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Issues:
- Interpretation of section 187 of the Income-tax Act, 1961 regarding assessments in case of a change in the constitution of a firm. - Applicability of the proviso to sub-section (2) of section 187 inserted by the Taxation Laws (Amendment) Act, 1984. - Determination of whether a firm was dissolved on the death of a partner and its impact on assessments. Analysis: The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, concerning the assessment of a registered firm for the year 1978-79 following a change in its constitution due to the death of a partner. The primary issue was whether two separate assessments should be made for the periods before and after the reconstitution of the firm. The Income-tax Officer initially made a single assessment for both periods, which was upheld by the Appellate Assistant Commissioner but overturned by the Income-tax Appellate Tribunal based on a Full Bench decision. Section 187 of the Income-tax Act deals with assessments in cases of changes in the constitution of a firm. The Tribunal's decision was based on the now-overruled Full Bench decision in Badri Narain Kashi Prasad v. Addl. CIT, which held that a firm after reconstitution is a distinct assessable entity requiring separate assessments for pre and post-reconstitution periods. However, this decision was no longer valid as it had been overruled by a larger Bench in Vishwanath Seth v. CIT. During the pendency of the reference, section 187 was amended by the Taxation Laws (Amendment) Act, 1984, with a proviso inserted retrospectively from April 1, 1975. The proviso exempted cases where a firm is dissolved on the death of a partner from certain provisions. The court highlighted the importance of determining whether the firm was dissolved upon the death of the partner, which required examination of the partnership deed and the conduct of the surviving partners. Given the amended provision and the need for further investigation into the dissolution of the firm, the court returned the reference unanswered with directions for the Income-tax Appellate Tribunal to rehear the appeal and decide it afresh, considering the amended section 187(2) and the possibility of taking additional evidence if necessary. The judgment emphasized the significance of factual findings in resolving the controversy and ensuring compliance with the amended law.
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