COMMISSIONER OF INCOME TAX Vs. SURYA BHAGAWAN VASTRALAYAM

JUDGEMENT

(1.) IN this reference under section 256(1) of the INcome-tax Act, 1961 (for short "the Act"), at the instance of the Revenue, the following question is referred to this court for opinion, viz.,

(2.) THE respondent is the assessee. It is a registered firm. In the previous year relevant to the assessment year 1979-80, there were six partners in the firm. Out of them, one partner, Sri B.V. Satyanarayana, died on August 28, 1978. In the partnership deed there was no stipulation that in the event of death of one of the partners, the firm would continue as such. After the death of the said partner, a separate partnership was entered into by the remaining partners and a deed of partnership was executed on September 19, 1978. THE assessee-firm filed two returns, the first one for the period from April 1, 1978, to August 28, 1978, and the second one for the period from August 29, 1978, to March 31, 1979. THE Income-tax Officer took the view that on the death of the said partner there was a change in the constitution of the firm, consequently, he made a single assessment for the entire previous year, by order of assessment dated October 31, 1981. He also made a protective assessment on the basis of the income returned for the first period. Against the said order of assessment, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). THE appellate authority took the view that the Income-tax Officer was not justified in making a single assessment for the said two periods and directed the Income-tax Officer to make two separate assessments for the above said two periods. Aggrieved by the said order of the Commissioner of Income-tax (Appeals), the Revenue went in appeal before the Income-tax Appellate Tribunal. THE Tribunal held that on the death of the partner, the firm was dissolved and it could not be said that there was a mere change in the constitution of the firm and that the subsequent firm could not be treated as a continuation of the old firm or that the second firm was only a continuation of the old firm with a change in its constitution. In that view of the matter, the Tribunal dismissed the appeal of the Revenue on January 1, 1994. It is from that order of the Tribunal, the abovesaid question has arisen.

(3.) SECTION 188 provides how the assessment should be made in cases of succession of one firm by another firm. It says that where a firm carrying on a business or profession is succeeded by another firm and section 187 has no application to the case, then separate assessments have to be made on the predecessor firm and the successor firm in accordance with the provisions of section 170.