- (1.) AT the instance of the CIT, Lucknow, the Tribunal, Delhi 'C' Bench, Delhi has referred the following questions for the opinion of this Court : "1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in holding that two separate assessments as made by the ITO were in order ? 2. Whether, on the facts and in the circumstances of the case, registration could be granted for part of the assessment year ? 3. Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in allowing continuation of registration upto 20th Sept., 1974, even though no fresh application under s. 184(8) was filed by the assessee and the firm was, therefore, liable to be assessed in the status of URF for the whole of the previous year ?"
(2.) WE have heard Sri Bharat Ji Agarwal, senior standing counsel for the Revenue. No one appeared on behalf of the assessee. The assessee M/s Rafiq Ahmad Feroj Ali, was a partnership firm constituted by three partners, namely, Rafiq Ahmad, Feroj Ali and Nazir Ahmad, Nazir Ahmad died on 20th Sept., 1974. The firm filed two returns of income for the asst. yr. 1975-76. One of the returns was for the period ending 20th Sept., 1974, and the other for the remaining period. The ITO made an assessment for the first period allowing the assessee, the benefit of registration. In the assessment order, it was stated that during the year under consideration, the business had been carried on till 20th Sept., 1974, when the firm was dissolved due to the death of one of the partners, Sri Nazir Ahmed. The books were closed on that date and the firm was dissolved. The AO also mentioned in the assessment order that a declaration under S. 184(7) has been filed which is in time and in order and there being no change in the constitution of the firm, continuation of registration is allowed. Another assessment seems to have been made for the period following 20th Sept., 1974, in the status of an unregistered firm. The CIT initiated action under S. 263 of the IT Act, 1961, as, in his view, it was a case of a mere change in the constitution of the firm and a single assessment should have been made for the entire year. He, therefore, found that the assessment were erroneous and prejudicial to the interest of Revenue and setting aside the same, he directed the ITO to consider making one assessment for the entire period. The CIT noted as follows in his order under S. 263 : "3. It was pointed out by the audit that in view of the following clause in the partnership deed, it was the case of change in the constitution of the firm and not dissolution and, therefore, one assessment should have been made : "That the partnership shall, at first instance, be at will and shall not be dissolved on the death of any partner and the heirs of the deceased automatically shall be the partners of the firm to the extent of the share of the deceased, but no party shall retire or withdraw itself from the partnership till the works already in hand are completed and accounts closed. Therefore, the partnership shall be carried on by the remaining parties." The assessee appealed to the Tribunal that took the view that two assessments for the two broken periods as aforesaid were in order. The Tribunal also took the view that continuation of registration was rightly allowed to the firm for the period upto 20th Sept., 1994. The Tribunal, therefore, set aside the CIT's order. The relevant part of the Tribunal's order is contained in para 3 of is order, which is reproduced below : "3. On examination of the record of the said two assessments, learned CIT formed the view that the assessment orders made by the ITO were erroneous in two respects and to that extent they were prejudicial to the interest of Revenue. Firstly, learned CIT considered that instead of there being two separate assessments, one composite assessment in respect of income of both the said broken periods should ,have been made as according to the CIT, it was a case involving merely a change in the constitution of the firm within the meaning of S. 187(2). Secondly, learned CIT considered that the ITO was not justified in allowing continuance of registration to the firm, as he did inasmuch as death of Sh. Nazir Ahmad and induction of Nazeena as partner involved a change in the constitution of the firm within the meaning of S. 184(7) proviso. In this view of the matter, learned CIT, in exercise of powers under S. 263, set aside both the assessments and directed the ITO to make a composite assessment for the entire period and also to consider afresh the matter of status of the firm from the view point of registration. We find that the constitution of the firm as upto 20th Sept., 1974 was not the same as it was during the period subsequent to 20th Sept., 1974. That being the position, we hold in the light of Badri Narain Kashi Prasad vs. Addl. CIT 1978 CTR (All) (FB) 390 : (1978) 115 ITR 858 (All)(FB) : TC 34R.407 that two separate assessments as made by the ITO were in order. Delhi Benches of the Tribunal have, in cases like the instant one, been taking that view even in face of Nand Lal Sohan Lal vs. CIT 1978 CTR (P&H) (FB) 5: (1977) 110 ITR 170 (P and H) (FB) : TC 34R.660 where the assessment did not arise within the jurisdiction of Punjab and Haryana High Court."
(3.) SEC . 187(1) of the Act 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. What will amount to a change in the constitution of a firm is mentioned in sub-s. (2) of S. 187. It says that 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 continuing with a change in their respective shares or in the shares of some of them. Sub-s. (8) of S. 184 provides that where a change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section. The procedure for applying for registration of a firm is contained in S. 184 of the Act, sub-s. (7) whereof provides that where registration is granted or is deemed to have been granted to any firm for any assessment year, it shall have effect for every subsequent assessment year provided the conditions laid down in the proviso are fulfilled. Sub-s. (8) of S. 184, however, provides that where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section. Sec. 188 then deals with the case where a firm is succeeded by another firm and it says that in such a case, separate assessments shall be made on the predecessor-firm and the successor firm in accordance with the provisions of S. 170. Apparently, it was in accordance with the provisions of S. 18 that the AO made two assessments while in the view of the CIT, a single assessment should have been made in accordance with S. 187(1) of the Act. ;