TMI Blog1982 (11) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... nsisted of 13 partners. One of the partners retired, and a fresh partnership deed, comprising of 12 partners, was drawn up on November 2, 1962. In the accounting year relevant to the assessment year 1965-66, one of the partners died and, in his place, his wife was taken as a partner. This change was also evidenced by a fresh partnership deed. Again, in the accounting year relevant to the assessment year 1967-68, one of the partners retired and two new partners were taken. Finally, on October 21, 1968, four of the erstwhile partners retired and, in their place, two persons were taken as partners. For the accounting year relevant to the assessment year 1970-71, the firm thus consisted of 11 partners. During the assessment years 1962-63, 1963-64, 1964-65 and 1965-66, the firm was subjected to sales tax on certain transactions effected by it, and a total sum of Rs. 50,174 was collected from it. This amount was allowed as a trading liability of the assessee-firm in arriving at its taxable income for the relevant years. The firm was contesting its liability for the said sum, and it ultimately succeeded in its contention. In the accounting year relevant to the assessment year 1971-72, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not as a trading liability in a particular assessment year, and subsequently it According to this provision, if an assessee has availed of a deduction has obtained any amount or benefit in respect of such trading, liability, whether by way of refund or remission, the amount so received shall be deemed to be profits and gains of business or profession, and shall be chargeable to income as the income of that previous year. Undoubtedly, the assessee which availed of the benefit of deduction must be the same who has received the refund, as pointed out by the Tribunal. But, the question is, whether in this case it can be said that the assessee which availed of the deductions during the assessment years 1962-63 to 1965-66 is the same which received the refund during the accounting year relevant to the assessment year 1971-72. The Tribunal has taken the view that, because the composition of the assessee-firm was different on both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) where all the partners continue with a change in their respective shares or in the shares of some of them. " 188. Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by section 187, separate assessments shall be made, on the predecessor firm and the successor firm in accordance with the provisions of section 170. While s. 187 deals with reconstitution of the firm and treats it as continuing firm, s. II 8 contemplates a situation where one firm is succeeded by another firm, and both the entities are treated as different entities. Section 187 makes it clear that a mere reconstitution of the firm as defined in sub-s. (2) thereof, does not and cannot be, treated as a change in the identity of the assessee. The assessee-firm continues to be the assessee in spite of the change in its composition. Sub-section (2) makes it clear that, so long as one or two partners continue as partners even after the change, the mere cessation of one or two partners, or induction of one or more partners, does not make the firm a new firm, or a new assessee. The firm which was the assessee before such change continues to be the assessee e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay to some persons, whether bona fide or under a misapprehension of law, or whether it gifts away that amount to someone else, are not factors relevant to the question of taxability. Indeed, we must, say that Mr. Ch. Srirama Rao, learned counsel appearing for the assessee, did not contend before us that what was happening from time to time was the coming into existence of a new firm. He agreed that what was happening was only a reconstitution of the firm from time to time, within the meaning of s. 187(2). His main contention, however, is that this is a case where the income was diverted to the real beneficiaries under an overriding legal obligation and, therefore, it cannot be said that the amount of refund was ever received by the assessee. He says that the amount was only physically received by the assessee for being distributed among the true beneficiaries and that it was accordingly distributed. He wants us to infer an implied agreement among the partners that, if and when any refund of sales tax was obtained, it would be distributed only among those who were partners at the relevant time, from two facts, namely, (i) that the amount of refund was actually distributed among the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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