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TMI Blog1987 (2) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... rm was a separate entity from the newly constituted firm and so their income had to be assessed separately. The ITO did not agree with the stand of the assessee. He made only one assessment on the reconstituted firm which existed at the time of assessment by taking as taxable income the total of the incomes for both the periods as stated above. 3. The assessee appealed to the CIT(A) and contended that the ITO erred in his decision. It was urged that the ITO apparently considered the facts of this case as coming under s. 187 of the IT Act, 1961, which according to the assessee, was not correct. It was contended by the assessee that the earlier firm came to an end and the new firm took over so that it was a case of succession of one firm by another as envisaged under s. 188 of the Act. Though no deed of dissolution was executed, it was urged that this was a case of dissolution by conduct of the parties. The CIT(A) found that the assessee had not intimated about the alleged dissolution of the firm to the Bank or to the Excise Authorities. The assessee had stated that it had informed only its purchasers and had closed the accounts and had drawn up a balance-sheet as on 30th Nov., 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution of the firm, the income of the two periods cannot be clubbed together. His point was that even in a case coming under s. 187 two separate assessments had to be made. For this proposition he relied on the separate judgment of Justice H.N. Seth in the case of Dahi Laxmi Dal Factory vs. CIT and Anr. (1976) 103 ITR 517 (All) (FB). He drew our attention to page 535 of that report where it has been held that though the assessment has to be made on the firm as re-constituted at the time of the assessment, it is nowhere laid down in the Act that the income of the old firm should be included in the income of the new firm while making such assessment. Further, he referred to the separate but concurring decision of Justice R.M. Sahai in the case of Vishwanath Seth vs. CIT (1984) 38 CTR (All) 366 (FB) : (1984) 146 ITR 249 (All) (FB) wherein the learned Judge has referred to the observations of Justice H.N. Seth in the case of Dahi Laxmi Dal Factory. He fairly pointed out that Justice Sahni has neither approved nor disapproved the comments of Justice H.N. Seth in the case of Dahi Laxmi Dal Factory. Nevertheless, he urged that the principle enunciated in the separate judgment of Just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners in the new firm and six of the old partners continued to be partners in the new firm. Since all the three conditions are satisfied, the case evidently comes within s. 187(2). Hence, this case has to be regarded as a change in the constitution of the firm and not a dissolution of the firm. We have gone through the decision in the case of E.H. Kathawala and Co. relied on by the assessee for the proposition that the facts of the instant case come under s. 188 of the Act. However, we find that the facts of the said case are distinguishable on facts. In that case, there was the death of a partner. Sec. 42 of the Partnership Act states that the death of a partner automatically dissolves a firm unless there is a contract to the contrary. The decision in that case rested upon that crucial fact. There was a death of a partner and there was no contract to the contrary. In the case before us, there is no death of any partner. One partner has retired and two partners have come in. The Partnership Act envisages such changes in s. 32 of the Partnership Act, but it does not say that the retirement of a partner would bring the partnership to an end. In other words, when a partner retires, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment as to the comment of Justice Seth in the case of Dahi Laxmi. That comment rested upon the proposition that the newly constituted firm was a separate entity than the earlier firm and so the income of two different entities cannot be assessed in one assessment, even though both the assessments may have to be made separately on one of them. If that were so, then in the case of Vishwanath Seth it should have been held by the majority that the two entities were different and the new firm could not be penalised for the concealments of the earlier firm. On the contrary, the majority judgment in Vishwanath Seth to which Justice Seth was a party, clearly states that under the general law of partnership as well as under s. 187 of the Act, 1961, in the case of re-constitution of a firm, it retains its identity and continues and is assessable in respect of the income of the entire previous year. In view of this finding in the case of Viswanath Seth, the observations of Justice Seth in the case of Dahi Laxmi Dal Factory must be held to be impliedly overruled especially when Justice Sahai in the case of Viswanath Seth has not approved the comments of Justice Seth in the case of Dahi Lax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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