1981 (6) TMI 60 - AT - Income Tax

Summary

Issues:
1. Whether two separate assessments should be framed for a partnership firm that underwent a change in its constitution.
2. Whether the income of the old firm can be clubbed with the income of the reconstituted firm for assessment purposes.

Analysis:

1. The appeal was filed by the revenue against the order passed by the CIT (Appeals) Meerut directing the Income Tax Officer (ITO) to frame two separate assessments for a partnership firm for the period from 1st April, 1975 to 31st March, 1976. The firm in question had a transition from the old firm, consisting of major and minor partners, to a new firm with only major partners. The contention was that the new firm was distinct from the old firm, warranting separate assessments. The ITO, however, assessed the income of both periods as the income of the new firm, leading to the appeal. The CIT (Appeals) agreed with the assessee's argument, citing a previous decision, and directed the ITO to conduct a separate assessment for the reconstituted firm from 1st Oct., 1975 to 31st March, 1976.

2. The crux of the issue revolved around whether the income of the old firm could be clubbed with the income of the reconstituted firm for assessment purposes. The Tribunal referred to a Full Bench decision of the Allahabad High Court, which clarified that under section 187 of the Income Tax Act, a new firm is liable to be assessed for the income derived by the old firm but does not create a fiction where the income of the old firm automatically becomes the income of the reconstituted firm. Thus, the Tribunal concurred with the CIT (Appeals) decision, stating that the income of the old firm cannot be clubbed with the income of the reconstituted firm, and separate assessment orders must be passed for each period.

In conclusion, the Tribunal dismissed the appeal, upholding the decision of the CIT (Appeals) Meerut and the interpretation of the law as per the Full Bench decision of the Allahabad High Court, emphasizing the necessity of separate assessments for a reconstituted firm.