1992 (5) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Whether the case involves succession or a mere change in the constitution of the partnership firm under Section 187(2)(a) of the IT Act, 1961.
2. Disallowance of house-tax expenditure.
3. Exemption under Section 80-G for a donation.

Detailed Analysis:

1. Succession vs. Change in Constitution of Partnership:
The primary issue in the Revenue's appeal was whether the case involved a mere change in the constitution of the partnership firm or succession, necessitating separate assessments for the two periods. The original firm, consisting of four partners, was dissolved on 30-09-1984, and a new firm was constituted on 01-10-1984 with a different set of partners. Initially, a composite return was filed, but later two separate returns were submitted. The Commissioner of Income-tax (Appeals) held that it was a case of succession and directed the Assessing Officer to make two separate assessments. The Revenue argued that the provisions of Section 187(2) were applicable, indicating a mere change in the constitution. The Tribunal examined conflicting judicial opinions from various High Courts, noting that the Delhi High Court, being the jurisdictional High Court, had held in a similar case that such circumstances indicated succession rather than a mere change in the constitution. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, affirming that this was a case of succession and not a mere change in the constitution.

2. Disallowance of House-Tax Expenditure:
The assessee's cross-objection included a ground against the disallowance of Rs. 2,894 on account of house-tax. The Assessing Officer had noted that this expenditure was included in the general expenses account, and no evidence was provided to show that the house-tax liability was to be borne by the assessee firm as a tenant. The Tribunal found no merit in this ground, as no evidence was presented to support the claim that the assessee, as a tenant, had to pay the house-tax. Therefore, this ground was rejected.

3. Exemption under Section 80-G for Donation:
The next ground in the assessee's cross-objection concerned the disallowance of a donation of Rs. 5,300, which was not considered exempt under Section 80-G. The Commissioner of Income-tax (Appeals) had only considered a donation of Rs. 5,000 made to a trust, noting that the receipt was dated 01-04-1985, while the accounts closed on 31-03-1985. The assessee argued that the donation was made by cheque dated 16-03-1985, and the delay in encashment should not affect the exemption claim. The Tribunal set aside this matter, directing the Assessing Officer to verify the details, including the issuance date of the cheque and its encashment. If the cheque was genuinely issued on or before 31-03-1985 and honored subsequently, the payment would relate back to the date of issue, and the exemption under Section 80-G would be admissible. Otherwise, no exemption would be granted. This issue was sent back to the Assessing Officer for fresh adjudication.

Conclusion:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision regarding the succession of the partnership firm and dismissed the Revenue's appeal. The disallowance of house-tax expenditure was affirmed, and the issue of the donation exemption under Section 80-G was remanded to the Assessing Officer for further verification. The cross-objection was partly allowed.