Chandulal Shivji vs Commissioner of Income Tax

J.S. Verma, C.J.—This is a reference u/s 256(1) of the Income Tax Act, 1961, to answer the following questions of law, namely :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that in the case of the assessee, there was no dissolution of the firm but only a change in its constitution in view of the specific clause in the partnership deed and, therefore, two separate assessments for separate periods could not be framed ?

(2) Whether the Appellate Tribunal was right in holding that the Income Tax Officer was not bound u/s 185(3) of the Income Tax Act to intimate the defect in the assessee''s application and give it an opportunity to rectify the same ?

(3) Whether the Appellate Tribunal was right in holding that even if the Income Tax Officer was required to act in compliance with Section 185(3), the assessee could not get any benefit because on the death of Smt. Dhambai, no fresh partnership deed was executed by the remaining partners and in the absence of such a fresh deed, the application for registration u/s 184(1) read with Sub-section (8) could not be maintained ?

(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in setting aside the order of the Appellate Assistant Commissioner and restoring that of the Income Tax Officer refusing registration and assessing the assessee in the status of an unregistered firm ?"

The relevant year is 1974-75. The assessee-firm consisted of three partners. During the relevant year, one of the partners, Smt. Dhambai, died on May 27, 1973, and the business was continued for the remaining accounting year by the two surviving partners in accordance with the express term in the partnership deed which provided that the firm shall not stand dissolved on the death or retirement of any partner. The assessee-firm filed two returns for that year relevant to the periods prior and subsequent to the death of the partner, Slut Dhambai. The Income tax Officer held that there was merely a change in the constitution of the firm and, therefore, only one assessment had to be made for the entire year. The Appellate Assistant Commissioner did not expressly decide this point but the Appellate Tribunal also came to the conclusion that there was only a change in the constitution of the firm as envisaged by Section 187 of the Income Tax Act and it was not a case governed by Section 188 of the Act. Accordingly, the view taken by the Income Tax Officer was upheld by the Tribunal and a single assessment for the entire accounting year was held to be the correct view. Aggrieved by this conclusion of the Tribunal and its conclusion on ancillary matters, the assessee applied for a reference to this court leading to a reference of the aforesaid questions for decision by this court.

It is rightly not disputed that in view of the Full Bench decision in Girdharilal Nannelal and Sukhlal Jhamaklal Vs. Commissioner of Income Tax, , the Tribunal was justified in taking the view that it was a case of merely a change in the constitution of the firm governed by Section 187 of the Income Tax Act. Therefore, the above question No. 1 has to be answered accordingly. No infirmity in the view taken by the Tribunal leading to the reference of the remaining questions has been shown to us. These questions have also, therefore, to be answered accordingly.

Consequently, it is held that the Tribunal was justified in the view it has taken on the points covered by all the four questions referred for the decision by this court. There will be no order as to costs.