Arijit Pasayat, C.J.
Pursuant to direction given by this Court, Tribunal, Cochin Bench has referred the following question for the opinion of this court under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') :
'Whether, on the facts and in the circumstances of the case, Tribunal is right in law and fact in deleting the inclusion of the arbitration award amount in the assessment of the firm ?'
2. Factual position, as set out in the statement of case, is as follows : Assessee, a firm, was engaged in contract works with Kerala State Electricity Board (in short, the Board). It was dissolved by a deed of dissolution, dated 1-10-1970. During the accounting period relevant to assessment year 1976-77, a sum of Rs. 1, 16,000 was received from the Board on the basis of arbitration award in respect of the work done earlier. The assessing officer issued a notice under section 148 of the Act to assessee, as the amount was, according to him, assessable under section 41(1) of the Act. Assessee filed a 'nil' return along with a covering letter stating that since the firm was already dissolved, there was no question of assessing the arbitration amount in its hands. Further respective shares of the arbitration award were already taxed in the hand of partners individually. The assessing officer did not agree with the contention and brought the amount to tax in the hands of the firm under section 176(3A) of the Act. Being aggrieved, matter was taken up by assessee in appeal before Commissioner (Appeals), who upheld the action of assessing officer. In second appeal, Tribunal held that claim which resulted in the arbitration award was made long after the dissolution of the firm, and it was not even in contemplation at any time prior to dissolution. Income accrued only on 21-2-1974, when arbitrator gave award and by that time, firm had already been dissolved. Tribunal was, therefore, of the view that it was a case of succession of a firm by an individual i.e., one of the erstwhile partners. Sec. 176, according to it, applied to the case of discontinued business and it cannot apply to a succession to the firm. Accordingly, Tribunal nullified the assessment. Application under section 256(1) of the Act filed by revenue was rejected. Pursuant to the direction given by this ,'-'curt, question, as set out above, has been referred to this Court.
3. Learned counsel for revenue submitted that approach of the Tribunal was erroneous as it fafled to consider the materials on records in the proper perspective and misconstrued the terms of deed of dissolution, dated 1-10-1970. Learned counsel for assessee, on the other hand, submitted that on a bare reading of deed of dissolution, it is clear that the award cannot be brought to tax at the hands of the firm. Tribunal seems to have proceeded on the footing that award dated 21-2-1973 cannot be traced to any dispute pending on the eve of dissolution and, therefore, award passed had given rise to an income only on the date of award.
4. Certain facts are to be noted as they have great relevance. Deed of dissolution has been quoted in its entirety by Tribunal. Clauses (4) and (5), which are relevant, read as follows :
'A. It is hereby mutually agreed that the work done by the partnership between the parties hereto till the close of the business on the 30-9-1970 have been fully measured and values thereof duly accounted.
5. It is hereby agreed that Sri PM Paily Pillai, the first party hereto, is authorised to do or to be got done at his own expense further work, if any, required to be done in respect of the business carried by our partnership and that the said Sri Paily Pillai alone shall be entitled to or liable for the profits or losses, as the case may be, of the said further work, if any. '
(Underlined, italicised in print, for emphasis)
According to assessee, clause (5) had application to the facts of the case because claim was lodged on 15-10-1973. Sec. 47 of the Indian Partnership Act, 1932 (hereinafter referred to as 'the Partnership Act') provides that on the dissolution of a firm, authority of each partner to bind the firm, and the other mutual rights and obligation of the partners, continues notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of dissolution. Clause (5) of the deed of dissolution relates to further work, if any, in respect of business carried on by the partnership. It is evident that arbitration award was in respect of the work already done prior to dissolution of the firm. Only claim was made subsequent to the dissolution. Though plea of the assessee is that award amount was not relatable to the work done earlier and was 'further work' as referred to in clause (5) of the deed of dissolution, amount was shared by the partners of the firm, This falsifies assessee's stand that award was for 'further work'. Had that been so, in terms of clause (5), entire amount of award would have gone to Sri P.M. Paily Pillai and not to all partners. Income from the date of award, which the Tribunal has considered to be a fortuitous circumstance, in reality, is the pivotal point for determination. Section 176(3A) of the Act reads as follows :
'(3A) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance.'
Said provision was introduced by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976. This provision, inter alia, provides that any sum received after discontinuance of a business is, for and from assessment year 1976-77, to be treated as income of the recipient in the year of receipt, if it would have been included in the total income of the person who carried on the business, had it been received before such discontinuance. It is to be noted that sub-sections (3A) and (4) constitute exceptions to the rule that business or professional receipts are chargeable only if business or proiession is carried on in the year of account. For the purpose of assessment, there is a well marked distinction between 'discontinuance' and 'succession'. While 'discontinuance' refers to a complete cessation of the business, 'succession' is involved in a mere change of ownership. Conception of succession excludes the conception of discontinuance. The very fact that income has been received by the four partners is, as stated above, a factor which nullifies the stand taken by assessee that the work done was independent. In other words, it was not relatable to any 'further work'. That being the position, conclusions of the Tribunal are not sustainable.
Question referred, therefore, is answered in the negative, in favour of revenue and against assessee.