1989 (10) TMI 34 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was legally correct in upholding the order of the Appellate Assistant Commissioner directing the Income-tax Officer to make two separate assessments for the two periods on the basis of the two returns filed by the assessee.

Detailed Analysis:

1. Tribunal's Decision on Separate Assessments:
The core issue revolves around whether the Tribunal was correct in upholding the Appellate Assistant Commissioner's direction for two separate assessments based on the two returns filed by the assessee. The assessee, a partnership firm, claimed two separate assessments for the periods from April 1, 1980, to June 30, 1980, and from July 1, 1980, to March 31, 1981, under section 188 of the Income-tax Act, 1961. The firm was dissolved on June 30, 1980, and reconstituted with an additional partner on July 1, 1980.

2. Income-tax Officer's Rejection:
The Income-tax Officer rejected the assessee's claim, treating it as a mere change in the constitution of the firm under section 187(2)(b) of the Act. He observed that the business, assets, liabilities, creditors, and debtors remained unchanged, and thus, it was a reconstitution rather than a succession. Consequently, he made a single assessment for the entire period, relying on the Full Bench decision of the Punjab and Haryana High Court in Nandlal Sohanlal v. CIT [1977] 110 ITR 170.

3. Appellate Authority's Decision:
The Commissioner of Income-tax (Appeals) allowed the assessee's appeal, not on the grounds argued by the assessee, but based on the Full Bench decision in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858. The appellate authority held that section 187 does not create a fiction that the income of the old firm becomes the income of the reconstituted firm. Therefore, two separate assessments were necessary.

4. Tribunal's Affirmation:
The Income-tax Appellate Tribunal dismissed the Revenue's appeal, affirming the appellate authority's decision without addressing whether there was a dissolution of the old firm followed by succession.

5. High Court's Consideration:
The High Court noted that the appellate authorities did not examine whether there was a dissolution of the previous firm, which is crucial for determining the applicability of section 188. The High Court emphasized the distinction between dissolution and reconstitution, citing Tyresoles (India) v. CIT [1963] 49 ITR 515, and reiterated that section 187 applies only to reconstituted firms, while section 188 applies to succession cases.

6. Supreme Court's View:
The High Court referenced the Supreme Court's approval of the Delhi High Court's decision in CIT v. Sant Lal Arvind Kumar [1982] 136 ITR 379 in Wazid Ali Abid Ali v. CIT [1988] 169 ITR 761, which held that section 187 applies only to firms with continued existence, not to cases where one firm ceases to exist and another comes into existence.

7. Need for Factual Investigation:
The High Court concluded that the question of whether the previous firm was dissolved requires factual investigation by the Income-tax Appellate Tribunal or other tax authorities. Without this investigation, the High Court found it inadvisable to record an answer to the referred question.

Conclusion:
The High Court returned the question unanswered, directing the Income-tax Appellate Tribunal to rehear the appeal and decide afresh, considering whether there was a dissolution of the previous firm. The Tribunal may remand the matter to the first appellate authority if necessary. No order as to costs was made.