Accrual of partnership profits before death and the limited reach of deceased-person assessment under income tax law

A deceased partner's share of profits was held not to accrue before the accounting date where the partnership deed required accounts to be closed on Divali and profits could be ascertained only then. Because the death of a partner did not itself dissolve the firm, the share became payable only after accounts were made up, so no income had accrued to the partner during his lifetime. Section 24B of the Indian Income-tax Act, 1922, was treated as a machinery provision for assessment and recovery from a deceased person's estate, and its legal fiction could not be extended to deem as income an amount that had never accrued at all.

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Issues: Whether the sum of Rs. 2,61,821 credited as the deceased partner's share of profits accrued to him on or before 31 August 1950, and whether section 24B of the Indian Income-tax Act, 1922, could be invoked to assess that amount in the hands of his estate.

Analysis: Under the partnership deed, accounts were to be made up on Divali and profits or losses could be ascertained only when the year's accounts were closed; the death of a partner did not dissolve the firm, but the deceased partner's share was payable only after the accounting date. On that footing, no profits or income could be said to have accrued to the deceased before his death. Section 24B was examined as a provision introduced to remove the lacuna in the Act and provide a machinery for assessment and recovery in the case of deceased persons. The legal fiction created by the section was held to be confined to that purpose and could not be extended to deem as income of the deceased an amount which had not accrued to him at all during his lifetime.

Conclusion: The sum of Rs. 2,61,821 did not accrue to the deceased on or before 31 August 1950, and section 24B of the Indian Income-tax Act, 1922, was not attracted.

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