1989 (8) TMI 54 - HC - Income Tax

Summary

Issues:
Interpretation of sections 187(2) and 188 of the Income-tax Act, 1961 regarding succession or change in the constitution of a firm for assessment purposes.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Tribunal questioned whether there was a succession or a change in the constitution of the firm under sections 187(2) and 188. The assessee, a registered firm, filed two returns for the assessment year 1978-79, claiming that the firm was dissolved on March 18, 1977, and a new firm was constituted on March 19, 1977. The Income-tax Officer considered it a change in the constitution due to some partners continuing in the new firm, leading to a single assessment. The Commissioner of Income-tax (Appeals) and the Tribunal upheld this decision, citing the judgment in Jalam Chand Mangilal (No. 1) v. CIT [1982] 138 ITR 343.

In Jalam Chand Mangilal's case, it was held that a dissolution followed by the constitution of a new firm constituted a succession under section 188. However, this decision was overruled by a Full Bench in Girdharilal Nannelal v. CIT [1984] 147 ITR 529, which was approved by the Supreme Court in Wazid Ali Abid Ali v. CIT [1988] 169 ITR 761. The Supreme Court clarified that a change in the constitution of a firm required a single assessment for the entire accounting period, clubbing income before and after the change.

Considering the Supreme Court's approval of the decision in Ganesh Dal Mills v. CIT [1982] 136 ITR 762, the court concluded that the reference had to be answered in the affirmative against the Revenue. Therefore, the court held that in this case, there was a change in the constitution of the firm, not a succession, and a single assessment was appropriate. The parties were directed to bear their own costs in the circumstances of the case.