Taxability of post-dissolution receipts: dissolved firm cannot be assessed; deeming provisions do not resurrect the firm for tax.

Dissolved firms are not taxable for sums (including dividends) actually received after dissolution even if those receipts relate to pre-dissolution supplies; deeming provisions that treat income as attributable to the firm are limited to income which accrued before dissolution and do not create a fiction that the firm continues to exist for assessment of post-dissolution receipts. Provisions deeming post receipt amounts to be income of the recipient operate to tax the recipient, not to resuscitate the dissolved firm. Taxing statutes and deeming fictions must be strictly construed; assessments and recovery for such post dissolution receipts are therefore without authority and require refund where collected.

---

---

Issues: (i) Whether a dissolved firm can be assessed to agricultural income-tax after dissolution in respect of dividends received after dissolution but relating to supplies made before dissolution; (ii) Whether section 26(4) as amended by Karnataka Act No. 10 of 1987 or section 27 of the Agricultural Income-tax Act empowers assessment of a dissolved firm in respect of such post-dissolution receipts.

Analysis: Section 27 provides a deeming provision permitting assessment of the "income of the firm" as if dissolution had not occurred, but that deeming is limited to income of the firm which accrued prior to dissolution; it does not create a fiction that the firm continues to exist to be assessed for sums actually received after dissolution by former partners. Section 26(4) deems sums received after discontinuance of business to be income of the recipient if such sums would have been included in the total income of the person who carried on the business had they been received earlier; it addresses taxability in the hands of the recipient and does not render the dissolved firm assessable for post-dissolution receipts. Comparable provisions (section 30(2) and its Explanation) have been interpreted as enabling assessment of the erstwhile entity only to the extent of income attributable to the period prior to partition or dissolution, and taxing statutes must be strictly construed so that lacunae cannot be supplied by judicial extension of a legal fiction.

Conclusion: (i) The dissolved firm cannot be assessed after dissolution in respect of dividends or other sums received after the date of dissolution even if such receipts relate to supplies made before dissolution; (ii) Neither section 27 nor section 26(4) (as amended) authorises assessing the dissolved firm for such post-dissolution receipts; consequently assessment and recovery proceedings in respect of those receipts are quashed and amounts collected must be refunded to the extent already recovered.

---