TaxTMI 
TaxTMI 
2005 (7) TMI 73
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....as dissolved and the machinery were allotted to the assessee who sold the same after dissolution of the firm?" The facts: In this case, the assessee was a partner of the firm, known and styled as M/s. Publicity Printers, with his wife. The said firm was dissolved by a dissolution deed dated December 26, 1978, with effect from December 15, 1978. On the dissolution of the firm, certain assets of the erstwhile firm were allotted to the assessee on which depreciation was claimed by the said firm of M/s. Publicity Printers prior to its dissolution. Out of certain assets allotted to the assessee, three machines were sold by him immediately after the dissolution of the firm to three different parties for a total consideration of Rs. 7,03,107. The cost of the said machines in the hands of the firm was Rs. 3,23,937 and the written down value of these machines, as on the date of dissolution, was Rs. 1,10,232. The assessee invested the sale proceeds in specified assets under section 54E of the Income-tax Act, 1961, and claimed exemption from payment of tax on long-term capital gain amounting to Rs. 3,79,170 (sale price Rs. 7,03,107 less cost Rs. 3,23,937). While completing the assessmen....
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.... moneys payable in respect of the building, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year.... (4) Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause (vii) of sub-section (1) of section 36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in which it is recovered, whether the business or profession in respect of which the deduction has been allowed is in existence in that year or not...." With a view to ensure that there is no loss of revenue and undue enrichment to the assessee, sub-section (1) of section 41 has been substituted by the Finance Act, 1992, so....
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....ect of any such trading liability by way of remission or cessation thereof, occurring in this sub-section, has been defined to include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of this sub-section by way of writing off such liability in his accounts." Consideration: Section 41 (unamended) enacts adjustment provisions whereby the Revenue takes back what it has already allowed if certain conditions come to pass and the assessee recoups something for which an allowance had already been made and deducted from his business income. Each of the six sub-sections of section 41 enumerate particular circumstances and provide that if such circumstances comes to pass, certain income would be made taxable as deemed income. The section further fixes the year in which the recoupment etc., is to be taxed. The year, generally, is that in which the recoupment amount becomes payable or the alternative benefit, etc., comes to be obtained. Section 41(2) stipulates that- Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used f....
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.... as to whether a sum of Rs. 24,252 was an item taxable in the previous year under the provisions of section 10(2)(vii). While dealing with the above question, the apex court held that "the Hindu undivided family" and "the firm" were distinct entities, the depreciation allowed to the family could not be regarded as depreciation allowed to the firm. The second proviso to section 10(2)(vii) was not attracted as such sum of Rs. 24,252 was not taxable in the hands of the firm as a deemed profit under the second proviso to section 10(2)(vii). It was further observed that "it was immaterial that the business was taken over as a running concern by the firm". The apex court while laying down this law ruled that under the Income-tax Act, the firm is a distinct assessable entity. Section 3 of the Indian Income-tax Act, 1922 was relied upon to show that income-tax legislation treats it as such, and the entire process of computation of the income of a firm proceeds on the basis of its distinct assessable entity. The apex court also relied upon the judgment of CIT v. A.W. Figgies and Co. [1953] 24 ITR 405 (SC). The apex court further held that when the depreciation was allowed to the Hindu un....
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....ears 1960 and 1962. During the assessment years 1961-62 and 1962-63, the firm discharged its sales tax liability amounting to Rs. 8,261. In the year 1967, a sum of Rs. 4,500 was received by the firm as refund of sales tax which was credited to the account of the then existing two partners in equal shares. This amount was, however, not shown in the return of the firm or of the partners of the firm for the assessment year 1968-69. The Income-tax Officer treated the refund of Rs. 4,500, as deemed income of the firm under section 41(1) of the Income-tax Act, 1961, as also Rs. 2,250 each, in the hands of the two partners and assessment was finalised accordingly. Penalty proceedings were then initiated against the firm and the two partners. The penalty was however deleted by the Tribunal against both the firm and the two partners holding that the penalty provisions were not applicable to "deemed income". The High Court upheld the order of the Tribunal deleting the penalty against the firm. The High Court held that keeping in view the definition of "person" given in section 2(31) of the Act, a person includes a firm which means that the firm will succeed a firm, while its partners in thei....
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....he partners and there is no question of any extinguishment of the firm's rights in the partnership asset amounting to a transfer of asset within the meaning of section 2(47) of the Income-tax Act, 1961. In his submission even after dissolution of the partnership, if the assets are allotted to the partners and those assets are sold, in that event whatever benefits are taken by the partnership firm are liable to be restored by the partners of the firm. Consideration: Having heard the rival contentions, the proposition of law canvassed by both of them relying upon the two different judgments delivered by the same three-judge Bench of the Supreme Court, are well established. So far as the case of Malabar Fisheries Co. [1979] 120 ITR 49 (SC), is concerned, in that case, following the judgment of the Privy Council in Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd. [1948] 18 Comp Cas 205, the Supreme Court observed thus: "Before the Board it was argued that under the Indian Partnership Act, 1932, a firm is recognised as an entity apart from the persons constituting it, and that the entity continues so long as the firm exists and continues to carry on its business. I....