MAVUKKARAI N ESTATE TEA FACTORY Vs. ADDITIONAL COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE petitioner herein is challenging the validity of an order passed by the respondent on December 6, 1972, rejecting the petitioner's revision petition against the order of the Income-tax Officer making a consolidated assessment for the period from September 1, 1969, to March 31, 1971, consisting of nineteen months. A firm having the same name as the petitioner, was originally constituted under a deed of partnership dated September 1, 1966, with 5 partners and their profit sharing ratio was l/5th each. That firm was granted registration for the year 1970-71 and 1971-72. During the accounting year relevant for the assessment year 1971-72, four out of five partners retired from the firm on June 30, 1970. THE accounts were settled as amongst the partners and a release deed was executed on July 1, 1970, by the retiring partners. THE said release deed states that the four partners had retired from the firm on receipt of a sum of Rs. 17,500 and the remaining partner, T.K. Joghee Gowder, took over the rights and liabilities of the erstwhile partners in the firm. On the same day, the said Joghee Gowder formed a new firm, the petitioner herein, with three other new partners, under the same name, and the said new firm continued to carry on business from July 1, 1970.

(2.) THIS new firm filed two separate income-tax returns, one for the period September 1, 1969, to June 30, 1970, in respect of the old firm and another for the period July 1, 1970, to March 31, 1971, in respect of the newly constituted firm. It claimed that on the basis of the said two returns, two separate assessments will have to be made by the Income-tax Officer. But the Income-tax Officer made a single assessment on the firm for both the periods thinking that it is merely a reconstitution of the old firm. According to the Income-tax Officer, there were no two different entities to warrant two separate assessments and that the new firm had been formed by the reconstitution of the old firm. The petitioner, aggrieved by the said order of the Income-tax Officer dated October 16, 1971, took the matter in revision before the respondent. The respondent in his order dated December 6, 1972, confirmed the order of the Income-tax Officer holding that as there was no interregnum between the dissolution of the old firm and the constitution of the new firm, the old firm should be deemed to continuous reconstituted, that on the facts there was only a change in the constitution of a firm as distinguished from succession, and that under Section 187(2)(a), the old firm should be taken to continue for the purpose of assessment. The view taken by the respondent in the said order has been challenged in this writ petition.

(3.) THE above decision has been cited with approval by a Full Bench of the Allahabad High Court in Dahi Laxmi Dal Factory v. Income-tax Officer [1976] 103 ITR 517. In that case it has been held that Section 187 applies only where a firm is reconstituted in accordance with Sections 31 and 32 of the Indian Partnership Act, but where a firm is dissolved either by agreement of the partners or by operation of law and another firm takes over the business, that will be a case of succession governed by Section 188 of the Act, even though some of the partners of the two firms are common. In that case a firm had been constituted by two partners. On the death of one partner, the surviving partner took over other persons as partners and thereafter carried on the partnership business. THE question arose whether there was a reconstitution of the old partnership or whether it is a succession of the business of a new entity. As already stated, the court took the view that as the erstwhile firm stood dissolved by operation of law on the death of one of the partners, the firm which was constituted by the surviving partner and others cannot be said to be a reconstitution of the old firm.