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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the sum of Rs. 1,14,486 received during the relevant accounting year was taxable as the income of the assessee-firm, and whether it constituted a trading receipt of an unregistered firm notwithstanding the earlier dissolution claim.
Analysis: The amount in question was received during the accounting year relevant to the assessment year 1952-53 and arose out of the assessee-firm's business transaction connected with supply of cloth and the subsequent compromise recovery. Once the assessee was treated as an unregistered firm for the year in question, the receipt could not be regarded as the individual income of the partners. The receipt was held to be part of the firm's business activity and therefore fell within the revenue field as a trading receipt. The contention that no business subsisted after dissolution was rejected in view of the finality of the status finding and the character of the receipt as arising from business dealings.
Conclusion: The amount of Rs. 1,14,486 was taxable as the income of the assessee-firm and the question was answered in the negative, in favour of the revenue and against the assessee-firm.
Ratio Decidendi: A receipt arising from a business transaction and realised during the relevant accounting year is taxable as a trading receipt of the firm if it is referable to the firm's business activity, even where the firm is claimed to have dissolved.
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