R.K. Gulati, J. - (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (for short, "the Act"). The following question of law has been referred for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order of the Appellate Assistant Commissioner that two separate assessments be made for the assessment year 1976-77, one for the period from April 1, 1975, to September 30, 1975, and the other for the period October 1, 1975, to March 31, 1976, and not the assessment as made by the Income-tax Officer ?"
(2.) THE brief facts are that in the previous year relevant to the assessment year 1976-77, to which the dispute pertains, up to September 30, 1975, the assessee-firm was comprised of four partners which included two minors admitted to the benefits of partnership. With effect from September 30, 1975, the minors admitted to the benefits of partnership retired from the firm. THE remaining two partners along with one Smt. Parmeshwari Devi executed a new deed of partnership with effect from October 1, 1975. THE assessee claimed that two separate assessments were to be made in respect of two broken periods, i.e., one for the period April 1, 1975, to September 30, 1975, and the other for the period October 1, 1975, to March 31, 1976. THE assessee accordingly filed two sets of returns for the respective periods and separate accounts. However, the Income-tax Officer held that it was a case of mere change in the constitution of the firm and made one assessment for the period before and after the reconstitution. In appeal, the Appellate Assistant Commissioner upheld the claim of the assessee in view of the decision of this court in CIT v. Shiv Shanker Lal Ram Nath [1977] 106 ITR 342 and directed the Income-tax Officer to frame two assessments afresh on the basis of two returns filed by the assessee for the two periods and in accordance with law. THE Department appealed to the Income-tax Appellate Tribunal. THE appeal was dismissed, saying that there was no scope for interference as the view taken by the Appellate Assistant Commissioner was in consonance with the decision of this court relied upon by the Appellate Assistant Commissioner. It is in this background, at the instance of the Revenue that the aforementioned question has been referred to this court. Sub-section (1) of Section 187 of the Act, inter alia, provides that where, at the time of making an assessment, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. The expression "change in constitution" for the purposes of Section 187 is defined in Sub-section (2) by its clauses (a) and (b). On a plain reading of Clause (a) of Sub-section (2) of Section 187, it would be evident that when one or more of the partners retire(s) and the business is continued by the remaining partners with or without new partner(s), the case falls within the mischief of Section 187(2) of the Act. At this juncture, we may notice that in the case of Shiv Shanher Lal [1977] 106 ITR 342 (All), the view expressed by this court was that in a case where the firm is reconstituted, the old firm ceases to exist. Section 187 does not contemplate that the income derived by the old firm becomes the income of the reconstituted firm. It was pointed out that all that Section 187 provides for, is to make the new firm liable to be assessed in respect of the income derived by the old firm, but the income for the entire previous year, i.e., pre and post-change periods, cannot be clubbed at one place and the income for the two broken periods is to, be assessed separately in the hands of the reconstituted firm. The view expressed in the above case was approved by a Full Bench of this court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858. However, the above cases were overruled by a larger Full Bench of this court in Vishwanath Seth v. CIT [1984] 146 ITR 249, and it was held that the correct legal position is "that in cases of reconstitution under Section 187 the same firm continues and is assessable in respect of the income for the entire previous year." In other words, where in the midst of an accounting year, there is a change in the constitution of the firm, in terms of Section 187(2), the assessment is to be made as required by Sub-section (1) of Section 187 on the firm as constituted at the time of making the assessment. In cases falling under Section 187, a single assessment is required to be made in respect of the income for the entire previous year, clubbing the income of both pre and post-change periods at one place.
(3.) IN view of the above discussion, the decision of the income-tax Appellate Tribunal cannot be upheld. Learned counsel for the a'ssessee strenuously urged that the question referred to this court is returned unanswered inasmuch as both the appellate authorities had failed to address themselves on the point that the assessee's case was one of succession and npt a case of reconstitution, inasmuch as the reconstitution was preceded by a dissolution of the firm. We are unable to accept the contention put forward on behalf of the assessee. From a perusal of the order passed by the Tribunal, it is abundantly clear that no such plea was put forward before it on behalf of the assessee. The question that fell for consideration before the Tribunal was that there being a reconstitution of the firm in terms of Section 187(2), whether two separate assessments in respect of the broken periods were called for. It is on this premise the Tribunal had upheld the order of the Appellate Assistant Commissioner who had directed the Income-tax Officer to make two separate assessments.;