1996 (7) TMI 113 - HC - Income Tax

Summary

Issues:
- Whether there should be two separate assessments for different periods or one assessment for the entire period from April 1, 1974, to March 31, 1975?

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Tribunal questioned the justification of having two separate assessments for different periods rather than one assessment for the entire period. The firm in question, Gorakhpur Shamiana House, experienced a change in its constitution due to the death of one partner, Smt. Shani Rai, on October 22, 1974. Despite her death, the surviving partners continued the business, drawing up a new partnership deed and maintaining the same books of account. The Commissioner initially rejected the assessee's plea for two assessments, citing the partnership deed provision that the death of a partner would not dissolve the firm. However, the Tribunal disagreed, noting that the firm's constitution changed under section 187(2) but did not dissolve, as evidenced by the partners' continued operations and the absence of a formal dissolution deed.

The Tribunal's decision was influenced by the partnership deed's clause and the absence of any business interruption or dissolution by mutual consent. The Revenue argued against two assessments, citing the Full Bench decision in Vishwanath Seth v. CIT, which established that a firm remains the same entity despite changes in its constitution, and the Income-tax Act considers the firm as a distinct assessable entity. This legal position was further supported by the court's decision in CIT v. Basant Behari Gopal Behari and Co., emphasizing that only one assessment should be made for the entire assessment year in case of a change in the firm's constitution due to the death of a partner.

Ultimately, the High Court answered the question in the negative, aligning with the legal precedent that a firm's identity persists despite changes in its constitution, leading to a single assessment for the entire period. The reference was thus disposed of with no costs awarded.