Law: Income Tax Act, 1961

Section: 144

Income-tax----Income---Firm---Accounting---Dissolution of firm with effect from 31-3-1974---Commission received after dissolution---Finding by Tribunal that firm followed cash system of accounting---Commission not assessable in the hands of firm in assessment year 1974-75. The assessee was a firm of four partners which carried on business in purchase and sale of electrical goods. It had also acted as a distributing agent for electrical manufacturers and received commission. The partners agreed to dissolve the firm by a deed of dissolution with effect from March 31, 1974, by mutual consent. The accounts of the partnership were to be made up on March 31, 1974, and the profits or losses were divided in accordance with the provisions of the partnership deed, dated April 1, 1962. Public notice of the dissolution of the partnership firm was also given. An amount of Rs.1,52,807 was received by the assessee-firm subsequent to the dissolution. The assessee claimed that the amount should not be .included to the assessment for 1974-75 and that no assessment could also be made for 1975-76 as the firm ceased to function with effect from March 31, 1974 The Income-tax Officer. however, held that the assessee had been following the mercantile system of accounting and the amount was assessable in the assessment year 1974-75. The Appellate Assistant Commissioner was of the view that the assessee was following the method of accounting on receipt basis for commission and due basis for disbursement since its inception, and held that the commission which was received after the assessment year under consideration could not be taxed in the assessment year 1974-75. The Tribunal relied upon two instances in order to support the view taken by the Appellate Assistant Commissioner. According to the Tribunal, the assessee was not showing the commission receipts in the balance-sheet during the assessment year under consideration. Therefore, the assessee was not following the mercantile system of accounting. In a statement filed before the Tribunal it was shown that the assessee was doing major business with a concern, B, and the commission received from B was shown on receipt basis.…

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