Case: Shivram Poddar Vs. Income Tax Officer, Central Circle II, Calcutta &amp; Another

the case of succession to a person (which expression includes a firm) carrying on a business by another person in such capacity. These provisions have to be read with S. 44, for that section provides that in the case of discontinuance of business of firm or of an association or dissolution of an association, liability to assessment is under Ch. IV and all the provisions of Ch. IV, so far as may be, apply to such assessment.8. Discontinuance of business has the same connotation in S. 44 as it has in S. 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, i.e., when there is complete cessation of the business and not when there is 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. Under the ordinary law governing partnerships, modification in the constitution of the firm in the absence of a special agreement to the contrary amounts to dissolution of the firm and reconstitution thereof, a firm at common law being a group of individuals who have agreed to share the profits of a business carried on by all or any of them acting for all, and supersession of the agreement brings about an end of the relation. But the Income-tax Act recognises a firm for purposes of assessment as a unit independent of the partners constituting it: it invests the firm with a personality which survives reconstitution. A firm discontinuing its business may be assessed in the manner provided by S. 25(1) in the year of account in which it discontinues its business: it may also be assessed in the year of assessment. In either case it is the assessment of the income of the firm. Where the firm is dissolved, but the business is not discontinued, there being change in the constitution of the firm, assessment has to be made under S. 26(1) and if there be succession to the business, assessment has to be made under S. 26(2). The provisions relating to assessment on reconstituted or newly constituted firms, and on succession to the business are obligatory. Therefore even when there is change in the ownership of the business carried on by a firm on reconstitution or because of a new constitution, assessment must still be made upon the firm. When there is succession, the successor and the person succeeded have to be assessed each in respect of his actual share. This scheme of assessment furnishes the reason for omitting reference to dissolution of a firm from S. 44 when such dissolution is not accompanied by discontinuance of the business.9. A firm after it has discontinued its business whether it is dissolved or not, will therefore be assessed either under S. 25(1) prematurely, or in the year of assessment, in both cases the procedure of assessment is as under S. 23(3) and (4) supplemented by sub-sec. (5). Section 44 provides an added incident that all persons who were partners at the time of discontinuance are jointly and severally liable to pay the tax payable by the firm. Under S. 23(5) by the second proviso to cl. (a) in the case of a registered firm the firm is liable to pay tax on the share of the income of a partner only in the case of a partner who is non-resident. On the discontinuance of the business of a firm however by S. 44 a joint and several liability of all partners arises to pay tax due by the firm. Except the general provisions relating to premature assessment under S. 25(1) and assessment on succession under S. 26(2) there is, in the Act, no provision which imposes joint and several liability on members of an association of persons, on dissolution or discontinuance of business and that is presumably the reason why S.44 was enacted as it stood prior to its amendment in 1958. Absence of reference to dissolution of a firm (not resulting in discontinuance) in S. 44 was therefore a logical sequal to the provisions relating to assessment of firms contained in Ch. IV, especially Ss. 23(5), 25(1), 26(1) and (2).10. Balmukund Radheshyam was an unregistered firm and by the discontinuance of the business it neither ceased to be liable to pay tax on the income earned by it, nor could a procedure different from the one prescribed under Ch. IV apply for the assessment of the income of that firm.11. We may observe that we have proceeded to decide this case on the footing that the business of the firm was discontinued on dissolution of the firm. It is however necessary once more to observe, as we did in C. A. Abrahams case, (1961) 2 SCR 765 : (AIR 1961 SC 609) that the Income-tax Act provides a complete machinery for assessment of tax, and for relief in respect of improper or erroneous orders made by the Revenue Authorities. It is for the Revenue authorities to ascertain the facts applicable to a particular situation, and to grant appropriate relief in the matter of assessment of tax. Resort to the High Court in exercise of its extra-ordinary jurisdiction conferred or recognised by the Constitution in matters relating to assessment levy and collection of Income-tax may be permitted only when questions of infringement of fundamental rights arise, or where on undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess. In attempting to by pass the provisions of the Income-tax Act by inviting the High Court to decide questions which are primarily within the jurisdiction of the Revenue Authorities, the party approaching the Court has often to ask the Court to make assumptions of facts which remain to be investigated by the Revenue Authorities.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The object of the enactment is clear : it is to authorise assessment of tax on income, profits or gains earned in a business, profession or vocation carried on by a firm or association before discontinuance of the business, profession or vocation, or before dissolution of the association, and to impose joint and several liability upon every person who was at the time of discontinuance a partner of the firm or a member of the association or at the time of dissolution a member of the association.Balmukund Radheshyam was an unregistered firm and by the discontinuance of the business it neither ceased to be liable to pay tax on the income earned by it, nor could a procedure different from the one prescribed under Ch. IV apply for the assessment of the income of that firm.11. We may observe that we have proceeded to decide this case on the footing that the business of the firm was discontinued on dissolution of the firm. It is however necessary once more to observe, as we did in C. A. Abrahams case, (1961) 2 SCR 765   : (AIR 1961 SC 609) that theAct provides a complete machinery for assessment of tax, and for relief in respect of improper or erroneous orders made by the Revenue Authorities. It is for the Revenue authorities to ascertain the facts applicable to a particular situation, and to grant appropriate relief in the matter of assessment of tax. Resort to the High Court in exercise of itsjurisdiction conferred or recognised by the Constitution in matters relating to assessment levy and collection ofmay be permitted only when questions of infringement of fundamental rights arise, or where on undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess. In attempting to by pass the provisions of theAct by inviting the High Court to decide questions which are primarily within the jurisdiction of the Revenue Authorities, the party approaching the Court has often to ask the Court to make assumptions of facts which remain to be investigated by the Revenue Authorities.