LEACH, C.J. - The main question raised in this reference is whether a partner who continues the partnership business after the dissolution of the partnership succeeds to the business within the meaning of Section 26(2) of the Indian Income-tax Act, 1922. On September 16, 1935 the assessee and one Venkatarama Ayyar entered into a partnership for the production and exhibition of a cinema film called 'Pathi Bhakthi'. The partnership continued until the month of May of the following year, when Venkatarama Ayyar retired from the partnership and was paid the amount of the profits which represented his share, namely the sum of Rs. 9,524. Thereafter the film was exhibited by the assessee for his own benefit. For the assessment year 1937-38 the Income-tax authorities assessed Venkatarama Ayyar in respect of this sum of Rs. 9,524 and he paid the tax, but later the income-tax authorities considered that they were wrong in so doing, and to have the question settled, the Commissioner of Income-tax has, under the provisions of Section 66(2) of the Act, referred the following question :-
'Whether the provisions of Section 26(1) or Section 26(2) of the Act are applicable to this case and the petitioner is liable to be assessed on the sum of Rs. 9,524 which represents the ex-partners share of the profits of the film business'.
In his statement of the case the Commissioner has very properly stated that should the Court answer this question against the assessee he would exclude the sum of Rs. 9,524 from the assessment of Venkatarama Ayyar, who, of course, would thereupon be entitled to a refund.
Section 26(2) reads as follows :-
'Where at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year.'
For the assessee it is said that inasmuch as he was a partner in the business of exhibiting this film before he acquired the right to exhibit it for his sole benefit there could be no succession, because as part owner of the business he could not succeed to himself. This argument ignores the fact that a partner is not the partnership. A firm for the purposes of assessment to income-tax is an entity quite distinct from the partners who compose it. In two cases which have come before this Court it has been accepted that where a partner carries on the business of partnership after dissolution he does 'succeed' within the meaning of Section 26(2). These cases are Karuppaswami Moopanar v. Commissioner of Income-tax, Madras, and Commissioner of Income-tax, Madras v. Muthukaruppan Chettiar. For the assessee it has been suggested that the judgments in these cases cannot be regarded as deciding the question because this proposition was not disputed. It is true that the argument which has been addressed to this Court was not addressed to the Court in the two cases mentioned; but the cases cannot be ignored for this reason. Obviously it was not considered to be worthwhile taking the point. If the partnership is an entity distinct from the partners there must be succession in circumstances such as we have here. The Rangoon High Court took the same view in The Commissioner of Income-tax, Burma v. N.N. Firm.
In the course of his arguments Mr. Ramaswami Ayyar has suggested that the decision of this Court in Kesava Rao v. Commissioner of Income-tax, Madras has application here, but this cannot be accepted. There the Court was merely concerned with the question whether there could be succession within the meaning of Section 26(2) in the case of the death of one member of a joint Hindu family. It was held that there could not be. It was not a matter of succession at all. It was a matter of survivorship. The family remained joint, notwithstanding the death of the member. In no sense of the word could it be said that there was sucession or a change in the identity of the assessee.
It has been also argued on behalf of the assessee, that as Venkatarama Ayyar has paid the tax on the Rs. 9,524, there cannot be a fresh assessment by reason of the provisions of Section 44 of the Act. That section says :-
'Where any business, profession or vocation carried on by a firm has been discontinued, every person who was at the time of such discontinuance a member of such firm shall be jointly and severally liable for the amount of the tax payable in respect of the income, profits and gains of the firm.'
This section only Applicantlies when there has been a discontinuance of the business, which is not the case here. The section says that if a business is discontinued the partners shall nevertheless be jointly and severally liable for the profits which had been earned. We are not concerned herie with a case where there had been a discontinuance of the business. We are concerned with a case where the same business has been carried on by one of the partners, and carried on without any break. In such a case the section which is applicable is Section 26(2) and not Section 44.
For the reasons indicated we answer the question referred in the affirmative. The Commissioner is entitled to this costs Rs. 250.
Reference answered in the affirmative.