Commissioner of Income Tax vs Bhagwandas Dwarkadas

J.S. Verma, Actg. C.J.

This is a reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the Revenue to decide the following question of law:

"Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the Commissioner was not correct in concluding that the two separate assessment orders passed by the Income Tax Officer were erroneous and prejudicial to the interests of the Revenue?"

The material facts are these : The relevant assessment year is 1974-75. M/s. Bhagwandas Dwarkadas was a partnership firm carrying on business in foodgrains, etc., at Mandla. It was originally constituted under a deed of partnership dated December 19, 1952, and consisted of three partners, namely, Dwarkadas Agrawal, Kapoorchand Agrawal and Radhelal Agrawal. On September 26, 1973, one of the partners, viz., Radhelal Agrawal, retired from the firm. The partners executed a deed of dissolution on September 26, 1973, and the accounting was done up to that date and beginning fresh accounts from that date for the subsequent period. The remaining two partners, namely, Dwarkadas Agrawal and Kapoorchand Agrawal, continued the partnership business in the old firm name, M/s. Bhagwandas Dwarkadas, Mandla. Two separate returns were filed, one for the period up to September 26, 1973, and thereafter during the relevant accounting year. The Income Tax Officer made two separate assessment for that year according to the two returns which were filed.

The Commissioner of Income Tax initiated action u/s 263 of the Act and held that the Income Tax Officer ought to have made only one assessment for the entire assessment year. This view was taken on the ground that it was a case of change in the constitution covered by Section 187 and not a case of succession covered by Section 188 of the Act. However, the Tribunal has accepted the assessee''s appeal and taken the contrary view in favour of the assessee. Hence this reference to decide the above question of law at the instance of the Revenue.

There can be no doubt that the question for our decision in the present case is fully covered by the Full Bench decision of this court in Girdharilal Nannelal and Sukhlal Jhamaklal Vs. Commissioner of Income Tax, wherein it was held that Section 187(2) indicates that if one or more partners of the old firm continue to be partners in the new firm, it is a case of change as defined in Section 187(2) of the Act. Admittedly, the present case is not covered by the amendment made in Section 187(2) which is applicable from the assessment year 1975-76 only and not prior to it and, therefore, the Full Bench decision in Girdharilal Nannelal and Sukhlal Jhamaklal Vs. Commissioner of Income Tax, construing Section 187(2) prior to its amendment, is clearly applicable. Following that decision, it must be held that the present case is a case of change in the constitution of the firm governed by Section 187(2) of the Act and not of succession covered by Section 188 of the Act. Accordingly, the view taken hy the Tribunal was contrary to law.

Consequently, this reference is answered in favour of the Revenue and against the assessee as under :

"The Tribunal was not justified in holding that the Commissioner was not correct in concluding that the two separate assessment orders passed by the Income Tax Officer were erroneous and prejudicial to the interest of the Revenue."

The Revenue shall get costs from the assessee. Counsel''s fee Rs. 200 if certified.