COMMISSIONER OF INCOME-TAX Vs. NATIONAL CYCLE IMPORTING COMPANY, BY PROPRIETOR AMRITLAL BHAICHAND SHAW

JUDGEMENT

(1.) The real question which arises in this reference is whether it can be said that a firm which has been dissolved "cannot be found" within the meaning of the proviso to Sub-section (2) of Section 26 of the Indian Income-tax Act, 1922, notwithstanding that all the members of the firm are alive and can be found.

(2.) The assessee is the proprietor of a business carried on under the style of the National Cycle Importing Company. Upto the end of the Samvat year, 1994, that is, upto the 23 October, 1938, this business was owned by the assessee in partnership with two others, Vanamalai Premchand Shaw, and Fulchand Bhaichand Shaw. On the 24 October, 1938, the first day of the Samvat year 1995, the assessee took over the entire business and the partnership was dissolved as from that date. In the Samvat year 1995 the Income-tax Officer assessed the total income of the business for the year 1994 at Rs. 16,500. The assessee's share of this amount was Rs. 7,425 and Fulchand Bhaichand Shaw's share Rs. 4,950, and they were assessed to income-tax on these amounts respectively. The third partner was not assessed on his share (Rs. 4,125) as the Income-tax Officer was informed that he had ceased to be a partner before the month of October, 1938.

(3.) The Commissioner of Income-tax considered that the Income-tax Officer had not adopted the right method of assessment. In his opinion the case falls within the second sub-section of Section 26 of the Act and by virtue of the proviso contained in that sub-section the assessee can be assessed to tax on the full amount of the profits earned during the year 1994. Accordingly he revised the assessment and caused notice to be served on the assessee under Section 33 to show cause why he should not be assessed in respect of the sum of Rs. 16,500 which represented the total profits. The assessee objected to the proposal, and in consequence the Commissioner has referred to the Court for decision the following question: Whether in the circumstances of the case the Commissioner of Income- tax was right in setting aside the order of the Income-tax Officer and directing that Amritlal Bhaichand Shaw should be assessed on the entire profits as successor under Section 26(2) of the Indian Income-tax Act.