Law: Income Tax Act, 1922

Section: 26

Section 187, read with section 189, of the Income-tax Act 1961 [Corresponding to Section 26 read with section 44 of the Indian Income-tax Act, 1922] - Firm - Change in constitution of/Succession of one firm by another - Assessment years 1948-49 and 1949-50 - Assessee firm was dissolved on 31-12-1947 when entire business was transferred to other partner 'D' who thereafter carried it on as sole proprietor - Subsequently 'D' closed into a partnership with his brother, it being agreed that partnership would be deemed to have come into existence on 1-1-1948 - ITO assessed assessee - Assessee contended that as firm was dissolved on 31-12-1947 it ceased to exist as unit and no assessment could be made on it - Whether it could not be said that from 1-1-1948 there was mere change in constitution of assessee or that firm was newly constituted - Held, yes - Whether inasmuch as business of assessee had not discontinued upon its dissolution, provision of section 44 of 1922 Act, could not be invoked - Held, yes - Whether even if case was one which fell for consideration under section 26(2) of 1922 Act, assessment order was invalid - Held, yes FACTS The assessee firm was consisting of two members, 'S' and 'C'. Subsequently the partnership was dissolved on 31-12-1947, when the entire business was transferred to 'D', who thereafter carried it on as sole proprietor of the business. Subsequently, he entered into a partnership with his brother, 'S', it being agreed that the partnership would be deemed to have come into existence on 1-1-1948 . The assessee filed a return of its income for the period 3-5-1946, to 20-6-1947, and 21-6-1947 to 31-12-1947 relating to the assessment year 1948-49, and 1949-50 respectively the assessment order being made on 30-1-1954. The ITO assessed the income and apportioned the name between 'S', 'D' and 'C' being held to be the latter's benamidar. On appeal the AAC upheld the order of the ITO on further appeal, the assessee contended that it having been dissolved on 31-12-1947, no assessment order could be made against it thereafter. The Tribunal rejected the assessees contention holding that the business had not been discontinued, that certain changes…

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