Income Tax Appellate Tribunal - Delhi
Maman Chand Ramji Das vs Income-Tax Officer on 3 August, 1988
Equivalent citations: [1989]28ITD487(DELHI)
ORDER
S.K. Chander, Accountant Member
1. This appeal by the assessee-firm is directed against the order of the AAC of Income-tax, F-range, New Delhi dated 17-3-1986 relating to assessment year 1972-73. There are interesting issues raised in this appeal, but before we come to them, we bring into focus the factual canvas of the case.
2. The assessee was a firm evidenced by instrument dated 1-4-1967 constituted of partners S/Shri Maman Chand and Govind Ram. It was carrying on the business of manufacture and sale of poly thene laminated cotton fabrics. Till 16-9-1970, there was no excise duty on these fabrics. However, on 17-9-1970, polythene laminated cotton fabrics were declared excisable under the Central Excises and Salt Act, 1944 by the Central Excise Autho rities and the assessee was obliged to obtain L-4, Central Excise Licence. The firm as constituted above, therefore, had to pay excise duty amounting to Rs. 66,892.62 up to 31-12-1970. The pre vious year of the firm was calendar year. The excise duty so paid was relevant to the asst. year 1971-72. Though the said firm paid the amount of Rs. 66,892 yet it challenged the imposi tion of excise duty before the Collector of Customs.
3. In the meantime, w.e.f. 31-12-1970, the firm constituted by the. above two partners was dissolved. On the dissolution of the firm, Shri Maman Chand took over all the assets and liabilities of the dissolved firm. On 1-1-1971 a new firm under the name and style of M/s. Manian Chand Ramji Das (Extrusion Laminators) was formed by five partners including the two partners who constituted the erstwhile firm dissolved w.e.f. 31-12-1970. The new firm took over all the assets and liabilities of the business. The excise duty imposed though challenged continued to be levied up to 7-4-1971. In other words, the successor firm which also followed the mercantile system of accounting paid excise duty for the period from 1-1-1971 to 7-4-1971 amounting to Rs. 54,107.38. Since, the new firm also followed the calendar year as the previous year, the amount of Rs. 54,107 was paid in the previous year relevant to assessment year 1972-73. Thus, the total amount paid as excise duty by the two firms was Rs. 1,21,000 (Rs. 66,892.62 plus Rs. 54,107.38).
4. As mentioned supra, the levy of excise duty had been contested before the Collector of Central Excise, Delhi, who by his order dated 7-4-1971 held that the products of the assessee were not dutiable. As a result of this order, the entire excise duty of Rs. 1,21,000 was ordered to be refunded. The refund order was made on 12-5-1971 and the following amounts were paid by cheque to the firm as constituted w.e.f. 1-1-1971:--
Amount Mode Date Rs. 66,892.62 Cheque No. AI-81983 12-5-1971 Rs. 54,107.38 Cheque No. AI-81964 12-5-1971
On receipt of the above amounts, the firm as constituted w.e.f. 1-1-1971 credited these amounts to Central Excise Duty refundable account. The amount of Rs. 1,21,000 thus, appeared in the balance sheet prepared as on 31-12-1971 relevant to the assessment year 1972-73.
5. When the assessment of the assessment year 1972-73 of the firm of M/s. Maman Chand Ramji Das, was under process, the ITO noticed this amount and asked the assessee as to why it was not shown as income for the year under appeal. It was explained to him by that firm that the Central Board of Excise and Customs was vested with the powers of calling for and examining the record of any proceedings in which any decision or order had been passed under the Central Excises and Salt Act, 1944. Since, the order of the Collector of Central Excise granting refund made on 7-4-1971 under Section 35A of the Act could, thus, be reviewed by the Central Board of Excise and Customs within a period of one year, the said firm thought it fit to keep the amount in suspense account up to 7-4-1972. It was, thus, not offered for assessment by that firm for the assessment year 1972-73. However, the sum of Rs. 1,21,000 was shown in the return for the assessment year 1973-74 for purpose of taxation by that firm.
6. The ITO while framing the assessment on the firm of M/s. Maman Chand Ramji Das for the assessment year 1972-73 held the view that the suni of Rs. 54,107 was not allowable and the amount of Rs. 66,893 which was remission or cessation of liability during the accounting period relevant to the assessment year 1972-73 was taxable under Section 41(1) of the Income-tax Act, 1961. That assessment was, thus, completed on 28-2-1975.
7. The Income-tax Officer also considered the registration of the newly formed firm. He made an order under Section 185 on 28-2-1975 holding the firm to be genuine and granted registration to it for the assess ment year 1972-73. The ITO had prior to the above assessment order and the order made under Section 185 made on 28-2-1975 considered the issue of continuation of registration for the dissolved firm up to the assessment year 1971-72. In his order dated 27th March, 1974 under Section 184(7), the ITO considered the claim made before him for extension of the previous year of the dissolved firm from 31-12-1970 to 31-3-1971. This claim of the assessee was rejected by him on the ground that the firm was dissolved on 31-12-1970, on which date the previous year of the dissolved firm came to an end. He also noted that the balance sheet of that firm also showed the state of affairs of the firm as on 31-12-1970. The ITO further observed, "the dissolved firm is not entitled to carry on the business after the date of dissolution and under the law the accounting year of the firm is also closed on that very date of dissolution." The claim for extension of previous year was rejected. There was some delay in filing Form No. 12, which was condoned by the ITO and continuation of registration granted for the asst. year 1971-72 taking the previous year ended on 31-12-1970, which was the date of dissolution of that firm.
8. We have mentioned supra that the assessment on the new firm for the asst. year 1972-73 was made on 28-2-1975. That assessment, inter alia, brought to tax under Section 41(1) of the Act, the sum of Rs. 66,893 considered as remission or cessation of liability by the ITO. The decision of the ITO was upheld in first appeal by the AAC. The assessee, therefore, came up in appeal before the Tribunal. The Tribunal in its judgment bearing ITA No. 4413/DEL./75-76 dated July 1977 held that, "the old firm with two partners having come to an end and that a new firm has been constituted with five partners after the dissolution of the former firm, the amount of refund received by the latter firm cannot be brought to tax under the provisions of Section 41(1) of the Act, in the light of the decision of the Supreme Court in the case of CIT v. Hukumchand Mohanlal [1971] 82ITR 624". The amount of Rs. 66,893 added to the total income of that firm which was newly constituted was, thus, directed to be deleted. It is common ground tha,t that order has become final and no further proceedings are pending anywhere in respect thereof relating to that firm.
9. After the order of the Tribunal dated July 1977 the ITO issued notice under Sections 148 on 29-7-1980 to the dissolved firm, the assessee before us now. The assessee filed the return of income on 27-12-1980 under protest declaring total income of Rs. 2,24,110 as assessed finally in the case of new firm. The ITO made an order under Sections 143(3) apparently read with Section 147(a), though not stated so, on 25-3-1985. In this order, the ITO brought to tax only the sum of Rs. 66,893 as total income under the provisions of Section 41(1) of the Income-tax Act, 1961. According to him, this amount was taxable in the hands of the defunct firm for the assessment year 1972-73. This assessment was challenged in appeal. The Id. AAC had to consider various grounds taken up in appeal before him including the lack of jurisdiction under Sections 147(a). He justified the assessment under Sections 147(a) and also the inclusion in the total income for assessment year 1972-73 in the above manner of the sum of Rs. 66,893 under Sections 41(1) of the Act. The appeal was dismissed. Hence the present proceedings before us at the instance of the assessee. Before we proceed further we would like to record that the amount involved in dispute before us now is Rs. 66,892 though the same is sometimes mentioned in the above narration at Rs. 66,893.
10. Before us the Id. counsel for the assessee has submitted that the authorities below proceeded on absolutely erroneous grounds in bringing to tax the impugned sum of Rs. 66,892 in the hands of the assessee-flrm, which was dissolved w.e.f. 31-12-1970. Relying on the judgment of the Hon'ble Supreme Court in the case of Hukumchand Mohanlal (supra) and the judgment of the Madras High Court in the case of CIT v. P.K. Kaimal [1980] 123 ITR 755 and a decision of the Tribunal in the case of New Caivnpore Flour Mills (P.) Ltd. v. ITO [1986] 19ITD 360 (All.) the Id. counsel for the assessee submitted that for invoking the provisions of Section 41(1) of the Act, it was necessary that the pre-requisites laid down in the section were fully satisfied. In this regard, he submitted that the identity of the assessee, who obtained the benefit of deduction in the computation of total income should be the same as that of the assessee who got the remission or cessation of the liability subsequently. He emphasised that the ITO after due application of mind as is clear from the facts narrated supra, accepted the position that w.e.f. 31-12-1970, the old firm had ceased to exist. It had, in other words, died a civil death and could not be revived thereafter for any taxation purposes unless there was specific provisions for doing so. It was submitted by him that the amount in dispute was directed to be refunded after the dissolution of the firm on 31-12-1970. The amount was received by the successor firm. The amount was not credited to the accounts of the two partners, who constituted the old firm. As such, it was submitted that the authorities below erred in bringing the said amount to tax in the hands of the defunct firm for the assessment year under appeal when it did not exist as taxable entity. It was submitted that this is being done only because the revenue failed to tax this amount in the hands of the successor firm up to the level of the Income-tax Appellate Tribunal.
11. The Id. counsel for the assessee, in the alternative, also submitted that there was no case for reopening the assessment under Sections 147(a) of the Act because there was no failure on the part of the assessee to disclose fully and truly all material facts relevant for assessment. The reasons recorded and conveyed to the assessee are not sufficient for reopening the assessment under Sections 147(a) of the Act. If at all action could be taken, it could be taken only under Sections 147(b) for which the time had long expired and proceedings became barred by limitation. Therefore, looked from any angle, contended the Id. counsel, proceedings that were initiated by the ITO, which resulted in the impugned assessment, which has been upheld by the Id. AAC are wholly void and without jurisdiction. The orders of the authorities below, he submitted, may, therefore, be cancelled.
12. Replying to the submissions, the Id. D.R., on the other hand, relying upon the judgment of the Allahabad High Court in the case of CIT v. Taj Gas Service [1980] 122 ITR 1034 and the judgment of the Kerala High Court in the case of CIT v. Marikar (Motors) Ltd. [1981] 129 ITR 1, contended that the authorities below were fully justified in bringing to tax under Sections 41(1) the disputed amount of Rs. 66,892 as the assessee had received the benefit in the earlier years by way of deduction of payment of excise duty.
13. In the alternative, it was submitted that the new firm was an agent of the assessee-firm and as such, the assessment proceedings were properly initiated under Sections 147(a) by serving notice on partners of the new firm and assessment has rightly been made. The orders of the authorities below may, therefore, be confirmed.
14. We have given careful consideration to the rival submissions. Section 41(1) of the Act lays down that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, (emphasis supplied), whether in cash or in any other manner, whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him (emphasis supplied), shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. It is, thus, clear from a simple reading of Sub-section (1) of Section 41 that the assessee to whom an allowance or deduction had been given earlier in the assessment has to later on obtain such allowance or deduction or the value of such benefit must accrue to the same assessee in the subsequent year or years.
15. The Hon'ble Supreme Court in the case of Hukumchand Mohanlal (supra) clearly laid down that the Act did not contain any provision making a successor in business or the legal representative of an assessee to whom an allowance had already been granted, liable to tax under Sections 41(1) of the Act in respect of the amount remitted and received by the successor or the legal representative. The Madras High Court in the case of P.K. Kaimal (supra) mentioned supra clearly laid down that continued existence of the business was not a condition for applying provisions of Section 41(4) and the only basis for applying sec tion 41(1) was that the identity of the assessee was the same. It is, thus, clear that the identity of the assessee, who obtained the benefit by way of allowance or deduction and the assessee who got the benefit or remission or cessation of liability subsequently has to be the same.
16. We find that on facts, there is no dispute that the amount of Rs. 66,892 had in fact been received by the successor firm. We have also recorded in the narration of facts of the case that the revenue proceeded to levy tax under Sections 41(1) of the Act on the successor firm but failed up to the Tribunal level. Now so far as the proceeding's against the assessee are concerned, these are void for the assessment year 1972-73, because there was no juridical person in existence as the assessee. The assessee was not a juridical person in existence for the assessment year 1972-73, because by their consent, the parties constituted the defunct firm, the firm had been dissolved w.e.f. 31-12-1970 and the factum of dissolution and its going out of legal existence had. been accepted after due application of mind by the revenue authorities. On such facts, we are of the opinion that the amount in dispute cannot be brought to tax in the hands of the assessee-firm.
17. We have also seen the alternative ground and the contentions raised by the parties regarding the initiation of the proceedings under Sections 147. In the case of the assesses on the facts as stated supra, there cannot be any case of non-disclosure of facts by the assessee entailing the action under Sections 147(a). We, therefore, do not consider it necessary to dwell on this issue any further.
18. In the result, we cancel the assessment made on the assessee before us and allow the appeal in full.
19. Appeal allowed.