COMMISSIONER OF INCOME-TAX Vs. SMSKARUPPIAH PILLAI

JUDGEMENT

(1.) The main question raised in this reference is whether a partner who continues the partnership business after the dissolution of the partnership succeeds to the business within the meaning of Section 26(2) of the Indian Income-tax Act, 1922. On the 16 September, 1935, the assessee and one Venkatarama Aiyar entered into a partnership for the production and exhibition of a cinema film called "Pathi Bhakthi". .The partnership continued until the mon May, of the following year, when Venkatarama Aiyar retired from the partnership and was paid the amount of the profits which represented his share, namely, the sum of Rs. 9,524. Thereafter the film was exhibited by the assessee for his own benefit. For the assessment year 1937-38 the Income-tax authorities assessed Venkatarama Aiyar in respect of this sum of Rs. 9,524 and he paid the tax, but later the Income-tax authorities considered that they were wrong in so doing, and to have the question settled, the Commissioner of Income-tax has, under the provisions of Section 66(2) of the Act, referred the following question: Whether the provisions of Section 26(1) or Section 26(2) of the Act are applicable to this case and the petitioner is liable to be assessed on the sum of Rs. 9,524 which represents the ex-partner's share of the profits of the film business.

(2.) In his statement of the, case the Commissioner has very properly stated that should the Court answer this question against the assessee he would exclude the sum of Rs. 9,524 from the assessment of Venkatarama Aiyar, who, of course, would thereupon be entitled t6 a refund.

(3.) Section 26(2) reads as follows: Where at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year.