1983 (11) TMI 34 - HC - Income Tax

Summary

Issues:
1. Dissolution of assessee-firm and assessment of income for different periods.
2. Interpretation of provisions under sections 187 and 188 of the Income Tax Act.
3. Conflict of decisions on whether a new firm constituted after dissolution is a reconstitution or succession.

Analysis:
The case involved a dispute regarding the dissolution of an assessee-firm and the assessment of income for different periods. The firm initially consisted of four partners and was dissolved on November 7, 1973, with a new firm of five partners being constituted thereafter. The question arose whether there should be separate assessments for the periods before and after the dissolution. The Income Tax Appellate Tribunal and the Appellate Authority held in favor of two separate assessments based on the dissolution of the earlier firm and the constitution of a new firm.

The Revenue contended that since the new firm included partners from the dissolved firm, it should be considered a reconstitution under section 187, warranting a single assessment. The Tribunal, however, relied on precedents and held that the dissolution of the old firm and the constitution of a new firm after such dissolution should be treated as a succession, not a reconstitution, under section 188. The court noted conflicting decisions from various High Courts but followed its own consistent stance that a dissolved firm cannot be deemed to continue as reconstituted.

The court emphasized that once a firm is dissolved, it ceases to exist, and any new firm constituted thereafter should be viewed as a separate entity, not a continuation of the old firm. Despite contrary views in other judgments, the court upheld its position that a firm's dissolution results in the end of its existence, necessitating separate assessments for the dissolved and new firms. Consequently, the court ruled in favor of the assessee, affirming the need for two assessments.

Due to the conflicting decisions on the matter and the pending reference to the Supreme Court, the Revenue was granted permission to appeal against the court's decision. The court awarded costs to the assessee and granted leave for the Revenue to appeal to the Supreme Court.