R.K. Gulati, J. - (1.) This reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter to be referred as "the Act"), has been made at the instance of the Revenue to answer the following question of law: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that where there is a change in the constitution of a firm, two assessments have to be made, one in respect of the income derived by the firm before reconstitution and another in respect of the income derived by the firm after its reconstitution ?"
(2.) The assessee is a registered firm and the reference relates to the assessment year 1978-79. One of the partners of the firm, Ramji Lal, expired on October 23, 1977. Consequently, on his death, the remaining two partners, Hanuman Prasad and Dwarka Prasad, continued the business of the firm with effect from. October 30, 1977. It was claimed before the Income-tax Officer on the death of Ramji Lal that the firm was dissolved and the accounts of the firm were closed on October 28, 1977. The assessee also made a claim before the Income-tax Officer that two assessments should be made, (a) for the period April 1, 1977, to October 28, 1977, and (b) for the subsequent period October 30, 1977, to March 31, 1978. The Income-tax Officer, however, made one assessment for both these periods. This action of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner, on appeal being filed by the assessee.
(3.) The assessee went up in appeal before the Income-tax Appellate Tribunal. The Tribunal, following a Full Bench decision of this court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858, allowed the assessee's appeal. In the aforesaid case, this court had taken the view that where there was a change in the constitution of the firm, the firm after the change in its constitution is a distinct assessable entity different from the firm before its reconstitution and, therefore, two different assessment orders should be made, one in respect of the income derived by the firm before reconstitution and another in respect of the income derived after reconstitution of the firm. The Tribunal, therefore, set aside the assessment order with a direction to the Income-tax Officer to make two assessments, one for each of the two periods. It is in this background that the question extracted above has been referred for the opinion of this court.;