1979 (7) TMI 2 - HC - Income Tax

Summary

Issues:
Whether a single assessment should be made for the entire period or two separate assessments should be made for different periods based on the dissolution and formation of a new partnership.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961 regarding the assessment of a firm with changes in partnership. The firm had eleven partners initially, with three partners retiring on July 1, 1969, and two new partners being admitted. The Income-tax Officer initially accepted the claim of the assessee for two separate assessments for different periods. However, the Additional Commissioner of Income-tax set aside this decision and directed a single assessment under section 187(2) of the Act. The Tribunal later reversed this decision, stating that there was a dissolution of the partnership and a new firm had come into existence, hence requiring two separate assessments.

The main contention was whether the changes in partnership constituted a mere change in constitution under section 187(2) or a dissolution leading to succession under section 188 of the Act. The Department argued for a single assessment under section 187(2) based on precedent, while the assessee claimed that the dissolution of the original firm and the formation of a new firm required two separate assessments, citing recent case law.

The court analyzed the facts and found that the original partnership was indeed dissolved, supported by the deed of dissolution and the formation of a new partnership with different partners. The Tribunal's finding of dissolution and formation of a new firm was upheld, leading to the conclusion that two separate assessments were warranted. The court distinguished the present case from previous judgments based on the presence of the dissolution deed and the new partnership agreement.

Ultimately, the court ruled in favor of the assessee, stating that two separate assessments should be made for the different periods involved. The decision was based on the application of section 188 rather than section 187(2) due to the dissolution and formation of a new partnership. The Department was directed to pay the costs of the reference to the assessee, with the advocate's fee specified.