M.Katju, J. - (1.) HEARD learned counsel for the parties.
(2.) THIS is an income-tax reference under s. 256(1) of the IT Act in which the following questions of law have been referred to us for our opinion : "1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that S. 187(2) of the IT Act, 1961 did not apply in the instant case and hence a single assessment could not be made on the income for the period 1st April, 1979 to 31st March, 1980 ? 2.Whether the Tribunal was justified in confirming the order of the AAC directing the ITO to make two separate assessments for the income of the periods 1st April, 1979 to 30th June, 1979 and 1st July, 1979 to 31st March, 1980 ?" The assessee is a firm and the relevant assessment year is 1980-81. The firm was constituted under a deed of partnership dt. 4th July, 1977, in which there were two partners, viz. Ashok Kumar and Nirmala Dass. On 1st July, 1979, a new deed was drawn up and one Mr. Pankaj Kumar Dass was taken in as another partner. Two returns were filed for the relevant assessment year, one for the period 1st April, 1979 to 30th June, 1979 and the other for the period 1st July, 1979 to 31st March, 1980. The ITO, however, held that it was only change in the constitution of the firm and hence there will be a single assessment. In appeal, the appellate assistant CIT set aside the assessment order and directed two assessment orders and that order was upheld by the Tribunal. Sec. 187(2) of the IT Act, 1961 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 after admitted in such circumstances that one or more of the person 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 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." From the above provision it is evident that even if one of the partners of the firm continues in the firm, it will be reconstitution and not dissolution of the firm. Thus, if there is a partnership firm in which there are three partners A, B and C and at some point of time partners B and C leave the firm and D and E become partners of the firm, yet it will be a case of reconstitution and not dissolution of the firm because A is continuing in the firm. Hence, in view of the provisions of S.187(2) of the aforesaid Act it is a case of reconstitution and not dissolution of the firm.
(3.) IN the present case there is an addition of one more partner but two old partners continued. Hence in view of the provisions of s. 187(2) of the Act it is reconstitution of the firm and accordingly there has to be a single assessment in view of the decision in the case of Vishwanath Seth vs. CIT (1984) 38 CTR (All)(FB) 366 : (1994) 146 ITR 249 (All)(FB). Hence we answer the questions referred to us in the negative, i.e., the favour of the Department and against the assessee.;