Law: Income Tax Act, 1922

Section: 34(1)(5)

Section 5, read with section 147 of the Income-tax Act, 1961 [Corresponding to section 4(1), read with section 34(1)(5) of the Indian Income-tax Act, 1922] - Income - Accrual of - Assessment year 1947-48 - 'A', partner of assessee-firm, by fraudulent misrepresentation secured its dissolution from 18-9-1946 and got certain consignment of goods at cost price which he later sold for substantial profits - Other partners of firm instituted suit for rendition of accounts ignoring dissolution of firm and treating said sale as if it had been sale by firm - Court made consent order on 22-3-1951 to effect that firm should be deemed to have been dissolved from 12-11-1946 and that a Commissioner should be appointed to take accounts - Commissioner made his award on 24-4-1951 declaring entitlement of partners to certain amounts which out of said transaction were received by partners during accounting year 1952-53 - ITO sought to bring to tax said amount in assessment of firm for assessment year 1947-48 in proceedings under section 34(1)(a) for which notice was served on one partner - Whether upon concession on behalf of assessee, assessment made on firm, though notice was served only on one partner, was valid - Held, yes - Whether profit could not be said to have accrued to firm until claim which was set up by firm to profit arising from said transaction was adjudicated and determined in favour of firm and firm was declared to be entitled to said claim - Held, yes - Whether, therefore, it could not be said that profits accrued to firm in October, 1946 and, hence, were not taxable in hands of firm in assessment year 1947-48 - Held, yes FACTS The assessee was an unregistered firm. It was constituted of three partners, namely, A,B and C in March, 1946. It purchase paints for Rs. 1,79,000, and that was the only business purchase made by the firm. In September, 1946, A, who was to manage the business of the firm, purchased that consignment at cost price allegedly to save the other two partners from losses on account of falling price. He also suggested that the firm might be dissolved after the goods had been purchased by him from the firm. On 18-9-1946, A recorded the terms of…

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