R.L. Gulati, J. - (1.) THE petitioner is a partnership firm carrying on business at Sitapur in the name and style of M/s. Dahi Laxmi Dal Factory. THE firm was constituted under a deed of partnership dated 28th June, 1969. THEre were two partners, Yashwantlal and Deep Narain, besides three minors who were admitted to the benefits of the partnership under Section 30 of the Indian Partnership Act. Prior to the formation of the firm there existed another firm of the same name and style constituted under a partnership deed dated 21st June, 1966, with two partners, Jethalal, father of Yashwant Lal, and Deep Narain. To the benefits of that partnership also the three minors had been admitted. Jethalal died on June 21, 1969, and the present partnership took over the business of the erstwhile firm. During the assessment year 1970-71, the petitioner claimed that on the death of Jethalal the old firm stood dissolved on 21st June, 1969, and on the following day the new firm took over the business and, therefore, two assessments should be made, one against the old firm and the other against the new firm for the respective periods during which they were in existence during the relevant previous year. THE Income-tax Officer did not accept this claim of the petitioner and passed one assessment order for the whole year against the petitioner-firm. THE petitioner's revision application to the Commissioner also failed. THE petitioners have now approached this court under Article 226 of the Constitution.
(2.) THE case of the department before the income-tax authorities as also before us is that the petitioner-firm was the result merely of the reconsti-tution of the old firm and, as such, the case was covered by Section 187 of the Income-tax Act, 1961, and one assessment had to be made against the reconstituted firm. THE assessee's case is that it is a case of succession of one firm by another firm and the assessment should be made on the two firms separately under Section 188 of the Income-tax Act. When the matter came up before the Division Bench of this court, the department placed reliance upon the two decisions of this court, namely, R. B. Jessa Ram Fateh Chand v. Commissioner of Income-tax, [1971] 81 ITR 409 (All). and Civil Misc. Writ No. 5801 of 1970 (Ram Narain Laxman Prasad v. Income-tax Officer, 1972 84 ITR 233.), decided on 20th May, 1971. THE Bench doubted the correctness of those decisions and referred the case to a larger Bench. That is how this matter has now come up before us. Section 187 of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), provides for the assessment of a firm where at the time of making assessment it is found that a change in the constitution of the firm has taken place and Section 188 of the Act provides for the assessment where a firm carrying on business is succeeded by another firm. The two provisions read as under : " 187. Change in constitution of a firm.--(1) Where at the time of making an assessment under Section 143 or Section 144 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 I Provided that- (i) the income of the previous years shall, for the purposes of inclusion in the total income of the partners, be apportioned between the partners, who, in such previous year, were entitled to receive the same, and (ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment. (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 chance in their respective shares or in the shares of some of them. 188. Succession of one firm by another firm.--Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by Section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of Section 170." In essence Section 187 provides that if a firm is reconstituted before an assessment is made against it the assessment will be made upon the reconstituted firm even though income has to be divided between the partners who were actually entitled to a share in such income. The first question to be decided is as to what does the expression "reconstitution of the firm " mean. A firm in common law is not a legal entity but is merely a compendious name of persons who agree to carry on business in partnership. But under the Income-tax Act a firm has been given a legal status in a limited sense inasmuch as it is a separate taxable entity and is subject to tax which is popularly called "firm tax". But even then the words " firm " and " partnership ", etc., have to be given the same meaning as they have under the Indian Partnership Act. It is so provided in Section 2(23) of the Act which reads : " 2. (23) In this Act,' firm ', ' partner ' and ' partnership ' have the same meanings respectively as in the Indian Partnership Act, 1932, with one difference, viz., that for the purposes of this Act ' partner ' includes a minor admitted to the benefits of partnership."
(3.) THEREFORE, we will have to refer to the Indian Partnership Act to find out as to what is understood of the expression " reconstitution of a firm " and how it is different from a firm which is newly constituted to determine the scope of Sections 187 and 188 of the Act. Under the Indian Partnership Act a firm can be said to be reconstituted when a new partner is added or ah existing partner retires or is expelled without dissolving the firm. Chapter V of the Indian Partnership Act deals with the incoming and outgoing of partners. Section 31 of that Chapter provides : " Subject to contract between the partners and to the provisions of Section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners." ;