Commissioner of Income Tax vs Girdharilal Kanchhedilal

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 for answering the following question of law :

" (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in confirming the order of the Commissioner of Income Tax (Appeals) directing the Income Tax Officer to make two separate assessments for the two periods ?

(2) Whether, on the facts and in the circumstances of the case and in view of the specific provisions in the Income Tax Act, the Appellate Tribunal was justified in relying on the provisions of the Partnership Act, particularly those of Section 42(c) ? "

The material facts are these : The relevant assessment year is 1975-76. The assessee is a partnership firm. On May 11, 1974, during the relevant previous year, one of the partners, viz., Jankivallabh Kathal, died and a fresh partnership was constituted with effect from May 12, 1974, by a fresh partnership deed dated May 21, 1974. The assessee filed two separate returns relating to the two periods prior and subsequent to the date of the death of the partner, Jankivallabh Kathal. The Income Tax Officer held that it was merely a case of change in the constitution of the firm and one assessment for the entire period was framed in accordance with Section 187 of the Act.

The assessee''s appeal to the Commissioner of Income Tax (Appeals) was allowed. It was held that as a result of the death of one of the partners, the firm was dissolved and a new firm was constituted thereafter. Accordingly, it was directed that two separate assessments for the two different periods during the relevant year had to be made. The Tribunal has affirmed the view of the Commissioner of Income Tax (Appeals) and dismissed the appeal filed by the Revenue. It was held that there was no contract to the contrary in the original partnership deed on account of which the partnership firm stood dissolved on the death of one of its partners. Consequently, Section 187 of the Act was held to be inapplicable and it was treated to be a case of succession u/s 188 of the Act.

Aggrieved by this view taken by the Tribunal, this reference has been made for answering the aforesaid questions at the instance of the Revenue,

There is no dispute that in the present case, Section 187 of the Act, as amended by insertion of the proviso by the Taxation Laws (Amendment) Act, 1984, retrospectively with effect from April 1, 1975, applies. The proviso clearly lays down that nothing contained in Clause (a) of Sub-section (2) of Section 187 shall apply to a case where the firm is dissolved on the death of any of its partners. It is rightly not disputed that this proviso squarely applies to the present case. This being so, two separate assessments had to be made for the relevant year 1975-76 : one for the period up to May 11, 1974, and the other for the period subsequent to that date. On similar facts, this was the view taken also in Commissioner of Income Tax Vs. Jasumal Devandas, . It must, therefore, be held that the view taken by the Tribunal is justified.

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

(i) The Appellate Tribunal was justified in law in confirming the order of the Commissioner of Income Tax (Appeals) directing the Income Tax Officer to make two separate assessments for the two periods.

(ii) This question does not arise.

There shall be no order as to costs.