1980 PLP 24 (PTD)

NOORUL ARFIN, J.-In pursuance of the order of the High Court dated 16-12-1966. made under section 66(2) of the Income-tax Act, 1922, the Income-tax Appellate Tribunal has stated the following question for the opinion of the High Court: "Whether in the facts and circumstances of the case the Tribunal was justified in holding that under section 44 of the Income-tax Act as it stood prior to its amendment in 1959, it was not competent to the assessing authorities to assess a firm which is to be dissolved within the knowledge of the Department."

2. The words "which is to be dissolved" would appear to have been used due to some oversight, as the actual position is that the firm was dissolved and was not to be dissolved, and therefore the proper expression in the question should have been "which is dissolved". It is in this context that we will answer the question stated by the Income-tax Appellate Tribunal.

3. The case relates to the assessment year 1955-56. The assessee was an unregistered firm of four partners, who were running a ginning factory. The accounting year of the assessee for the assessment year in question ended on 31-8-1954. By a letter dated 16-9-1954, the-assessee informed the Income tax Officer that the firm had been dissolved. The assessment order was completed on 29-2-1960, but against this order an appeal was taken to the Appellate Assistant Commissioner who took the view that, under section 44 of the Income-tax Act, 1922, as it stood during the relevant period, only the partners of the firm could be taxed, and they alone were jointly and severally responsible for the assessment. The income-tax Department was not satisfied with this order and went in further appeal to the Income-tax Appellate Tribunal. This appeal, however, was dismissed.

4. In its appellate order, the Tribunal took the view that section 44 of the Income-tax Act, 1922, before its amendment in 1959, made only the partners of a dissolved firm liable to assessment, but that, after amendment in 1959 in this section, the firm became liable to assessment to Income-tax. In taking this view, the decision of their Lordships of the Supreme Court in Sh. Muhammad Iftikhar-ul-Haq v. The Income-tax Officer, Bahawalpur P L D 1966 S C 524, given in appeal from the judgment of the High Court at Lahore, was not brought to the notice of the Income-tax Appellate 'Tribunal. In that case, their Lordships were called upon to determine the effect of section 44 of the Income-tax Act, 1922, as it stood before its amendment in 1959. This section then read as follows:- "Liabilitry in case of discontinued firm or Association.-Where any business, profession or vocation carried on by a firm or association of persons has been discontinued or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall in respect of the income, profits and gains of the firm or associa tion be jointly and severally liable to assessment under Chapter, IV, and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment." For the present case, it is only unamended section 44, which is relevant, but we may also reproduce hereunder this section as amended in 1959: "Where any business, profession or vocation carried on by a firm or an association of persons has been discontinued or where a firm or an association of persons is dissolved, assessment shall be made on the firm, the partners of the firm, the association of persons or the member thereof, as the case may he, as if no such discontinuance or dissolution had taken place, and every person who was at the time of such discontinuance or dissolution a partner of such firm or member of such association shall in respect of the income, profits and gains of the firm or association be jointly and severally liable for the amount of tax payable by the firm or association of persons or the partners of the firm or members of the association of persons, and all the provisions of this Act, as far as may be, shall apply accordingly."

5. In the High Court at Lahore, in the case referred to above, the view was taken that the clarification effected in 1959 by amendment in sec tion 44, did not involve any departure from the intention of the section as it stood previous to the amendment, which intention all along had been that a firm should not be released from any of its obligations in respect of taxation, or in respect of the process of taxation by its dissolution. This view was accepted as correct by the Supreme Court in the judgment referred to above, in which it was further ruled that the amendment made in 1959, in section 44, did not make any difference in substance, in that both before as well as after the amendment the expressions used in the section were designed to apply tax in relation to the income, etc. of a dissolved and discontinued firm, as if these incidents had not taken place, and that, in this view of the matter, the law contained in section 44 must be understood to be applicable to a dissolved firm as if it were deemed still to exist and, further, For the purpose of assess ment of the Income-tax, etc., the dissolved firm should be deemed to be in existence at the date of assessment, and therefore the provisions of section 63, for service of notice were properly applicable.

6. This, the questions stands concluded by the decision of the Supreme Court in the aforesaid case, and, in view of this decision, the question stated by the Tribunal to the High Court is answered in the negative. Reference answered in the negative.