The real question which arises in this reference is whether it can be said that a firm which has been dissolved "cannot be found" within the meaning of the proviso to sub-section (2) of Section 26 of the Indian Income Tax Act, 1922, notwithstanding that all the members of the firm are alive and can be found.

The assessee is the proprietor of a business carried on under the style of the National Cycle Importing Company. Up to the end of the Samvat year 1994, that is, up to October 23, 1938, this business was owned by the assessee in partnership with two others, Vanamali Premchand Shah, and Fulchand Bhaichand Shaw. On October 24, 1938, the first day of the Samvat year 1995, the assessee took over the entire business and the partnership was dissolved as from that date. In the Samvat year 1995 the Income Tax Officer assessed the total income of the business for the year 1994 at Rs. 16,500. The assessees share of this amount was Rs. 7,427 and Fulchand Bhaichand Shaws share Rs. 4,950, and they were assessed to Income Tax on these amounts respectively. The third partner was not assessed on his share (Rs. 4,125) as the Income Tax Officer was informed that he had ceased to be a partner before the month of October 1938.

The Commissioner of Income Tax considered that the Income Tax Officer had not adopted the right method of assessment. In his opinion the case falls within the second sub-section of Section 26 of the Act and by virtue of the proviso contained in that sub-section the assessee can be assessed to tax on the full amount of the profits earned during the year 1994. Accordingly he revised the assessment and caused notice to be served on the assessee under Section 33 to show cause why he should not be assessed in respect of the sum of Rs. 16,500, which represented to total profits. The assessee objected to the proposal, and in consequence the Commissioner has referred to the Court for decision the following question :

"Whether in the circumstances of the case the Commissioner of Income Tax was right in setting aside the order of the Income Tax Officer and directing that Amritlal Bhaichand Shah should be assessed on the entire profits as successor under Section 26(2) of the Indian Income Tax Act."

We are concerned in this case only with the provisions of Section 26(2) as it stands as the result of the amendment made in the year 1939. The sub-section now reads as follows :-

"Where a person carrying on any business, profession or vocation has been succeeded in such capacity by another person, such person and such other person shall, subject to the provisions of sub-section (4) of Section 25, each be assessed in respect of his actual share, if any, of the income, profits and gains of the previous year :

Provided that, when the person succeeded in the business, profession or vocation cannot found, the assessment of the profits of the year in which the succession took place up to the date of succession, and for the year preceding that year shall be made on the person succeeding him, in like manner and to be same amount as it would have been made on the person succeeded or when the tax in respect of the assessment made for either of such years assessed on the person succeeded cannot be recovered from him, it shall be payable by and recoverable from the person succeeding, and such person shall be entitled to recover from the person succeeded the amount of any tax so paid."

Looking merely at the words used in the first paragraph of the sub-section it would appear that they are only intended to apply to a succession which has taken place during the year of account and not to a succession which has become effective during the year of assessment. Mr. Sesha Ayyangar on behalf of the Commissioner, however, contends that the first paragraph of the sub-section must be read in conjunction with the second paragraph and says that when this is done the sub-section is wide enough to cover also a succession during the year of assessment. For the purp