Commissioner of Income Tax vs Haryana Trading Co.

Milap Chandra, J.—This reference u/s 256(1) of the income tax Act, 1961 (''the Act'') is at the instance of the revenue to decide the following question of law, namely: Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in directing for passing two separate assessments, one for pre-change and other for post-change period specially when Tribunal has held that it is a case of change in the constitution of the firm within the meaning of section 187(2) of the income tax Act, 1961?

The relevant assessment year is 1979-80. One of the partners of the assessee-firm retired during the relevant period. The assessee filed two separate returns, one for the period up to the date of retirement and the other for the period thereafter. The assessee claimed that it was a case of dissolution of the firm and, therefore, of succession to which section 188 of the Act, applies. The ITO rejected the contention and so also the Commissioner (Appeals). In the assessee''s further appeal to the Tribunal, it was held by the Tribunal that it was a case of change in the constitution of the firm and not of succession. All the same, the Tribunal further directed the making of two separate assessments for the two different periods as claimed by the assessee. Aggrieved by this ultimate direction, the revenue has come up in reference to this Court.

It is obvious that the Tribunal having held that it is a case of mere change in the constitution of the firm, and not of succession, it had to logically flow from this finding that it is a case governed by section 187 of the Act and the income for the two periods had to be clubbed together for making one assessment. Obviously section 188 is attracted only when section 187 is inapplicable. The ultimate direction by the Tribunal to make two assessments is, therefore, not sustainable. Consequently, the reference is answered in favour of the revenue and against the assessee as under:

The Tribunal having held that it is a case of change in the constitution of the firm within the meaning of section 187(2) of the income tax Act, 1961, it was not justified in directing the making of two separate assessments instead of one for the entire period.

No costs.