Taxability of arbitral award receipts followed the reconstituted firm where the original partnership continued in substance.

An amount received pursuant to an arbitral award on a contract made by the original firm was treated as taxable in the hands of the reconstituted firm because the reconstitution left one continuing partner and the firm was regarded in substance as the same assessee entity under the continuing-firm rule. The taxability therefore followed the firm after reconstitution, and the amount was not assessed separately as belonging to a different entity.

---

---

Issues: Whether the amount of Rs. 25,930 received pursuant to an arbitral award was exigible to tax in the hands of the assessee-firm or the reconstituted firm for the assessment year 1974-75.

Analysis: The amount arose from a contract entered into by the original firm, and the firm was later reconstituted with one continuing partner. On reconstitution, the firm was treated as the same assessee entity in substance, attracting the rule applicable to a continuing firm under section 187 of the Income-tax Act, 1961. The amount therefore remained taxable in the hands of the reconstituted firm.

Conclusion: The amount was rightly held taxable in the hands of the assessee-firm, and the answer to the referred question was in favour of the Revenue.

---