V.G. Oak, C.J. - (1.) THE question raised in this incline-tax reference is with respect to the procedure applicable to the assessment of a firm. THE question has arisen thus.
(2.) THE assessee is a firm, Messrs. Rai Bahadur Jessa Ram Fatehchand. THE assessment year is 1959-60. THE relevant accounting period was from October 24, 1957, to November 11, 1958. THE assessee-firm was constituted under a deed of partnership executed in the year 1954. During the relevant accounting year one of the partners, Thakurdas, died on or about August 1, 1958. THE assessee filed two separate returns for the assessment year. One return was for the period from October 24, 1957, to August 1, 1958, while the other return was for the period from August 2, 1958, to November 11, 1958. According to both the returns, there, was a loss for both the periods. THE Income-tax Officer proceeded to make separate assessments for the two periods. He did not accept the position that there was loss for the first period. He made an addition of a sum of Rs. 9,305 with respect to the first period. Assessment for the first period was made on that basis. In appeal the assessee urged before the Appellate Assistant Commissioner that the Income-tax Officer was in error in making two separate assessments for the two periods in the same accounting period. This contention was rejected by the Appellate Assistant Commissioner and also by the Appellate Tribunal. At the request of the assessee, the Appellate Tribunal has referred the following question of law to this court: "Whether, on the facts and in the circumstances of the case, the assessee-firm was newly constituted after the death of the partner on August 1, 1958, within the meaning of Section 26(1) of the Act and whether the assessment should have been made on the firm as constituted at the time of making the assessment ? " This case involves the interpretation of Section 26 of the Indian Income-tax Act, 1922 (hereafter referred to as "the Act"). Section 26 dealt with change in the constitution of a firm. Sub-section (1) of Section 26 stated : "Where, at the time of making an assessment under Section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment shall be made on the firm as constituted at the time of making the assessment. ..."
(3.) SUB-section (2) of Section 26 ran thus : "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. ..." According to the assesses, the present case is governed by Sub-section (1) of Section 26 ; consequently, a single assessment for the entire accounting period ought to have been made. According to the department, this is a case of succession governed by Sub-section (2) of Section 26 ; consequently, two separate assessments for the two periods were properly made by the Income-tax Officer.;