1993 (2) TMI 121

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....represented income-tax liability of the firm of M/s C.M.C. (India) was not allowable as deduction. He accordingly disallowed the same. This disallowance was confirmed by the CIT (Appeals) relying on the decision of Punjab & Haryana High Court in the case of Dashmesh Transport Co. (P.) Ltd. v. CIT [1985] 125 ITR 681 (Punj. & Har.). 3. After hearing the parties, we find that the assessee-company was one of the partners of the firm M/s C.M.C. (India). The said firm was dissolved by a deed of dissolution dated 31-3-1983. The assessee-company took possession of the entire running business of the dissolved firm which business was allotted to assessee under the deed of dissolution. The assessee-company took over all the assets and liabilities o....

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....ed to income-tax liability of the assessee and not that of the predecessor of the assessee. 6. However, we find that this view was not approved in subsequent decision of the same High Court in the case of same assessee and the subsequent decision is reported in Dashmesh Transport Co. (P.) Ltd. The High Court held that the decision in respect of earlier year would not operate as res judicata in subsequent year when the same question come up for consideration. Thereafter the High Court examined the terms and conditions of transfer of the business which indicated that the assessee-company had taken over all the assets and liabilities of the transferor company. The High Court held that the liabilities of the transferor company formed part of....

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....olly and exclusively for the purposes of the trade. This principle does not apply to the facts of the case. We cannot over look the fact that the assessee was partner of the erstwhile firm and was not a stranger to the dissolved firm. Consequently the assessee was quite aware of the liabilities of the erstwhile firm with the result that the assessee should be regarded to have taken into consideration those liabilities in accepting the price for taking over the business of the dissolved firm and hence the liability which was discharged would represent part of the price for taking over the business and hence would fall in the capital field. Even otherwise when the income tax liability was not allowable as deduction in the profits and gains of....