Commissioner of Income Tax vs Nagpal Gulati and Co.

J.S. Verma, J.—This reference u/s 256(1) of Income Tax Act, 1961, at the instance of the Revenue, is for the decision of the following question of law, namely :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in confirming the order of the CIT (Appeals) directing the ITO to pass two separate orders for the two periods, i.e., before and after the death of the partner?"

The assessee is a partnership firm. It was constituted by a deed of partnership dated January 1, 1970. It consisted of four partners, one of whom, Shri K.L. Arora, died on January 28, 1973, and a fresh deed was executed on January 29, 1973, and two new persons were inducted as partners. The accounts of the deceased partner were closed and the profit and loss account and balance-sheet till the date of death of the partner were prepared separately. The assessee filed two returns of income for the two periods, prior and subsequent to the date of death of the partner, for the assessment year 1974-75 for which the accounting period ended on December 31, 1973. The Income Tax Officer held that it was not a case of succession u/s 188 of the Income Tax Act, but only a change in the constitution of the firm for which one assessment should be framed in accordance with Section 187(1) of the Act. He passed a single assessment order accordingly for the accounting period. In appeal, the Commissioner of Income Tax (Appeals) took the contrary view and held that two separate assessments should be framed for the two periods, prior and subsequent to the date of death of the partner, treating it as a case of succession u/s 188 of the Act. The Tribunal has affirmed the view of the Commissioner of Income Tax (Appeals) and accordingly dismissed the appeal of the Revenue.

Aggrieved by the view taken by the Tribunal, the Revenue sought a reference u/s 256(1) of the Act, which, has been made for decision of the aforesaid question of law.

In view of the facts that the relevant period in the present case is prior to April I, 1975, from which date Section 187(2) of the Act was amended by introducing a proviso therein, this case has to be decided on the''basis of Section 187(2), as it stood prior to the amendment. For this reason, the Full Bench decision of this court in Girdharilal Nannelal and Sukhlal Jhamaklal Vs. Commissioner of Income Tax, construing Section 187(2) of the Act prior to the aforesaid amendment, concludes the point and this reference has to be answered accordingly. It was held by the Full Bench that in such a situation, there was merely a change in the constitution of the firm during the relevant period to be governed by Section 187 and it was not a case of succession governed by the Section 188 of the Act and the income earned by the assessee before such change is to be clubbed with the income earned after such change and a single assessment is to be made on the firm for the entire accounting period. This was also the view taken by us in Chhote Lal Rewaprasad Vs. Commissioner of Income Tax, relating to the period prior to the amendment of Section 187(2) of the Act.

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

The Appellate Tribunal was not justified in law in affirming the order of the Commissioner of Income Tax (Appeals), directing the Income Tax Officer to pass two separate orders for the two periods, before and after the date of death of the partner.

There will be no order as to costs.