1974 (10) TMI 12 - HC - Income Tax

Summary

Issues involved:
The judgment deals with the issues of reconstitution of a partnership firm under section 187(2) of the Income-tax Act, 1961, and the entitlement of the firm to choose its accounting period. It also addresses the legality of excluding income from the assessment for a specific period and making separate assessments for the old and new firm.

Reconstitution of Partnership Firm:
The case involved a partnership firm, previously known as "the old firm," which underwent a change in its constitution and became "the new firm." The new firm carried on business under a different name. The questions arose regarding the assessment for the year 1962-63, with the old firm's income up to March 31, 1961, and the new firm's income for the subsequent period.

Accounting Period and Assessment:
The Income-tax Officer initially assessed the reconstituted firm for the entire period from September 30, 1960, to March 31, 1962, combining the income of the old and new firms. However, the Appellate Tribunal held that the new firm, as a new taxable entity, could choose its own accounting period. It directed separate assessments for the old firm's income up to March 31, 1961, and the new firm's income for the subsequent period.

Legal Interpretation and Assessment Procedure:
The judgment clarified that under section 187 of the Income-tax Act, a reconstituted firm is considered a new assessable entity distinct from the firm before reconstitution. The Tribunal's decision to make separate assessments for the old and new firm's income was deemed appropriate. The judgment emphasized that the new firm had the right to choose its previous year under section 3 of the Act, without being compelled to follow the old firm's choice.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that the new firm, post-reconstitution, was a separate assessable entity. It confirmed the necessity of separate assessments for the old and new firm's income. Both questions referred to the court were answered in favor of the assessee, entitling them to costs of the reference.