1997 (7) TMI 51 - HC - Income Tax

Summary

Issues:
Whether two separate assessments should be made in the hands of a newly constituted firm due to a change in the constitution of the firm.

Analysis:
The case involved a firm constituted by two partners, each representing their Hindu undivided families, which underwent a partial partition resulting in a new partnership deed with four partners, including the original two and their sons. The firm filed two income tax returns for different periods, claiming dissolution after the partition. However, the Assessing Officer considered it a mere change in the firm's constitution due to the induction of new partners and conducted a single assessment.

Upon appeal, the Appellate Assistant Commissioner referred to the decision in Badri Narain Kashi Prasad v. Addl. CIT, where it was held that a reconstituted firm is a distinct assessable entity requiring separate assessments for pre and post-reconstitution income. This decision was overruled in Vishwanath Seth v. CIT, stating that a reconstituted firm retains its identity and is assessable for the entire previous year's income. The Supreme Court in CIT v. Empire Estate also clarified that a change in the constitution of the firm triggers a single assessment if original partners continue post-change.

Applying these principles to the case, the court concluded that the firm's constitution had changed with the addition of new partners, warranting only one assessment. The court disagreed with the assessee's claim of dissolution, upholding the Assessing Officer's decision. As a result, the question posed by the Income-tax Appellate Tribunal was answered in the negative, favoring the Revenue over the assessee.