though the contention may be one of law, the question of law which is not raised before the Tribunal nor considered by it will not be a question of law arising out of its order as held by the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. In our opinion, the preliminary objection raised by Mr. Joshi cannot be sustained. It is true that a new question of law not raised before the Tribunal nor considered by it will not be a question arising out of its order, so as to be capable being agitated on a reference under section 66(1). But the contention which Mr. Kolah is raising before us is, in our opinion, not a new question of law, but an additional legal argument available to him in support of the point which he had urged before the Tribunal and had been considered by the Tribunal, namely, that the assessment made on the assessee is not valid in law. Moreover, no new facts are required to be investigated in order to entertain the legal contention which Mr. Kolah wants to raise. It is undisputed on the record that the assessee association had ceased to function and had been dissolved long before the notice under section 34 was issued by the Income-tax Officer.
6. On merits, however, we are of the opinion that the contention raised by Mr. Kolah cannot be accepted. In support of the submission which he has made, Mr. Kolah has relied on the decision of the Calcutta High Court in R. N. Bose v. Manindra Lal Goswami, another of the High Court of Andhra Pradesh in Rajareddy Mallaram v. Commissioner of Income-tax and the third of the Punjab High Court in Sumat Parshad v. Income-tax Officer, A-Ward, Bhatinda. These cases indeed support the view for which he is contending. The Calcutta High Court held in R. N. Bose v. Manindra Lal Goswami that after the dissolution of the firm, whether it be a registered firm or an unregistered firm, an assessment to income-tax of its pre-dissolution income can only be made on the persons who were partners of the firm at the time of its dissolution jointly and severally and cannot be made on the firm. This view has been followed by the Andhra Pradesh High Court in Rajareddy Mallaram v. Commissioner of Income-tax and also by the Punjab High Court in Sumat Parshad v. Income-tax Officer, A-Ward, Bhatinda. However, in C. A. Abraham v. Income-tax Officer, Kottayam, where the Supreme Court was considering the provisions of section 44 of the Indian Income-tax Act, it took the view that the expression 'all the provisions of Chapter IV shall so far as may be apply to such assessment' had not a restricted content, and it stated in terms that all the provisions of Chapter IV shall apply, so far as may be, to assessment of firms which have discontinued their business. After considering the language of section 44 in the context of the other provisions of Chapter IV, it observed :
'In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced 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'.
7. Section 44 is a provision dealing with firms which have discontinued their business and associations which have been dissolved. The case before the Supreme Court was of a firm which had discontinued its business. But the observations will equally apply to an association which is dissolved. In view of the observations of the Supreme Court, to which we have referred, it must be held that an association which is dissolved is, by a fiction, deemed to continue after dissolution for the purpose of assessment under Chapter IV by reason of the provisions of section 44 of the Income-tax Act. Following this decision of the Supreme Court,this court has taken the view in Ramniwas Hanumanbux Somani v. S. Venkataraman, Income-tax Officer, C-III Ward, Bombay that it is open to the Income-tax Officer to issue a notice under section 34 to the firm, though it stood dissolved at the time of the issue of the notice. Mr. Kolah has argued that since the main question before the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam, was whether the expression 'assessment' in section 44 included the liability for imposition of penalty, we should regard the observations which have been referred to relating to the interpretation of section 44 as observations casually made by their Lordships. We are afraid we cannot agree with Mr. Kolah. It is no doubt true that the main question before the Supreme Court was whether the expression 'assessment' included the liability for imposition of penalty. The penalty proceeding, however, in that case were started against the firm after it had discontinued its business, and if assessment proceedings could not be initiated against the firm after its dissolution, The penalty proceedings, however, in that case were started against the firm after it had discontinued its business, and if assessment proceedings could not be initiated against the firm after its dissolution, the penalty proceedings could equally not be initiated even if they were to be regarded as being included within the concept of 'assessment'. The Supreme Court held in that case that the penalty proceedings were included in the expression 'assessment' and, therefore, were validly initiated. We could not take it that the ground of invalidity of the penalty proceedings, even if they were taken to be included in the concept of the expression 'assessment', was not present in the mind of the of the Supreme Court if such a ground of invalidity really existed. In our opinion, therefore, in view of the Supreme Court decision in C. A. Abraham v. Income-tax Officer, Kottayam to which we have referred, we must hold that the proceedings initiated in the present case against the firm were not invalid.
8. Coming now to the second contention urged by Mr. Kolah, his argument is that the assessee association was not a firm for carrying on any business, nor was it carrying on any business, nor was it carrying on any business and earning profits. It was a firm only to help the B group dealers and remove their difficulties until such time as they were able to form themselves into a regular association though which the entire quota allotted to the B group could be properly distributed amongst them. Now, at the time when the assessee association was formed, there was no regular association,of the B group dealers; and, in the absence of such a regular association, the quota which was in fact to be allotted to the B group dealers was not being received fully by them, since there used to be some transactions directly between the A group dealers and C group dealers. The B group dealers were advised by the Government that it would be in their interest if they formed a regular association, because if such an association was formed, the quota meant for the B group dealers could be distributed through such association and properly received by the B group dealers. The formation of a regular association of the B group dealers was likely to take time. It was, therefore, necessary to make such arrangement for the interim period whereby the interests of the B group dealers until a regular association was formed would be properly protected. It was in these circumstances that with the co-operation of the three main associations of the cloth dealers, to one or other of which the B group dealers also belonged, that the assessee association was formed. This association was to receive from the Government the quota meant for B group dealers and to distribute it amongst the B group dealers. The association when it received its first allotment of 7,421 bales, which were meant for distribution amongst B group dealers, distributed it accordingly. The next allotment, however, to the association was accompanied by directions that the distribution should be made directly to the C group dealers. In other words, these bales could not be distributed amongst the B group dealers. The assessee association dealt with the goods received under the second allotment according to the directions which resulted in a profit to the association. Mr. Kolah says that this profit could not be treated as the profit of the association from its business. It was the profit of the B group dealers to be distributed amongst them, just as the quota which was received by the B group dealers was to be distributed amongst them. Neither in the transaction of the distribution of the goods, nor in holding the profit which had accidentally occurred as a result of Government directions, was the association doing any business. In our opinion, it is difficult to accept this contention. The association when it was formed was no doubt formed for the purpose of helping the B group dealers, but it was still an entity which was functioning on its own in the transactions and the dealings which it was carrying on. It had maintained its own account books and letters-heads. When it was allotted the first quota it took delivery of it after paying its price and distributed it amongst B dealers after recovering the price from them though it did not charge them any profit. When the second quota was received it was sold by it, though according to the directions of the Government, to the C group dealers, making profit in this transaction. The transactions could not be anything but transactions in the nature of trading transactions. It may keep the profit amongst others, leaving nothing to itself. The way in which it appropriated or distributed the profit would not in any way affect its having carried on business as a result of which the profit has accrued. Instead of forming this joint committee of action, if the B group dealers had formed a regular association, and the association had carried on dealings which the joint committee of action has carried on and had distributed profits obtained by it by such dealings amongst the various members of the association who had formed the association, it would still have carried on business itself and the profits earned by it would have been assessable as in the hands of an assessable entity. We cannot, therefore, accept Mr. Kolah's submission that the assessee association should be regarded as not having carried on any business or indulged in business and earned profits.
9. The next submission of Mr. Kolah is that the profit, if earned by the association, was profit which was held by it in trust for the B group dealers and so far as the assessment of this profit is concerned, the provisions of section 41 of the Act had to be followed. In our opinion, the provisions of section 41 have, in the first place, no application to the present case at all. That section requires a trustee appointed under a trust declared by a duly executed instrument in writing. There is no such instrument in the present case. Mr. Kolah says that there is a resolution of the general meeting of the B group dealers under which the assessee association is required to hold profit which it makes in a pool in trust for the B group dealers and distribute the same amongst such of them as would be licensed by the Collector. This resolution may no doubt give directions for the distribution of profits, but we do not think that it can be regarded as an instrument in writing creating a trust within the meaning of section 41. The assessee association no doubt did not intend to benefit itself in any way and its intention was only to help B group dealers until a proper association was formed. That, however, would make no difference so far as the taxability of the income which it has earned from the business which it has carried on is concerned. Whether for their own benefit or not, it cannot be denied that the transactions entered into by the assessee were business transactions. It cannot also be denied that profit has accrued to the association as a result of those transactions, although the association has not kept the profit for itself but has distributed it either amongst B group dealers or spent it in charity. In our opinion, therefore, the further contention which has been raised by Mr. Kolah also fails.
10. In the result, our answer to the question which has been referred to us is in the affirmative. The assessee will pay the costs of the department.
Question answered in the affirmative.