- (1.) THE Income-tax Appellate Tribunal, Delhi Bench "B", Delhi, in exercise of the powers under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax has referred the following question for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that two separate assessments should be made against the reconstituted firm, one in respect of the income derived by it before reconstitution and the other in respect of the income derived after reconstitution ?"
(2.) THE aforesaid question is stated to arise out of the Tribunal's order dated November 15, 1980, passed in ITA No. 4253 (Delhi) of 1979 for the assessment year 1976-77. We have heard Sri Ashok Kumar, learned standing counsel for the Revenue, and Sri P.K. Misra, advocate, holding brief from Sri Bharat Ji Agarwal, counsel for the respondent. The respondent, Meerut Gun House, Meerut, was a partnership firm with six partners. Clause (1) of the partnership deed provided that in the event of the death of any one of the partners, the firm will not be dissolved but the legal heir/heirs of the deceased partner shall be taken as partner. During the course of the year, i.e., on November 19, 1974, one of the partners, namely, Sri Kuldeep Kohli died. His wife is said to have refused to join the partnership firm. The business of the firm continued as before but on March 7, 1975, a dissolution deed was executed purporting to be with retrospective effect from the date of Kuldeep Kohli's death and by the same deed the remaining five partners constituted the firm and continued the business as before. The assessee-firm filed two returns of income for the period June 1, 1974, to November 27, 1974, and the second for the period November 27, 1974, to May 31, 1975. It was claimed that because of the death of the partner, the refusal of his wife to join the firm, and the dissolution deed the earlier firm stood dissolved and, therefore, two separate assessments had to be made for the aforesaid period. This contention was negatived by the Assessing Officer but was accepted by the Commissioner of Income-tax (Appeals) and the Tribunal affirmed the first appellate order.
(3.) AT the instance of the Commissioner, the aforesaid question has been referred for the opinion of this court. A copy of the dissolution deed has been annexed to the reference and is at serial No. 5 in the paper book. This is dated March 7, 1975, and admits the partnership having continued till that date. It is stated in Clause (1) that the partnership hereto before subsisting between the parties is dis-solved and shall always be deemed to have been dissolved on November 19, 1974. It also states in clause (2) that the business of the partners hereto before subsisting between the parties shall henceforth belong to the remaining partners as continuing partners with all its assets, liabilities, etc. Therefore, the dissolution was in some way partial in the sense that the affairs relating to the deceased partner, Sri Kuldeep Kohli, were settled and the remaining partners, who were to continue as such under the earlier deed of partnership, continued to carry on the business. It was, thus, not a case of dissolution of a firm but of succession and reconstitution within the meaning of Sections 187 and 188 of the Income-tax Act, 1961. This court in CIT v. Ganeshi Lal and Sons [1998] 232 ITR 914 has held that where the partnership deed provides that on the death of a partner the firm shall not dissolve, a single assessment has to be made. This was the view taken by the Supreme Court in CIT v. Empire Estate [1996] 218 ITR 355.;