Law:

Section:

Section 189, read with section 41(1), of the Income-tax Act, 1961 - Firm - Dissolution of - Assessment after assessment year 1974-75 - Assessee-firm took up task of completion of a contract taken up by another firm which had been dissolved - Hire charges on a compressor taken from Government were allowed as deduction in assessment year 1972-73 - Assessee-firm dissolved on April 1 1972 - Government subsequently decided to sell compressor to principal contractor and allowed adjustment of hire charges recovered - Whether amount refunded would form an asset in hands of firm which would have to be distributed among its partners and for this purpose firm would continue under section 47 of the Indian Partnership Act and would have to be assessed under section 189 read with section 41(1) - Held, yes FACTS The assessee was a firm constituted by a deed of partnership dated 10-8-1971. This firm took up the work of completion of a tunnel from MP another partnership firm. The said firm took the original contract for the tunnel work and upon its dissolution in September 1971, it authorized the partner 'N' to complete the unfinished portion of work. He gave a sub-contract to the assessee - firm to complete the tunnel work. At the time when MP executed the work, it had taken on hire from the Government a compressor. The compressor was contributed to be used by the assessee-firm. The privity of the main contract was between 'N' and the Government. Payment for the works done by the assessee was used to be obtained by 'N' who thereafter passed on the proceeds to the assessee-firm after deducting his share of the payments. For the period, the compressor was used by the assessee-firm, a sum of Rs. 36,000 was deducted by the Government from the amount payable to the contractor towards hire charges of the compressor during the previous year relevant to the assessment year 1972-73. The assessee-firm claimed the hire charges as an item of expenditure from its income for its income-tax assessment for 1972-73 which was allowed as deduction. The work was completed and the assessee-firm was dissolved on 1-4-1972. When the said compressor was in use for the contract work taken by MP, the…

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