Commissioner of Income Tax vs Aravali Filling Station

A.K. Mathur, J.—This is an Income Tax reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as " the Act"), on the application moved by the Commissioner of Income Tax, Jodhpur. The Tribunal has framed the following question for the decision of this court :

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm stood dissolved on the death of Shri Roshanlal Sharma, partner, on February 9, 1974, and, therefore, two separate assessments should have been made for the two periods, meaning thereby up to February 9, 1974, and for the period from February 10, 1974, to November 12, 1974?"

The facts giving rise to the present reference are that a firm was constituted under the partnership deed dated November 15, 1972, by Prabhusingh Rathore, Arvind Kumar Sharma and Roshanlal Sharma (since deceased). Each partner had an equal share. On the death of Roshanlal Sharma on February 9, 1974, the surviving partners agreed to take the widow of Roshanlal Sharma, as a new partner, and a deed was executed on February 10, 1974, among these three partners. Under the new deed of partnership, the share ratio of Prabhusingh Rathore, Arvind Kumar Sharma and Smt. Naraini Devi, wife of Roshanlal Sharma, was 25%, 35% and 40%, respectively. The assessee-firm, therefore, filed two returns--one for the period October 25, 1973, to February 9, 1974, and the other for the period February 10, 1974, to November 12, 1974. The Income Tax Officer was of the view that the firm was the same, except that there was a change in the constitution, and, therefore, he assessed the income of both the periods in the hands of the assessee. On appeal, the Commissioner of Income Tax (Appeals) accepted the contention of the assessee that there was a dissolution of the firm constituted on November 15, 1972, on the death of Roshan Lal Sharma and the new firm came into existence under the deed operative from February 10, 1974. Aggrieved against this order, the Revenue approached the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur, by filing an appeal against the order of the Commissioner of Income Tax (Appeals). The Tribunal, by its order dated October 23, 1981, relying on the earlier order in the case of M/s. Mewar Transport Co., Udaipur, ITA No. 870/JP/1978-79 dated February 14, 1980, upheld the order of the Commissioner of Income Tax (Appeals). Aggrieved by this order, the Commissioner of Income Tax, Jodhpur, moved an application before the Tribunal for stating the case and referring the question arising out of its order dated October 23, 1981, to the High Court for its opinion. In these circumstances, the Tribunal has framed the aforesaid question and referred the matter to this court for an answer to the aforesaid question.

Mr. Arora, learned counsel for the Revenue, as well as Mr. Balia, learned counsel for the assessee, have invited our attention to Additional Commissioner of Income Tax Vs. Emery Stone Mfg. Co., Surana and Co. Vs. Commissioner of Income Tax, Commissioner of Income Tax Vs. Sukhlal Sohanlal, Commissioner of Income Tax Vs. Sukhlal Sohanlal, , Commissioner of Income Tax Vs. Jivan Ram Mangatrai, Addl. Commissioner of Income Tax Vs. M.K.M. Moosa Bhoy Amin, and Commissioner of Income Tax Vs. Hind Agencies, These are all decisions of this court wherein, relying on the judgments of the various High Courts, a view has been taken that when one of the partners retires or dies and a new firm is constituted, then two separate assessments for the two periods, i.e., one till the retiring or dying partner was a member and another when a new partner is added to the firm will have to be made.

In the present case, Roshanlal Sharma, who was a member of the old partnership firm, died and his wife was added as a new partner effective from February 10, 1974, and two returns for the two separate periods had to be filed, one from October 25, 1973, to February 9, 1974, and was the other from February 10, 1974, to November 12, 1974. This actually done and the same was accepted by the Commissioner of Income Tax (Appeals) as well as by the Tribunal. In the various decisions of this court, the position has been crystallised and it has been held that two separate assessments on the firm will have to be made. Thus, in this view of the matter, the Tribunal has rightly held that two separate assessments for the two periods, namely, one from October 25, 1973, to February 9, 1974, and another from February 10, 1974, to November 12, 1974, shall be made.

Thus, we answer the question in the affirmative. On the facts and circumstances of the case, the parties are left to bear their own costs.