JAGDISH SAHAI J. - The Income-tax Appellate Tribunal, Allahabad Bench (hereinafter referred to as the Tribunal), has submitted a statement of case and has referred, in accordance with the directions of this court under section 66(2) of the Income-tax Act, 1922 (hereinafter referred to as the Act), the following question of law for the opinion of this court :
'Whether, in the circumstances, the assessment completed against the firm on February 24, 1955, was a valid assessment or it could have been made only against the partners of the dissolved firm after its dissolution ?'
The assessment year to which this case relates is 1950-51, the previous year being October 17, 1948 to October 10, 1949. Sri Ram Niranjan Satya Narain (hereinafter referred to as the assessee) was assessed in the status of a registered firm which was styled Ram Niranjan Satya Narain. It was carrying on cloth business on commission basis in the name and style of Nand Kishore Jugal Kishore and sarrafa business on a small scale in another branch in the name of Satya Narain Prasad Rameshwar Prasad. The account books of the head office, i.e., Messrs. Ram Niranjan Satya Narain, were not produced before the Income-tax Officer on the plea that they had been stole away. However, in the account books relating to the business of Nand Kishore Jugal Kishore there existed a cash entry of Rs. 25,000 on May 3, 1949, in the account of the head office. The Income-tax Officer rejected the explanation of the assessee with regard to the source of Rs. 25,000 and added that amount to the assessable income of the assessee. The Appellate Assistant Commissioner upheld the assessment and dismissed the appeal filed by the assessee. The assessee then filed the second appeal before the Tribunal and contended there that the add-back of the cash credit of Rs. 25,000 was bad both under the law and in fact. The submission made there was that the assessee-firm was dissolved on October 13, 1951, and that an assessment on a dissolved firm could not be made. Reliance was placed upon Manindra Lal Goswami v. Income-tax Officer.
The Tribunal in its appellate order pointed out that the notices under sections 22(2) and 22(4) of the Act were issued to the assessee in November, 1950, and February, 1951, respectively, and on both those dates the partnership business still in existence and the firm had not been dissolved. The Tribunal distinguished the case of Manindra Lal Goswami v. Income-tax Officer. The Tribunal also observed that, inasmuch as the question of legality of the assessment was not raised before the Appellate Assistant Commissioner, it could not be raised or agitated before the Tribunal. With these findings the Tribunal dismissed the appeal of the assessee.
The assessee moved this court and, under section 66(2) of the Act, the instant reference has been made under the directions of this court :
From the statement of case it is clear that the firm was dissolved on October 13, 1951, and that, long before that date, notice under section 22(2) and 22(4) of the Act had already been issued in November, 1950, and February, 1951, respectively. Mr. Gupta, who has appeared for the assessee, has contended that the case is covered by the decision of this court in Sharma & Co. v. Commissioner of Income-tax. In our judgment that case is clearly distinguishable, not being a case of discontinued business but one of succession. Section 44 of the Act reads :
'Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.'
This provision clearly shows that, even though a partner is liable, the liability does not cease after dissolution. The view that we are taking finds full support from Shivram Poddar v. Income-tax Officer, Central Circle II, Calcutta and Commissioner of Income-tax v. Chheharta Button Factory.
For the reasons mentioned above, our answer to the questions referred to above is that the assessment completed against the firm on February 24, 1955, was a valid assessment. The assessee shall pay to the department a sum of Rs. 200 by way of costs of these proceedings. We fix the fee of the learned counsel for the department at the same figure.