Decided on September 21,1983



S.S.CHADHA,J. - (1.)IN this reference under S. 256(1) of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act the following question has been referred for the opinion of this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there were two firms in existence one for the period June 23, 1966 to March 31, 1967, and the other for the period April 1, 1967 to June 30, 1967, which required to be separately assessed and that it was not a case of a change in the constitution of the firm governed by the provisions of s. 187 ?"

(2.)THE reference has arisen at the instance of the Department and relates to the asst. year 1968 -69, accounting period ending on June 30, 1967. M/s Raghumal Ashok Kumar was being assessed as a registered firm. It derived income from a wholesale business in cotton cloth. The firm was constituted under an instrument of partnership dated April 9, 1962. On March 30, 1967, one of the partners died. On April 25, 1967, a new partnership deed was executed which was to have effect from April 1, 1967. For the asst. year 1968 -69, two returns were filed in the name of M/s Raghumal Ashok Kumar. A return declaring an income of Rs. 21,750 was filed on August 12, 1968. This income was for the period June 23, 1966, to March 31, 1967. Along with the return, an application in Form No. 12 for continuation of the registration of the partnership under the deed dated February 9, 1962, was filed. The other return was filed on the same date declaring an income of Rs. 7,250 for the period April l, 1967, to June 30, 1967. This purported to be the income of the firm constituted under the deed dated April 25, 1967, and this firm also applied for registration in Form No. 11 for the grant of registration.
The ITO made a single assessment on M/s Raghumal Ashok Kumar in which he assessed the income of the entire period from June 23, 1966, to June 30, 1967, and determined the total income at Rs. 32,000 but he allocated the income for the two periods, namely, June 23, 1966, to March 31, 1967, and April 1, 1967, to June 30, 1967. The profits of the two periods were allocated among the partners who were partners during the respective periods. The ITO also granted continuation of registration to the firm which had applied in Form No. 12. On appeal, the order of ITO was confirmed by the AAC by observing that there was only reconstitution of the firm in terms of S. 187(2) of the Act. The assessee went in appeal to the Tribunal. The Tribunal held that the ITO erred in framing one assessment in respect of the two periods on two different firms. It followed the decision of the Bombay High Court in Bhausa Ganusa Pawar & Co. vs. CIT (1966) 62 ITR 75 (Bom), wherein it was observed that the legal effect of the death of the partner of the old firm was itself dissolution and the firm thereafter constituted is a new firm and that the mere circumstances that the business continued without interruption and the new firm came into existence from the moment of the death of the deceased partner of the old firm is not sufficient to hold that there was a mere change in the constitution of the old firm. The assessment was set aside and the case restored by the Tribunal to the file of the ITO for framing proper assessments on the two firms in the light of the observations made by the Tribunal. Subsequently, the assessee filed a miscellaneous application seeking rectification of the order of the Tribunal in certain respects and this application was partially allowed.

(3.)THE question that is raised before us is covered by a large number of decisions, most of them taking the view that in a case such as this the provisions of S. 187 will not apply. These are the two decisions of the Allahabad High Court of the same date reported in Dahi Laxmi Dal Factory vs. ITO (1976) 103 ITR 517 (All) (FB), followed in the decision of the same High Court in Addl. CIT vs. Dilsukh Rai Madho Prasad (1975) CTR (All) 229 : (1977) 108 ITR 299 and CIT vs. Kunj Behari Shyam Lal (1977) 109 ITR 154 (All) (FB), the decisions of the Madras High Court in Kaithari Lungi Stores vs. CIT (1976) CTR (Mad) 311 : (1976) 104 ITR 160 (Mad), Mavukkarai (N.), Estate Tea Factory vs. Addl. CIT (1978) CTR (Mad) 225 : (1978) 112 ITR 715 (Mad) and Addl. CIT vs. Thyagasundara Mudaliar (1979) 13 CTR (Mad) 257 : (1981) 127 ITR 520 (Mad), the decision of a Full Bench of five judges of the Andhra Pradesh High Court in Addl. CIT vs. Vinayaka Cinema (1977) CTR (AP) 212 : (1977) 110 ITR 468, which had, in turn, overruled an earlier decision in Addl. CIT vs. Visakha Flour Mills (1977) 108 ITR 466 (AP) (FB), and the decision of the Calcutta High Court in Mathurdas Govardhandas vs. CIT (1980) 125 ITR 470. On the other hand, the Punjab and Haryana High Court took the contrary view in Dharam Pal Sat Dev vs. CIT (1974) 97 ITR 302, which was followed in Jupiter Foundry & Machines (Knives) vs. CIT (1977) CTR (P&H) 153 : (1977) 109 ITR 92 (P&H), in a slightly different context and was approved by the Full Bench of the same High Court in Nandlal Sohanlal vs. CIT (1978) CTR (P&H) 5 (FB) : (1977) 110 ITR 170 (P&H), and followed in CIT vs. Jagat Ram Om Prakash (1979) 116 ITR 266. There was also a decision of the Andhra Pradesh High Court in Addl. CIT vs. Visakha Flour Mills (supra), which was in favour of the construction contended for by the Department but, as noted earlier, this Full Bench Decision has been overruled by a larger Bench in Addl. CIT vs. Vinayaka Cinema (supra).

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