1986 (9) TMI 136 - AT - Income Tax

Summary

Issues:
1. Clubbing of incomes for two different periods by the Income Tax Officer.
2. Interpretation of Section 3(1)(d)(ii) and Section 176 of the Income-tax Act, 1961.
3. Validity of filing two returns for different assessment years.

Detailed Analysis:

1. The appeal was filed by the assessee against the orders of the AAC regarding the clubbing of incomes for two different periods by the Income Tax Officer. The assessee, a firm of nine partners, closed its accounts on 31-12-1980 as per the partnership deed, with the firm being dissolved on 31-3-1981. The Income Tax Officer justified clubbing the incomes of both periods as they fell within the same official year. The AAC upheld this decision, stating that the assessee's option to close accounts is limited to one date during the financial year. The assessee challenged this decision, leading to the appeal.

2. The interpretation of Section 3(1)(d)(ii) and Section 176 of the Income-tax Act, 1961 was crucial in this case. Section 3(1)(d)(ii) allows the assessee to choose the end date of the accounting year, while Section 176 deals with the assessment of total income for discontinued businesses. The assessee argued that choosing 31-12-1980 as the closure date was in accordance with the law. The learned counsel highlighted that making two assessments for different periods was permissible under Section 176(2), emphasizing that filing two returns for separate assessment years was legal.

3. The legal representative cited the Supreme Court decision in Esthuri Aswathaiah v. CIT to support the action of the lower authorities. However, a close reading of the decision revealed that it did not align with the department's contentions. The Supreme Court clarified that there cannot be two previous years in the same assessment year. The Andhra Pradesh High Court decision in Addl. CIT v. K. Ramachandra Rao was also referenced, emphasizing the importance of the date of making up accounts in electing the previous year. The decision in Karnal Kaithal Co-operative Transport Society Ltd. v. CIT was deemed irrelevant to the issues at hand.

In conclusion, the Appellate Tribunal allowed the appeal, setting aside the orders of the lower authorities. It was held that separate assessments should be made against the assessee as an unregistered firm for the assessment years 1981-82 and 1982-83, with distinct previous year periods for each assessment year.