Commissioner of Income Tax vs Onkar Jagannath Gujarathi and Sons

Sohani, J.—By this reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the Income Tax Appellate Tribunal, Indore Bench, has referred the following question to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that two assessments should be made for two separate periods ?"

The material facts giving rise to this reference, briefly, are as follows:

In respect of the assessment year 1971-72, the assessee-firm filed two returns--one for the period up to September 20, 1970, and the other for the period ending on March 31, 1971--on account of the fact that one of the partners of the firm had expired and the firm was reconstituted with the widow of the deceased partner as a new partner. The Income Tax Officer made one assessment for the two periods but, on appeal, the Appellate Assistant Commissioner, following the decision of the M. P. High Court in Ganesh Dal Mills Vs. Commissioner of Income Tax, , directed the Income Tax Officer to make two separate assessments for the two periods in question. Aggrieved by that order, the Department filed a second appeal before the Tribunal. The Tribunal upheld the view taken by the Appellate Assistant Commissioner and dismissed the appeal. Hence, at the instance of the Department, the Tribunal has referred the aforesaid question of law to this court for its opinion.

Shri Mukati, learned counsel for the Department, was heard. None appeared on behalf of the assessee. Having heard learned counsel for the Department, we have come to the conclusion that the question referred to this court has to be answered in the negative and in favour of the Department. The decision in Ganesh Dal Mills Vs. Commissioner of Income Tax, of this court relied upon by the Appellate Assistant Commissioner has been overruled by a Full Bench decision of this court in Girdharilal Nannelal and Sukhlal Jhamaklal Vs. Commissioner of Income Tax, . The Full Bench held that if during an accounting year, a firm is dissolved and succeeded by another firm, which has as its partners one or more partners of the original firm, the case would be one covered by the provisions of Section 187 of the Act as it would be merely a change in the constitution of the firm as defined by the provisions of Sub-section (2) of Section 187 of the Act. This court further held that in the case of a change in the constitution of a firm during an accounting year, the income earned by the firm before the change has to be clubbed with the income earned after such change and a single assessment has to be made on the firm for the entire accounting period. In view of this decision of the Full Bench of this court, the Tribunal, in our opinion, was not justified in law in holding that two assessments should be made for the two separate periods.

Our answer to the question referred to us is, therefore, in the negative and in favour of the Department. As none appeared on behalf of the assessee, parties shall bear their own costs of this reference.