Validity of assessment upheld for Associated Commercial Corp, profits not assessable in 1947-48

Commissioner of Income-tax Versus Associated Commercial Corporation

Commissioner of Income-tax Versus Associated Commercial Corporation - [1963] 48 ITR 1 (BOM.) Issues Involved:
1. Validity of the assessment made on 'Associated Commercial Corporation'.
2. Competency of the department to initiate proceedings and make an assessment on the firm after individual partners had been assessed.
3. Assessment year in which the profits were assessable.

Detailed Analysis:

Issue 1: Validity of the Assessment on 'Associated Commercial Corporation'
The first question addressed whether the assessment made on 'Associated Commercial Corporation' was valid in law. The court referred to the decision in Ramniwas Hanumanbux Somani v. S. Venkataraman and the Supreme Court decision in C.A. Abraham v. Income-tax Officer, Kottayam. It was conceded by the counsel for the assessee that the answer must be in the affirmative and in favor of the department. Consequently, the court answered the first question affirmatively, confirming the validity of the assessment.

Issue 2: Competency to Initiate Proceedings Against the Firm
The second issue revolved around whether it was competent for the department to initiate proceedings and make an assessment on the firm after individual partners had already been assessed. The Tribunal had previously rejected the contention that the department could not assess the firm after assessing the individual partners, stating that the firm is a distinct legal entity under the Indian Income-tax Act. However, the court decided not to address this issue further due to the resolution of the third issue, which made this question unnecessary to consider.

Issue 3: Assessment Year for the Profits
The third issue was whether the profits were assessable in the assessment year 1947-48, or if they were assessable in the assessment years 1952-53 or 1953-54. The court reframed the question to focus on whether the profits were assessable in the assessment year 1947-48.

The court examined the facts that the firm was dissolved by an agreement on 18th September 1946, and the goods were sold by Amin at a profit in October 1946. The subsequent legal proceedings led to a consent order, which deemed the firm dissolved on 12th November 1946, and treated the sale by Amin as a sale by the partnership.

The court held that while the sale occurred in October 1946, the profits did not accrue to the partnership until the consent order and the subsequent award by the Commissioner. The court referenced Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. and Commissioner of Income-tax v. Mathulal Baldeo Prasad, emphasizing that a profit or liability accrues only when it becomes enforceable or is no longer in jeopardy. Therefore, the profits could not be said to have accrued to the partnership in the assessment year 1947-48.

The court concluded that the profits did not accrue to the partnership until the legal determination in favor of the partnership, which occurred after the assessment year 1947-48. Consequently, the court answered the third question in the negative, indicating that the profits were not assessable in the assessment year 1947-48.

Conclusion:
The court affirmed the validity of the assessment on 'Associated Commercial Corporation' but concluded that the profits were not assessable in the assessment year 1947-48. As a result, the second question regarding the competency of the department to initiate proceedings against the firm was deemed unnecessary to address. The assessee was awarded costs from the department.