COMMISSIONER OF INCOME-TAX Vs. LAYALLPUR ENGINEERING CO

JUDGEMENT

(1.) This is a reference by the Appellate Tribunal on the direction of this court under Section 256(2) of the Income-tax Act, 1961 ( briefly "the Act"), which has stated the following questions for the opinion of this court :

(2.) To appreciate the controversy, it is necessary to set out the facts elaborately.

(3.) The reference relates to the assessment year 1967-68 for which the previous year ended on March 31, 1967. In the next accounting year relevant to the assessment year 1968-69, the assessee-firm was constituted by six partners up to October 4, 1967. Three more partners were inducted on October 5, 1967. One of the original six partners, namely, Surajmal died on February 10, 1968. No business of the firm was carried on from February 11, to February 15, 1968. On February 15, 1968, the, firm was constituted by eight partners and Smt. Shanti Devi, widow of Surajmal. The firm, therefore, filed two returns for the year 1968-69--one for the period ending February 11, 1968, and the other for the period February 15, 1968, to March 31, 1969. Before the Income-tax Officer, it was pleaded for the assessment year 1968-69 that there was the dissolution of the firm on February 11, 1968, when one of the partners died and, therefore, two separate assessments be made for the two broken periods. This plea was negatived by the Income-tax Officer who held that there was no dissolution, but merely a change in the constitution of the firm. He, therefore, made a single assessment for the assessment year 1968-69. The assessee filed an appeal before the Appellate Assistant Commissioner against the single assessment order. He reversed the order of the Income-tax Officer and held that the firm stood dissolved on February 11, 1968, when Surajmal (partner) died. He consequently directed the Income-lax Officer to make two separate assessments, one for the period up to February 11, 1968, for the assessment year 1968-69. The order of the Appellate Assistant Commissioner had become final, inasmuch as no appeal was filed against that order before the Appellate Tribunal. Therefore, the fact situation emerging from the order of the Appellate Assistant Commissioner for the assessment year 1968-69 was that the firm stood dissolved on February 11, 1968, upon the death of one of the partners, that absolutely a new firm came into being from February 15, 1968, and that no business was carried on by the firm during the interregnum period from February 11, 1968, to February 15, 1968.