COMMISSIONER OF INCOME TAX Vs. KOHINOOR JEWELLERS

JUDGEMENT

(1.) IN pursuance of the direction of this court under Section 256(2) of the INcome-tax Act, 1961 (for short "the Act"), the INcome-tax Appellate Tribunal, Delhi Bench "A", New Delhi, has referred at the instance of the Revenue, the following two questions for the opinion of this court :

(2.) THE facts are that at the beginning of the previous year relevant to the assessment year 1977-78 with which we are concerned, the firm, Kohinoor Jewellers, was constituted by two partners. On February 16, 1976, one of the partners died when the firm was constituted afresh by the surviving partner along with Smt. Daya Pyari Mathur. THE assessee claimed that the income of the two periods was liable to be assessed separately in the hands of the respective firms in terms of Section 188 of the Act. THE Income-tax Officer, however, framed one assessment clubbing the income of both the periods on the view that it was a case of change in constitution of the firm within the meaning of Section 187 of the Act and, therefore, one assessment was called for.

(3.) AT the outset it may be observed that it is not the case of the Revenue that there was any Clause in the partnership deed that the firm will not dissolve despite the death of a partner. No such case was taken up at any stage either before the Tribunal or other authorities. The question that falls for consideration is whether, on the facts of the case, it is a case covered by Section 188 of the Act or a case to which Section 187 will apply. Section 188 of the Act states that where a firm carrying on a business is succeeded by another firm and the case is not covered by Section 187, separate assessments have to be made on the predecessor firm and the successor firm. Section 187, inter alia, provides that where, at the time of making an assessment, it is found that a change has occurred in the constitution of the firm, the assessment will be made on the firm as it is constituted at the time of making the assessment. The expression "change in the constitution of the firm" occurring in Section 187 for the purposes of that Section means that if one or more of the partners cease(s) to be the partners 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 change, there is a change in the constitution of the firm. In CIT v. Empire Estate [1996] 218 ITR 355 (SC), the Supreme Court has pointed out that the provisions of Section 187 would apply to a case of partnership where a partner dies and the partnership deed provides that death shall not result in the dissolution of the partnership. Such provision is lawful because Section 42 of the Partnership Act contemplates it. Thereafter, it was observed as under (page 359) :