The Commissioner of Income Tax vs Western Agencies Madras (P) Ltd.

K. Raviraja Pandian, J.—These appeals are filed against the order of the Income Tax Appellate Tribunal ''C'' Bench, Chennai dated

22.12.2006 in ITA No. 644 to 648/Mds/2003 for the Assessment Years 1990-91 to 1994-95 respectively.

The common question of law formulated for entertainment of these appeals are as follows:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessment could not be made on the company

incorporated purely to take over the partnership''s business, assets and liabilities, with the same partners as shareholders and directors for the years

prior to its incorporation, when the partnership was in existence?.

The appeals relate to the assessment years 1990-91 to 1994-95. The assessee is a company incorporated on 31.03.1994 with the main object

of acquiring business of running lorries, cranes, trucks and all kind of vehicles of general carriers and taking over the business of partnership carried

on under the name and style of M/s Western Agencies in the same name as a going concern with all its assets and liabilities. The said firm was

dissolved on 05.04.1995 with effect from 31.03.1994 and the partners were allotted equity shares in the company. The assessment order for the

assessment years 1990-91 to 1994-95 in respect of the partnership firm has been passed u/s 144 r/w Section 147 of the Income Tax Act on

28.03.2002 on the appellant company. The assessee company protested the assessment order contending that it was not at all in existence during

those years and the assessment should have been made on the erstwhile firm or its partner. The Assessing Officer of the view that since the

partners of the dissolved partnership firm are the directors of the company and the partnership itself was converted into Private Limited Company,

the assessment could be made against the company. He accordingly framed the assessment against the assessee company. Aggrieved by the said

assessment orders, the assessee company filed an appeal to the Commissioner of Income Tax (Appeals), who held that when the partners of the

erstwhile firm are alive and available, notice should have been sent to them and not to the company and only in the event of their not being

available, the assessment could have been made against the assessee company. By those reasoning, he allowed the appeal. Not accepting the

order, the revenue took up the matter on appeal to the Income Tax Appellate Tribunal, the Tribunal upheld the order of the Commissioner

(Appeals). Aggrieved by the order of the Tribunal, the present appeals are filed.

Heard the argument of the learned counsel.

The relevant statutory provision in the Income Tax Act is Section 189, which provides for assessment in respect of firm dissolved or business

discontinued, which reads as follows:

(1) Where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the (Assessing) Officer shall

make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of this Act,

including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be,

to such assessment.

(2) Without prejudice to the generality of the foregoing sub-section, if the (Assessing) Officer or the [Commissioner (Appeals)] in the course of any

proceeding under this Act in respect of any such firm as is referred to in that sub-section is satisfied that the firm was guilty of any of the acts

specified in Chapter XXI, he may impose or direct the imposition of a penalty in accordance with the provisions of that Chapter.

(3) Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person

who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as

may be, shall apply to any such assessment or imposition of penalty or other sum.

(4) Where such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the

proceedings may be continued against the person referred to in Sub-section (3) from the stage at which the proceedings stood at the time of such

discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly.

(5) Nothing in this Section shall affect the provisions of Sub-section (6) of Section 159.

From the above said provision, it is amply clear that the notice on the assessee company which was not in existence during the relevant period of

assessment is not in accordance with the statutory provision, particularly Sub-clause (3) of Section 189 of the Income Tax Act. The justification

made by the Assessing Officer cannot be legally sustainable on the face of the statutory provision. When he sought to invoke Section 189, he

would have applied his mind to the entire provision including Sub-section 3 of the provision, which provided clearly the persons who are liable for

the payment of tax. Further, the assessee company is a legal entity by itself, though its directors are one and the same persons who were the

partners of the dissolved firm. Hence, we are not able to take a different view than the one taken by the Commissioner of Income Tax (Appeals),

which has been confirmed by the Tribunal. Thus, the appeals are dismissed. No costs. Consequently, the connected M.P.Nos.1 of 2008 are also

dismissed.