Law:

Section:

Section 256, read with sections 189 and 176(3A), of the Income-tax Act, 1961 - Reference - Question of fact - Assessment year 1971-72 - Whether a question of law arose from Tribunal's order holding that no assessment can be made in the hands of a firm of income received after its dissolution - Held, no Section 176(3A) of the Income-tax Act, 1961 - Discontinued business - Assessment - Assessment year 1971-72 - Whether provisions of section 176(3A) which came into force with effect from 1-4-1976 being substantive in nature, are neither retrospective in effect nor clarificatory in nature - Held, yes Section 189(1) of the Income-tax Act, 1961 - Firm - Dissolved or business discontinued - Assessment year 1971-72 - Whether section 189(1) does not provide for assessment to tax of a firm when any income has arisen after firm's dissolution - Held, yes FACTS The respondent-firm was dissolved on 8-2-1967 and its assets and liabilities were taken over by a company on 1-11-1967. There were certain outstanding bills/claims of the erstwhile firm, which were settled at Rs. 10,14,388. The amounts were received by the receiver of the dissolved firm in two instalments in November 1969 and in December 1971. The receiver disclosed this income in the year 1971-72 but the partners of the firm filed a nil return in pursuance of notice under section 139(2). The ITO assessed the respondent-firm and also made protective assessment on the receiver. The Tribunal concluded that the aforesaid amount could not be assessed in the hands of respondent-firm for the year 1971-72. On an application under section 256(2), the revenue contended that the said amount could be taxed under section 189(1): HELD Under section 189(1) what can be taxed is the income of the firm. In other words, the income when it accrues and arises must belong to the firm which is in existence. It does not provide for assessment to tax of a firm when any income has arisen after the dissolution of the firm. This was the lacuna in the Act which has since been rectified with the insertion of sub-section (3A) to section 176 with effect from 1-4-1976. The amendment was with effect from 1-4-1976 and the provision being substantive…

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