VISHWANATH SETH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BEING of the opinion that the Division Bench decision of this Court in Shiv Shanker Lal 1975 CTR (All) 22 (FB) : (1977) 106 ITR 342 (All) and a Full Bench decision in Badri Narain 1978 CTR (All) 390 (FB) : (1978) 115 ITR 858 (All) (FB), may require reconsideration, a Bench has sent the reference made by the Tribunal to a larger Bench. That is how the case has come before this Full Bench. In substance, the question of law is whether on reconstitution of a partnership firm a new taxable entity comes into existence. The two aforesaid decisions have held in the affirmative with the result that according to these decisions two assessments have to be made on the firm : one, as it stood prior to reconstitution and another on the reconstituted firm.

(2.) IN the present reference, the question is of levy of penalty under S. 271(1)(c) of the IT Act, 1961. The submission on behalf of the assessee was that since a new assessable entity comes into existence after reconstitution of a partnership firm, penalty cannot be levied on the reconstituted firm for the default committed by the old firm. Before we deal with this question we may state the material and relevant facts.

(3.) VISHWANATH Seth died in 1964. His five sons continued the partnership business in the same firm name. No outsider was, at any stage, a partner in this firm.