COMMISSIONER OF INCOME TAX vs TULSI RAM SITA RAM.

At the instance of the Revenue the Tribunal, Delhi has referred the following question of law relating to the asst. yr. 1979-80 for the opinion of this Court under sub-s. (1) of s. 256 of the IT Act, 1961 (for short the Act) :

"Whether, on the facts and in the circumstances of the case, the Honble Tribunal was justified in holding that two separate assessments are to be made for the returns so filed by the assessee particularly when some old partners continued in the reconstituted firm".

A notice of this reference was sent under registered post to the respondent assessee, which appears to have been served as the acknowledgement due receipt is available on record. List has been revised. No one has appeared for the assessee. We, have, therefore, heard learned Standing Counsel for the Revenue.

For the assessment year in question, the assessee filed two returns, one for the period Dewali, 1977 to 13th July, 1978 and the other for the period 14th July, 1978 to Dewali 1978. One of the partners of the assessee-firm, Sri Radha Raman Agarwal, had died on 14th July, 1978 and it was asserted that as a result of the death, the firm stood dissolved, which was reconstituted thereafter from 14th July, 1978. It is for this reason that two separate returns were filed for the two periods aforesaid and the assessee claimed that separate assessments were required to be made in respect of the two returns that it had filed. The ITO, however, rejected the plea of the assessee and made one assessment clubbing the income of both the periods at one place. On appeal, the AAC accepted the contention of the assessee and on further appeal by the Revenue to the Tribunal the order of the first appellate authority was upheld. The question for consideration is whether on the facts, the case is one covered by the provisions of sub-s. (2) of s. 187, namely, that it is a case of change in the constitution of the firm or it is covered by the provisions of s. 188 and there is succession of one firm by another.

In COMMISSIONER OF INCOME TAX Vs. EMPIRE ESTATE., , it has been held that where a firm carrying on a business is succeeded by another firm and the case is not covered by s. 187, separate assessments have to be made on the predecessor and the successor firm. Sec. 187 provides that where, at the time of making an assessment, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as it is constituted at the time of making the assessment. The expression "change in the constitution of the firm" is defined in s. 187 itself. The relevant part of the definition states that if one or more of the partners cease to be partners in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change, there is a change in the constitution of the firm. The Supreme Court pointed out that these provisions would apply to a firm which survives upon the death of a partner. They would apply to the case of a partnership where a partner dies and the partnership deed provides that death shall not result in the dissolution of the partnership.

In the instant case, from the assessment order as well as from the order of the Tribunal, it is clear that cl. 10 of the partnership deed dt. 21st October, 1968 under which the firm was initially constituted, stipulated that the death of a partner will not dissolve the partnership, but one of the legal heirs of the deceased partner will be given an opportunity to become the partner to the extent of the share of the deceased partner.

In view of the specific provisions in the partnership deed that on the death of a partner, the partnership will not stand dissolved and the firm would survive, in our opinion, it is a case of a "change in the constitution of the firm" upon its reconstitution. The case falls within the scope of s. 187(2). The Tribunal was, therefore, not right in taking the view that two separate assessments were to be made in respect of the two returns filed by the assessee or it was not a case covered under s. 187(2) of the Act.

The question referred to this Court is, therefore, answered in the negative in favour of the Revenue and against the assessee.