NAGARMAL BAIJNATH vs. COMMISSIONER OF INCOME TAX

CIVIL APPEAL No. 156/1979Supreme Court[1993] 2 S.C.R. 64526 March 1993Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, N. VENKATACHALA10 pages
AI SummaryDismissed

What were the facts?

The appellant, Nagarmal Baijnath, was a firm that conducted business during the accounting years relevant to assessment years 1946-47 and 1947-48. The firm was dissolved by a deed dated December 2, 1946, and its business was discontinued. Notices and assessments were completed under the Income-tax Act, 1922, and the Excess Profits Tax Act, 1948, in the name of the firm, and returns were filed similarly. No objections regarding the validity of these proceedings were raised before the Income Tax Officer, the Appellate Assistant Commissioner, or the Income Tax Appellate Tribunal. However, the assessee later sought to raise additional grounds questioning the validity of the assessment proceedings, which the Tribunal permitted. Ultimately, the Tribunal dismissed the appeals, leading to a reference to the High Court. The High Court upheld the assessments, and the assessee filed the present appeals.

What did the Supreme Court hold?

The Supreme Court held that the appeals were liable to fail. It reasoned that Section 44 of the Income-tax Act, 1922 (prior to its amendment by the Finance Act, 1958) covered situations where a business carried on by a firm was discontinued or where an association of persons was dissolved. In such cases, every partner was jointly and severally liable for assessment. The Court clarified that the instant case involved the dissolution of the firm resulting in the discontinuance of its business, which was a situation covered by Section 44, enabling the Income-tax Officer to make an assessment on the dissolved firm. This position was considered settled law, supported by previous decisions in C.A. Abraham v. Income Tax Officer and Shivram Poddar v. Income Tax Officer. The Court found the unreported Gujarat High Court decision distinguishable and not contrary to the established principle. Therefore, the assessments made on the dissolved firm were held to be valid.

What were the issues?

1. Whether, under the unamended Section 44 of the Income-tax Act, 1922, an assessment could be made upon a firm that had been dissolved prior to the assessment date? (Question of law) Assessee's contention: The assessee argued that under the unamended Section 44, no assessment could be made upon a firm that was dissolved by the time the assessment was made, emphasizing the language of the section. Revenue's contention: The judgment does not explicitly record the Revenue's arguments, but it is implied that the Revenue contended for the validity of the assessments, as they opposed the additional grounds raised by the assessee and ultimately succeeded before the High Court and the Supreme Court.

Which sections of the Income-tax Act were involved?

Section 44,Section 22(2),Section 22(4),Section 23(2),Section 66(1),Section 21,Section 23(5),Section 25(1),Section 26(1),Section 26(2)

AI-generated summary — verify with the full judgment below

r' , ___,.,._ NAGARMAL BAUNATH A v. COMMISSIONER OF INCOME TAX MARCH 26, 1993 -,.. B ""' (B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.)

Income tax Ac4 1922: Section 44 (prior to amendment by Finance Act, 1958)-Scope of-Dissolution of jinn and discontinuance of business-As- sessment on dissolved firm-Correctness of c The appellant-assessee, a Rrm which did business during the ac- --"ff-- - counting years relevant to assessment years 1946-47 and 1947-48, was dissolved by a deed or dissolution dated December 2, 11146, and Its business discontinued. Notices were Issued In the name or the partnership firm and assessments were completed under the Income-tax Act 1922 and Excess D Profits Tax Act, 1948. Indeed, the returns were filed in the name or the firm.

During the course or the assessment proceedings under both the - )< enactments viz. Income-tax and Excess Profit Tax Act, no objection was E '1. taken as to the validity or the proceedings. Against the orders or assess- ment, appeals were preferred to the ApP!'llate Assistant Commissioner.

In these appeals also the validity or the assessment order was not chal- lenged. Even In the further appeals before the Trib

The order continues below.

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