1981 (9) TMI 170 - AT - Income Tax

Summary

Issues:
1. Whether two separate assessments should be made for a partnership firm for two different periods in the assessment year 1976-77.
2. Interpretation of Section 187 of the Income Tax Act regarding the change in the constitution of a partnership firm.

Detailed Analysis:
Issue 1: The appeal raised objection to the order of the AAC directing the ITO to conduct two separate assessments for a partnership firm for two distinct periods in the assessment year 1976-77. The assessee, a partnership firm of building contractors, filed two returns for the year, one for the period from April 1, 1975, to November 14, 1975, and the other for the period from November 15, 1975, to March 31, 1976, claiming that new partners were admitted during the first period. The ITO, however, passed a single assessment order, citing a change in the constitution of the firm under Section 187 of the IT Act.

Issue 2: The interpretation of Section 187 of the Income Tax Act was crucial in determining whether the case involved a mere change in the constitution of the firm or a succession. The AAC, relying on relevant case law, directed the ITO to make two separate assessments for the two periods, considering the newly created firm on November 15, 1975, as a successor to the old firm. The Revenue contended that there was no dissolution of the original firm but only an admission of new partners, thus falling under the provisions of Section 187(2) as a change in the constitution of the firm.

Judgment: The Tribunal analyzed the partnership deeds and profit-sharing ratios to determine the nature of the case. Referring to various High Court decisions, the Tribunal held that the situation was not a mere change in the constitution of the firm but a case of succession, supporting the AAC's decision for two separate assessments. The Tribunal distinguished the Supreme Court decision cited by the AAC, emphasizing that it did not pertain to the applicability of Section 187. Consequently, the Tribunal confirmed the AAC's order for two separate assessments and dismissed the Revenue's appeal.