1979 (7) TMI 21 - HC - Income Tax

Summary

Issues:
Separate assessment for two periods based on firm's dissolution and reconstitution under Income Tax Act, 1961.

Analysis:
The case involved a reference under section 256(1) of the Income Tax Act, 1961, regarding the assessment of income for two periods by a firm. The firm had filed separate returns for the periods from April 1, 1968, to October 10, 1968, and from October 11, 1968, to March 31, 1969, claiming a separate assessment due to a purported dissolution and reconstitution. The Income Tax Officer (ITO) contended that there was no dissolution but a mere change in the constitution of the firm with additional partners, leading to a single assessment for both periods.

The Appellate Authority Commission (AAC) upheld the single assessment as the firm was considered reconstituted. The Income Tax Appellate Tribunal determined that there was no dissolution but a reconstitution with additional partners, applying section 187(2)(a) of the Act. The Tribunal rejected the plea of succession by the assessee and directed a single assessment for the entire period on the present firm, constituted at the time of assessment, disagreeing with the ITO's clubbing of incomes from different periods.

The Tribunal's decision was challenged, arguing that the firm was not dissolved, and there was no succession to warrant separate assessments. The High Court held that in cases of a change in the firm's constitution without dissolution or succession, only one assessment for the entire period is permissible under sections 187 and 188 of the Act. The Tribunal's error in considering separate assessments for broken periods due to a misconception of section 187 was deemed illegal.

Conclusively, the High Court ruled against the assessee, directing a single assessment for both periods of the assessment year 1969-70 on the firm existing at the time of assessment, emphasizing the illegality of computing taxes separately for broken periods. No costs were awarded due to the absence of the assessee-respondent during the proceedings.