COMMISSIONER OF INCOME TAX Vs. DECCAN AUTOMOBILES

JUDGEMENT

(1.) THE Tribunal at the instance of the CIT made a reference to this Court, which is as under :--

(2.) TO answer the reference a few facts that are necessary, are noted below : The respondent is an assessee-firm carrying on business in automobile spare parts. The firm initially consisted of six partners and was constituted under a dt. 3rd Oct., 1968 on of the partners, by name M. R. Patel, died. On 14th May 1968 two new partners were taken in the place of the deceased partner and from that date the firm consisted of seven partners. Two separate returns were filed for the asst. yr. 1969-70, one for the period 1st Oct., 1967 to 13th May, 1968 and the other for the period from 14th May, 1968 to 30th Sept. 1968 declaring incomes of Rs. 76,071 and Rs. 47,126/- respectively. The ITO made two separate assessments for the two periods on the basis of the returns. At a later state, on the basis of a note sent by the internal audit party of the IT Department, the ITO reopened the assessment under s. 147 of the IT Act and made a single assessment for the asst. yr. 1969-70 purporting to be under s. 143 (3) read with s. 147 (a) clubbing the incomes of the two periods. He rejected the assessee's contention that with the death of M. R. Patel, the firm constituted under the deed dt. 3rd Oct., 1966 stood dissolved and the firm that came into existence under the deed dt. 12th June, 1968 was entirely a new entity. He observed that after the death of the aforesaid partner, the books of account were not closed, but they were continued right upto the end of the account year 30th Sept., 1968 and that the profits for the whole year were divided among the partners for the two periods on time-basis. Aggrieved by this assessment the assessee went in appeal. Before the AAC the assessee raised two contentions viz., (i) the assessment made under s. 143 (3) read with s. 147 (a) was bad in law as the conditions required under s. 147 (a) were not fulfilled and (ii) even on merits, the ITO was not correct in making a single assessment by clubbing incomes of both the periods since the earlier firm stood dissolved with the death of one of the partners, M. R. Patel, on 13th May, 1968 and the latter firm succeeded to the earlier one in terms of s. 188 of the IT Act and it was not a case of change in constitution as envisaged in s. 18. The AAC did not accept the contentions of the assessee. He held that the case may not fall under s. 147 (a), but falls under s. 147 (b) of the IT Act.

(3.) SHRI Rama Rao, the learned Standing Counsel for the IT Department, has brought to our notice the Judgment of the Supreme Court reported in R.K. Malhotra vs. Kasturbhai Lalbhai {(109 ITR 537 (SC) : 1977 CTR (SC) 336 against the Judgment of the Gujarat High Court referred to by the Tribunal. The Supreme Court discussed the provisions of s. 147(b) of the IT Act. Kailasam, J. speaking for the Bench, took the view that to conditions are necessary for invoking s. 147(b) viz. (i) the Officer should have received information after the original assessment and (ii) in consequence of such information he should have reason to believe that income has escaped assessment. It was further held that the information may be of facts or of law. The information of a fact may be from external source. The only question before the Supreme Court was whether the intimation which the ITO received from the Audit Department would constitute information within the meaning of s. 147(b) of the Act. The learned Judge relied upon several authorities and ultimately was of the view that it constitutes information within the meaning of s. 147(b) of the Act. While specifically dealing with the view of the Gujarat High Court the Supreme Court held thus :