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Commissioner of Income-tax Vs. Sri S.K. Bose - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Ref. No. 62 of 1964
Judge
Reported inAIR1969Cal4,[1970]76ITR291(Cal)
ActsIncome Tax Act, 1922 - Sections 2, 2(2), 23, 23(5), 26, 30, 30(1), 30(2) and 44; ;Income Tax Rules, 1922 - Rule 21
AppellantCommissioner of Income-tax
RespondentSri S.K. Bose
Appellant AdvocateB.L. Paul and ;Dipak Sen, Advs.
Respondent AdvocateD.K. Dey and ;P. Majumdar, Advs.
Cases ReferredSait Nagjee Purshottam & Co. v. Commissioner
Excerpt:
- k.l. roy, j.1. four persons, namely gostodhan chatterjee, krishna chandra chatterjee, prithwis chandra biswas and santosh kumar bose, started a business in co-partnership in the firm name of popular transport service, under a deed of partnership dated the 1st july, 1945 with equal shares in the firm. subsequently the aforesaid four partners agreed to introduce one dhirendra nath banerjee as the fifth partner of the firm, the original four partners reduced their joint holding in the firm to 29/30th part of the business and the new partner was allotted the remaining 1/30th share. the aforesaid five partners carried on the business of the firm till the 21st july, 1952. on that date a deed, described as a deed of transfer, was executed by and between the said prithwis chandra biswas, santosh.....
Judgment:

K.L. Roy, J.

1. Four persons, namely Gostodhan Chatterjee, Krishna Chandra Chatterjee, Prithwis Chandra Biswas and Santosh Kumar Bose, started a business in co-partnership in the firm name of Popular Transport Service, under a deed of partnership dated the 1st July, 1945 with equal shares in the firm. Subsequently the aforesaid four partners agreed to introduce one Dhirendra Nath Banerjee as the fifth partner of the firm, The original four partners reduced their joint holding in the firm to 29/30th part of the business and the new partner was allotted the remaining 1/30th share. The aforesaid five partners carried on the business of the firm till the 21st July, 1952. On that date a deed, described as a deed of transfer, was executed by and between the said Prithwis Chandra Biswas, Santosh Kumar Bose, Gostodhan Chatterjee, Krishna Chandra Chatterjee and Dhirendra Nath Banerjee described therein as parties of the first, second, third, fourth and fifth part respectively and Bhagwan Shaw, Lachmi Narayan Shaw, Munilal Shaw and Sunitendra Mohan Tagore, described therein as parties of the sixth, seventh, eighth and Ninth part respectively. The following are some of the recitals in the aforesaid deed:

Whereas the parties of the First to Fourth parts are desirous of transferring and assigning their 29/30th share or interest in all the assets, goodwill, stock-in-trade, stage carriages and structures of the tenanted land and premises No. 14 Ultadange Road free from encumbrances and liabilities at or for Rs. one lakh forty-five thousand.

And whereas the parties hereto of the sixth, seventh, eighth and ninth parts are willing to purchase the said undivided 29/30th part or share in the business of Popular Transport Service its goodwill, assets, properties, stage carriages fully described in the Schedule free from liabilities and encumbrances at or for Rs. One lakh forty-five thousand provided the party hereto of the Fifth part consent to such transfer and assignment and will agree to admit them as partners to the firm and reconstitute the firm accordingly and whereas the party hereto of the fifth part has agreed to consent to the transfer in favour of parties of the sixth to ninth parts by the parties hereto of the first to fourth parts in the manner hereinafter appearing upon their agreeing to purchase the undivided 1/30th part or share in the business of Popular Transport Service its goodwill, assets, properties, four stage carriages free from liabilities and encumbrances at or for Rs. 5000 which the parties hereto of the sixth to ninth parts have agreed.

2. The operative clause of the deed provided that in consideration of the payment of the said sum of Rs. 1,45,000 the parties of the first to fourth parts granted, transferred, conveyed and assigned and the party of the fifth part confirmed unto the parties of the sixth to ninth parts of all that the undivided 29/30th part of or share in all that business of Popular Transport Service with goodwill, assets, stage carriages, structures on rented land, benefits of road permit and of the tenancy fully described in the schedule and all their right, title and interest therein absolutely and for ever, free from all encumbrances.

3. Subsequently on the same date, namely the 21st July, 1952 another deed described as a deed of sale, was executed by Dhirendra Nath Banerjee as the vendor in favour of the aforesaid Sunitendra Mohan Tagore, Lachmi Narayan Shaw, Manilal Shaw and Bhagwan Shaw described as the purchasers. In the said Deed it was recited as follows : Whereas the parties hereto are the partners of the Popular Transport service and whereas the vendor has 1/30th part or share in the said business while the Purchasers are holders of the remaining 29/30th part of or share in the said business and whereas the vendor has agreed to sell and the purchasers have agreed to purchase his undivided 1/30th part of or share in the said partnership business of Popular Transport Service its assets, stock-in-trade, book-debts, goodwill including the Public Stage Carriages, Nos. WBS-729 WBS-730, WBS-760, and WBS-811 free from all liabilities at or for Rs. 5000. The deed went on to witness that in consideration of the payment of Rs. 5000 the Vendor granted, transferred conveyed, assigned and assured unto the purchasers all that his undivided. 1/30th part or of share in the business of Popular Transport Service its goodwill, book-debts, stock-in-trade, public stage carriages etc. and all other assets absolutely and for ever free from all liabilities and encumbrances.

4. There is no dispute that the firm of Popular Transport Service ceased to carry on any business on and from the 11th November 1953. Long after the firm discontinued its business, the Income-tax Officer found that the income of the firm for the Assessment year 1949-50 had escaped assessment and as he was of the opinion that by the two deeds of transfer executed on the 21st July, 1952, which form a composite part of a single transaction, the firm consisting of five partners was in effect dissolved on that date, he issued notices under Section 34 of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) to all the aforesaid five partners of the firm as representing firm requiring them to submit returns of the total income of the firm. All the ex partners with the exception of Section K. Bose, filed returns showing nil income along with statements denying their liability to be assessed. S. K. Bose took the plea that he never represented the firm. As the returns submitted were on behalf of an 'Association of Persons' and not on behalf of the dissolved firm, the I. T. O. held the returns to be invalid. He served a notice on C. D. Chatterjee, one of the ex partners, under Section 22(4) calling upon him to submit the return of the dissolved firm. This notice was not complied with and the I. T. O. made an assessment under Section 34/23(4) of the Act on M/s. Popular Transport Service (dissolved) C/o, Sri Gostodhan Chatterjee (Partner) in the status of an Unregistered Firm on a total income of Rs. 48,000. The I. T. O. also served separate notices of demand under Section 29 on each of the five ex partners, requiring each of them to pay the tax demanded on the basis of the assessment on the dissolved firm.

5. Five separate appeals were filed by the five ex partners against the order of assessment on the dissolved firm before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner did not consolidate the five appeals and passed one consolidated order thereon. He dealt first with the appeal by G. D. Chatterjee, rejected all the contentions raised by the appellant in that appeal and sustained the assessment order. One of the contentions raised in that appeal was that as under Section 44 the liability for the tax assessed on a dissolved firm was on the partners who were partners at the date of discontinuance of the business of the firm and as in this case the business of the firm was discontinued only in November, 1953 the partners who had retired from the firm in 1952 could not be made liable for the tax. The Appellate Assistant Commissioner held that when all the assets of the firm were transferred, it had to be concluded that the business of the firm was discontinued. Though the four purchasers continued the business in the name of Popular Transport Service, that was a new business. An appeal was taken to the Tribunal against the aforesaid order of the Appellate Assistant Commissioner and the Tribunal in I. T. A. No. 7680 of 1960-61 upheld the decision of the Appellate Assistant Commissioner. The Tribunal was of the opinion that as in the two deeds executed on the 21st July, 1952 there was no provision for taking over the liabilities, the business as a whole was not transferred as a going concern. The Tribunal further held that there was no succession as the purchasers were not responsible for any of the debts or liabilities created by the firm prior to the date of sale. Accordingly the Tribunal held that for all practical purposes the firm of the original partners was dissolved on sale and hence under Section 44 they would be liable for the tax on the pre-dissolution profits of the firm. This order is dated the 19th February, 1962.

6. The remaining appeals, including the appeals preferred by S. K. Bose and P. C. Biswas, were taken up by the Appellate Assistant Commissioner after the decision of the Tribunal in the aforesaid appeal of Gostodhan Chatterjee and by four separate orders the Appellate Assistant Commissioner dismissed the appeals following the aforesaid decision of the Tribunal.

7. Both Santosh Kumar Bose and Pri-thwis Chandra Biswas went up on further appeal to the Tribunal against the orders of the Appellate Assistant Commissioner dismissing their appeals. The Tribunal heard the appeal preferred by Santosh Kumar Bose and for reasons stated in its order allowed the appeal. In the appeal preferred by Prithwis Chan-dra Biswas the Tribunal followed its decision in the appeal by Santosh Kumar Bose and also allowed that appeal.

8. Before the Tribunal a preliminary objection was raised by the departmental Representative as to the maintainability of the appeal. It was contended, inter alia that (i) as an appeal by the firm Popular Transport Service filed by Gostadhan Chatterjee, an ex partner, has already been heard and decided by the Tribunal, another appeal by another partner on be' half of the same firm and for the same assessment year was not maintainable. The latter appeal must be held to be barred by the principles of constructive res judicata:

(ii) that as only one appeal on behalf of the firm by any of its partners was contemplated by Section 30 of the Act, as evidenced by the second proviso thereto, there could be only one appeal on behalf of the firm by any of its partners. As such an appeal has already been heard and disposed of, no further appeals were competent. The preliminary objections were disposed of by the Tribunal by a separate order described as an 'Interlocutory Order'. The Tribunal held that in income-tax proceedings the principle of res judicata had an extremely limited application. Whether an assessee had a right of appeal or not must be decided on a strict interpretation of the provisions of the Act and not on any principles of res judicata. The Tribunal was further of the opinion that as Section 30(1) of the Act conferred a right of appeal to 'any asses-see objecting to the amount of income or denying his liability to be assessed' and as an ex partner of a dissolved firm on whom a notice of demand had been served for recovery of the tax due for a pre-dissolution accounting period was an asses-see within the definition of Section 2(2) of the Act he had a right of appeal under Section 30(1) against such demand. So far as the argument based on the second proviso to Section 30 was concerned the Tribunal was of the opinion that the words 'any such partner' in the aforesaid proviso meant any of such partners and not the partner who was the first to appeal on behalf of the firm. In any event, the Tribunal was of the opinion that the aforesaid proviso was not applicable to the case of a dissolved firm. Accordingly the Tribunal dismissed the preliminary objections raised on behalf of the Department and proceeded to hear the appeal on the merits.

9. The Tribunal's decision on the merits has been printed in the Paper Book as its appellate order. On a consideration of the provisions of Section 44 of the Act, as applicable to the year of assessment under reference, the Tribunal was of the opinion that every person who was a partner of the firm at the lime of its discontinuance would be jointly and severally liable to assessment and for the amount of tax payable. The Tribunal, therefore mooted two questions to be considered and answered, namely: (1) whether the business of the firm, M/s. Popular Transport Service, was discontinued on 21st July 1952? (2) was the appellant, as an ex partner of the firm liable to assessment for the year 1949-50 and for the amount of tax?

10. After considering the terms of the two aforesaid deeds executed on 21st July, 1952 the Tribunal held that there was no discontinuance in the business of the firm on the 21st July, 1952 and what happened on that date was a mere change in the constitution of the firm. The Tribunal was unable to accept the contention of the Department that on that date the five original partners transferred only the assets of the business to the four new incoming partners. Such a contention was, in the opinion of the Tribunal, clearly ruled out by the express provisions of the said two deeds. The Tribunal held that under the first of the said two deeds four of the partners of the firm retired and the firm was reconstituted with Dhirendra Nath Banerjee and the four purchasers as the Partners. Later, in the course of the same day, Dhirendra Nath Banerjee sold away undivided l/30th share in the business to the four new partners and thereafter there was again a re-constitution of the firm, which was thereafter constituted of four partners, namely, the purchasers. As there was no discontinuance or cesser of the business of the firm, it must follow that the firm continued to do its business till the 11th November, 1953, when the business of the firm was discontinued. Accordingly, the Tribunal answered the two questions mooted by itself in the following manner viz., (i) that there was no discontinuance of the business on the 21st July, 1952; and (ii) that the business was effectively discontinued on the 11th November 1953 when neither the appellant nor any of the other original partners were partners of the firm and as such the appellant could not be made liable for the amount of tax of the firm for the assessment year 1949-50. The Tribunal accordingly allowed the appeal. Following its own decision in this appeal, the Tribunal also allowed the appeal of another ex partner Prithwis Chandra Biswas.

11. The Commissioner of Income-tax applied under Section 66(1) of the Act for reference of certain questions of law arising out of the aforesaid order of the Tribunal. At the hearing of the application the respondent suggested that certain additional questions should also be referred and the Tribunal accepted that suggestion and referred to this Court the following questions of law:

QUESTIONS SUGGESTED BY THE APPLICANT COMMISSIONER OF INCOME TAX

(1) Whether on the facts and in the circumstances of the case, the appeal filed by the respondent lies under the second proviso to Section 30 of the Indian Income-tax Act, 1922?

(2) Whether In the facts and circumstances of the case, the said appeal is barred by the principles of res judicata and estoppel?

(3) Whether In the facts and circumstances of the case and on a consideration of the relevant deeds, the Tribunal was justified in law in holding that there was no discontinuance or cesser of the business of the firm on 21st July, 1952?

(4) If the answer to question No. 3 is in the negative, was the respondent, Sri San-tosh Kumar Bose, liable for the amount of tax assessed on the firm for the yeas 1949-50?

QUESTIONS SUGGESTED BY THE RESPONDENT:

(5) Whether the assessment on the firm after its dissolution was in accordance with law?

It would be convenient to deal with and dispose of questions Nos. 1 and 2 before dealing with the main question which is question No. 3 in this reference.

12. Mr. B. L. Pal, the learned counsel for the Commissioner, submitted that under Section 44 of the Act, as it stood on the relevant date, the assessment of the income of a firm, which has since been dissolved, must be made on the firm as if no such dissolution has taken place. As the assessment was on the firm, the firm was the assessee, though under the provisions of the aforesaid section the tax might be realised from any of the ex partners. As such an appeal against the assessment could only be filed by the firm and once such an appeal has been filed on behalf of the firm by one of the partners, there was no scope for the filing of further appeals by the other partners also on behalf of the firm. There could not be several appeals in respect of the same assessment. Because the Act allowed any of the partners to file the appeal on behalf of the firm, it did not make the partners the assessees. Mr. Pal referred to the provisions of Section 2(2), Section 30(1) and the 2nd proviso thereto, and Section 44 of the Act as applicable to the year of assessment concerned in this reference and which are as follows:

Section 2(2)--Assessee means a person by whom income-tax is payable

Section 30(1)--Any assessee objecting to the amount of income assessed under Section 23 or Section 27, or the amount of loss computed under Section 24 or the amount of tax determined under Section 23 or Section 27 or denying his liability to be assessed under this Act......may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order.

Provided further that where the partners of the firm are individually assessable on their shares in total income of the firm, any such partner may appeal to the Appellate Assistant Commissioner against any order of the Income-tax Officer determining the amount of the total income or the loss of the firm or the apportionment thereof between the several partners, but in respect of matters which are determined by such order may not appeal against the assessment of his own total income.

Section 44--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 VI 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.

13. Mr. Pal also referred us to Form B in Rule 21 of the Income-tax Rules, 1922, which is the form prescribed for an appeal against an order of assessment, In the foot-note to the said form it is provided that the appeal and the verification shall be signed, in the case of a firm, by a partner. Mr. Pal, therefore, argued that both under the aforesaid proviso to Section 30 and under the prescribed form for filing an appeal, the appellant is the firm, though the form of the appeal and verification is to be signed by a partner. There could, therefore, be only one appeal and once such an appeal has been filed there was no scope for the filing of any further appeals. We are unable to accept the above submission of Mr. Pal. The second proviso to Section 30 has no application to the facts of this case as the assessment in this case has been made on the firm as an Unregistered Firm. The aforesaid proviso applies to a case where the partners of a firm are independently assessable on their own shares in the total income of the firm under the provision of Section 23(5) of the Act. It is only in the case of an assessment of a registered firm that the sum payable by the firm itself is not determined, but the total income of each partner, including therein his share income from the firm is assessed and the sum payable by him on the basis of such assessment is determined. The aforesaid proviso could, therefore, apply only in the case of the assessment of a registered firm or of a firm treated as such and not to the assessment of an unregistered firm. Further, under the provisions of Section 44, even if the firm is to be assessed after its dissolution, the liability to pay the tax is on the partners who were partners at the time of the discontinuance of the business of the firm. In this case the I. T. Officer has served notices of demand for the entire amount of tax on each of the partners of the dissolved firm. If the assessment has been properly made under Section 44, then these partners are jointly and severally liable to pay the tax and accordingly each of them must be held to be an asses-see within the meaning of Section 2(2) of thg Act, This view is supported by the decision of the Rajasthan High Court in Dayaram v. Additional Collector Jaipur 0065/1965 which was brought to our notice by Mr, D, K. Dey, the learned counsel for the assessee. In that case the Rajasthan High Court held that since Section 44 enacted a fiction by which a dissolved firm was to be taken to be a firm in existence for the purposes of assessment of tax and the term 'assessment' included even processes for recovery of the tax, a partner of a dissolved firm would have to be regarded as an assessee within the meaning of Section 2(2) and would be a person by whom the tax is payable under the Act. Section 30(1) entitles any assessee, either objecting to the amount of income assessed or denying his liability to be assessed under the Act, to appeal to the Appellate Assistant Commissioner against the assessment, As in this case the ex partners were denying their liability either to be assessed or to pay the tax demanded, each of them must be held to be entitled to appeal against the assessment and the demand. In the prescribed form of appeal against an assessment, already referred to, the intending appellant has to annex the notice of demand with the memorandum of appeal. It would thus appear that a right of appeal arises only on the service of the notice of demand. Section 30(2) provides for a period of limitation for filing such appeals viz. a period of thirty days from the date of receipt of the notice of demand. As in these cases, the notices of demand had been served for the full amount of the tax on each of the ex partners, it must be held that each of them had a right of appeal against such demand.

14. If each of the ex partners had a separate right of appeal against the order of assessment and the demand made thereon, there is no question of any principle of res judicata and estoppel, constructive or otherwise, barring the subsequent appeals filed by the other partners. In Narhari v. Shankar : [1950]1SCR754 it was held that where two separate appeals are filed by two sets of defendants from one and the same decree and the Appellate Court hears and allows both the appeals and two decrees are drawn up in accordance with the judgment of the Appellate Court, the question of res judicata does not arise at all. It is to be noticed in this case that though fiva appeals were filed before the Appellate Assistant Commissioner against the order of assessment, the Appellate Assistant Commissioner did not consolidate the appeals, but passed five separate orders dismissing the said appeals. In the circumstances, we are of the opinion that the Tribunal was right in holding that separate appeals filed by the ex partners were maintainable and that such appeals were not barred by the principles of res judicata and estoppel. Accordingly question No. 2 must be answered in the negative and against the Department.

15. We now come to the main contention in this reference. Section 44, as it stood before its amendment in 1958, has been considered by the Supreme Court on several occasions. In C. A. Abraham v. Income-tax Officer, Kottayam : [1961]41ITR425(SC) the Supreme Court observed as follows:

'Section 44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences: (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of the income, profits and gains of the firm, to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter IV, so far as may be, apply to such assessment ............ 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'.

16. The aforesaid observations of the Supreme Court were approved of and applied in a later case reported in Commissioner of Income-tax, Madras v. S. V. Angidi Chettiar : [1962]44ITR739(SC) . The section again came to be considered by the Supreme Court in Shivaram Poddar v. Income-tax Officer Central Circle II, Calcutta : [1964]51ITR823(SC) . In that case the following observation was made:

'Section 44 operates in two classes of cases; where there is discontinuance of business, profession or vocation carried on by a firm or association, and where there is dissolution of an association. It follows that mere dissolution of a firm without discontinuance of the business will not attract the application of Section 44 of the Act. It is only where there is discontinuance of business, whether as a result of dissolution or other cause, that the liability to assessment in respect of the income of the firm under Section 44 arises ......

'Discontinuance of business has the same connotation in Section 44 as it has in Section 25 of the Act; it does not cover mere change in ownership or in the constitution of the unit of assessment. Section 44 is, therefore, attracted only when the business of a firm is discontinued, that is, when there is complete cessation of the business and not when there is a change in the ownership of the firm, or in its constitution, because by reconstitution of the firm, no change is brought in the personality of the firm, and succession to the business and not discontinuance of the business results'.

17. In view of the aforesaid observations of the Supreme Court Mr. Pal tried to convince us that on the 21st July, 1952 the business of the firm as then constituted was discontinued and a fresh business was started by the reconstituted firm. Mr. Pal referred to both the recitals and the operative part of the two deeds and submitted that under the deeds what were transferred were the vendor's undivided shares in the assets, goodwill, etc. of the firm and as expressly the liabilities were not transferred, there was no transfer of the business as a whole. Mr. Pal is undoubtedly right when he contends that the vendors, under both the aforesaid deeds, purported to transfer the assets of the business free from encumbrances and liabilities. Mr. Pal submitted that where only assets are transferred and not the liabilities, there could not be a transfer of the business as a going concern. Mr. Pal wanted to support his contention by reference to an observation of the Supreme Court in the case of Commissioner of Income-tax, West Bengal v. A. W. Figgis and Co. : [1953]24ITR405(SC) . In that case the question was whether, when some of the partners of a firm retired and new partners were taken in there was a mere change in the constitution of the firm or a dissolution of the firm. In this connection a reference was made to the partnership deed in that case and the Supreme Court observed as follows:

'This document is silent on the question as to what happened to the assets and liabilities of the firm that was constituted under the Deed of 1939.'

18. We cannot see what assistance Mr. Pal can derive from the aforesaid observation. The Supreme Court said that there was nothing in the Deed to show what happened to either the assets or liabilities of the firm. The Supreme Court did not say that if the document only dealt with the assets and not with the liabilities then there would be no transfer of the business. The Supreme Court had no occasion to consider the contentions raised by Mr. Pal before us. Mr. Pal also referred us to a decision of the King's Bench Division in Wilson and Barlow v. Chibbett, (1929) 14 Tax Cas 407 where Rowlatt J. had to consider whether the assessee had succeeded to a business previously carried on by a company. The Commissioners held that the assessee had not so succeeded. Rowlatt J. thought that he could not possibly interfere with the decision of the Commissioners. In that case a firm purchased the stock-in-trade and the business premises of a company and continued the work which was going on with the employees of the old company. Nothing was said in the deed of transfer, about book-debts or liability to the creditors or anything of that kind and the assessee never made any attempt to produce any material before the Commissioners to say that the business as a going concern has been transferred. It was in this connection that the Learned Judge observed that he could not possibly interfere with the decision of the Commissioners. We do not think that this decision can be of any assistance to Mr. Pal in his contention.

19. Mr. Pal next cited the case of Sait Nagjee Purshottam & Co. v. Commissioner, of Income-tax, Madras : [1964]51ITR849(SC) . In that case a firm consisting of six partners carried on business in banking, piece-goods, yarn and later on started the manufacture and sale of soap . Three of the partners died and subsequently in 1939 two fresh agreements of partnership were executed, the first of which recited that the manufacture and sale of soaps was being carried on by the three partners along with a fourth partner and the second deed recited that the three partners continued to carry on the business in banking, piece-goods and yarn. Later by an instrument executed in 1943, after the retirement of certain partners, new partners were introduced and the parties agree to carry on as one single partnership the business carried on by the two partnership firms constituted under the Deeds of 1939. By a subsequent agreement made in 1948 the business was taken over by a company. The firm claimed relief under Section 23 (4) on the basis of succession. It was in this connection that the Supreme Court observed that the two instruments executed in 1939 clearly showed that the business that was carried on by the firm originally till that date was discontinued and its business was split up into two and carried on by two independent firms then brought into existence. When this happens it is impossible to say that the preexisting business was continued. We fail to see what relevance this case has with the facts of the case or the arguments advanced before us.

20. We are of the opinion that there is no authority for the broad proposition propounded by Mr. Pal that where only the assets of the business are transferred and not the liabilities there is no transfer of the business as a whole. Whether there has been a discontinuance of the business or whether the business as a whole has been transferred must be gathered from the two deeds of transfer both executed on the 25th July, 1952, the recitals and the operative portions whereof have been quoted above. We agree with the Tribunal that the recitals in the first of the aforesaid deeds envisage transfer of the interest of four of the five original partners in the firm to the four purchasers on condition that the purchasers are taken in as partners in place of the four vendor partners. The remaining partner Dhirendra Nath Banerjee, igreed to the aforesaid agreement and was in fact a confirming party to the deed. The second deed recites that the parties thereto, namely, the four purchasers and Dhirendra Nath Banerjee are the partners of Popular Transport Service and that the fifth partner Dhirendra Nath Banerjee has agreed to sell his share in the firm to the four remaining partners. The Tribunal was therefore right in holding that under the first deed there was only a reconstitution of the firm by the retirement of four partners and the introduction of four new partners in their place and by the second deed there was a further reconstruction by the fifth partner retiring from the firm and the remaining partners continuing the business of the firm. In conformity with the principles laid down in the case of Shivaram Poddar : [1964]51ITR823(SC) (supra) it must be held that by the two aforesaid deeds the firm, Popular Transport Service, was merely reconstituted, there being mere changes in the ownership of or in the constitution of the firm. The Tribunal was therefore correct in holding that there was no discontinuance of the business of the firm on the 25th July, 1952. As there is no dispute that the business of the firm was ultimately discontinued on the 11th November, 1953, it must be held that Section 44 of the Act was not attracted and the partners of the firm as on the 21st July, 1952 were neither liable to be assessed, nor liable for the tax of the firm either jointly or severally.

21. In the above view Q. No. 3, referred to this Court must be answered in the affirmative and in favour of the asses-see. In view of our answer to Q. No. 3, Q. No. 4 does not arise for our consideration

22. In view of the pronouncement of the Supreme Court in the cases of : [1961]41ITR425(SC) and Sivaram Poddar's case, : [1964]51ITR823(SC) (supra) it must be held that an assessment on the firm after its dissolution was perfectly valid under! Section 44 of the Act and Q. No. 5 must accordingly be answered in the affirmative, and against the assessee.

23. Our answers to the questions referred, therefore, are as follows:

Q. No. 1--The second proviso to Section 30 of the Indian Income-tax Act, 1922 has no application to the appeal filed by the respondent and as such the appeal filed by the respondent was maintainable.

Q. No. 2 -- The Respondent's appeal is not barred either by the principles of res judicata or estoppel.

Q. No. 3 is answered in the affirmative that is to say that there was no discontinuance or cesser of the business of the firm on July 21, 1952.

Q. No. 4 -- In view of our answer to Q. No. 3, Q. No. 4 does not arise for consideration.

Q. No. 5 must be answered in the affirmative and against the assessee.

In the circumstances of this case we make no order for costs of this reference.

B.N. Banerjee, J.

24. I agree.


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