- (1.) THIS is an IT reference under s. 256(1) of the IT Act, 1961, in which the following questions have been referred : "(1) Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in upholding the order of the CIT(A) directing the ITO to assess the income of the periods separately ? (2) Whether, on the facts and in the circumstances of the case, it was not the case of mere change in the constitution of the firm within the meaning of s. 187(2) of the IT Act, 1961 ?"
(2.) THE assessee is a firm. THE relevant assessment year, in the present case is 1979-80. THEre were 19 partners in the said firm and one of them Sri Sunder Lal retired. Under the partnership deed the partnership would stand dissolved on the death or retirement of a partner. Hence, the assessee filed two returns; one for the period 1st April, 1978, to 29th July,1978, and the other for the period 21st Sept., 1978, to 31st March, 1979, alleging that there was dissolution of the firm and hence there should be two assessments in that assessment year. However, the ITO, made one assessment, but the CIT(A) accepted the plea of the assessee. THE Department went in further appeal to the Tribunal. But the Tribunal rejected the appeal following the decision of the Full Bench in Badri Narain Kashi Prasad vs. Addl. CIT 1978 CTR (All)(FB) 390 : (1978) 115 ITR 858 (All)(FB). Sec. 187(2) of the IT Act states : "(2) For the purposes of this section, there is a change in the constitution of the firm-- (a) if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change ; or (b) where all the partners continue with a change in their respective shares or in the shares of some of them : Provided that nothing contained in cl. (a) shall apply to a case where the firm is dissolved on the death of any of its partners." A perusal of s. 187(2)(a) of the IT Act shows that by legal fiction for the purposes of the IT Act, even if one of the partners continues to remain in the firm then the firm will not be deemed to be dissolved. Hence, even if the partnership deed says that the firm will stand dissolved on the retirement of a partner, for the purposes of the IT Act, it will not be deemed to be dissolved in view of S. 187(2)(a) of the Act. For the reasons given above we decide the question referred to us in favour of the Department and against the assessee.;