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TMI Blog1992 (1) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the provisions of section 188 were not applicable ? (2) Whether, on the facts and in the circumstances of the case, the decision reached by the Tribunal, namely, that the income for the two periods November 3, 1967, to January 22, 1968, and January 23, 1968, to October 21, 1968, was required to be clubbed and assessed as a whole for the assessment year 1969-70 was correct in law ?" The facts leading to this reference are as follows. The relevant assessment year is 1969-70, the corresponding previous year being Samvat year 2024, that is, November 3, 1967, to October 21, 1968. The assessee-firm is a registered partnership firm and it deals in cloth. For the assessment year 1969-70, the firm had filed two returns of income for two periods falling within Samvat year 2024 relevant to the assessment year 1969-70. The first return was for the period from November 3, 1967, to January 22, 1968, showing an income of Rs. 24,147. The second return was for the period January 23, 1968, to October 21, 1968, showing a total income of Rs. 70,251. In this case, the original deed of partnership was executed on June 24, 1963, and, under this deed, the partnership was said to have come into exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, mentioned that the new firm had commenced business with effect from January 23, 1968. Under these circumstances, the firm filed two returns for the two separate periods, namely, from the commencement of the Samvat year, that is, November 3, 1967, to January 22, 1968, so far as the old firm was concerned and the other return being for the period January 23, 1968, to October 21, 1968, for the period in which the new firm had functioned as a business entity. It may also be mentioned that intimations that the old firm was dissolved and the new firm had been brought into existence were sent to the Registrar of Firms functioning under the Indian Partnership Act and also to the Income-tax Officer. Along with the returns, an application in Form No. 12 for declaration regarding the continuance of the firm as well as an application for registration under Form No. 11 had been sent. The Income-tax Officer was of the view that the new firm had taken over the business of the old firm as a going concern and even though the income-tax liabilities of the old firm were payable by the partners of the old firm, the tax payable by that firm was actually debited to the profit and loss account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Tribunal, therefore, set aside the order of the Appellate Assistant Commissioner and restored the order of the Income-tax Officer. Thereafter, at the instance of the assessee, the questions hereinabove set out have been referred to us for our opinion. We find that the point which arises for our consideration in this case is now covered by a decision of this High Court in Addl. CIT v. Harjivandas Hathibhai [1977] 108 ITR 517. This High Court has pointed out in Harjivandas Hathibhai's case [1977] 108 ITR 517 that the decision of the Allahabad High Court in R. B. Jessa Ram Fateh Chand [1972] 81 ITR 409 has been overruled by the decision of a Full Bench of the same High Court in Dahi Laxmi Dal Factory v. ITO [1971] 103 ITR 517. After considering the legal position, it was held that section 187 of the Incometax Act does not introduce any change in the relationship between the parties and does not introduce a change from the general law of partnership as laid down by the Indian Partnership Act. It was contended on behalf of the Revenue before us, as has been contended in the instant case that, in view of the provisions of section 187 and particularly subsection (2) of that secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another as contemplated by section 188. Subsection (2) of section 187 merely specifies two kinds of changes in the constitution of the firm. Clause (a) of sub-section (2) of section 187 refers to the continuance of the firm on one or more of the partners ceasing to be partners or one or more new partners being admitted. It deals with cases of retirement of partners and introduction of new partners but the firm under the Indian Partnership Act would continue in such a case. Therefore, all that sub-section (2) of section 187 points out is that with the retirement of one or more of the partners, so long as one of the old partners continues and with the introduction of new partners so long as one of the old partners continues, there is a mere change in the constitution of the firm. Again, under clause (b) of sub-section (2) of section 187, by a mere variation in the respective shares of the partners or shares of some of the partners, there is no change in the firm itself. The old firm still continues and that is emphasised by clause (b) of sub-section (2) of section 187." For the reasons set out in the decision in Addl. CIT v. Harjivandas Hathibhai [1977] 108 ITR 517 (Guj), it must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case did not fall under the provisions of section 187 of the Act. The view taken by the Tribunal that there was a change in the constitution of the firm within the meaning of the said expression under section 187 of the Act and accordingly the provisions of section 188 were not applicable was not correct. It is true, as has been pointed out before us, that section 188 mentions that it would apply when the case is not one covered by section 187 but once it is found that no departure from the provisions of the Indian Partnership Act is contemplated by section 187 of the Income-tax Act, 1961, it must follow that the instant case would not fall under section 187 and, therefore, this being a case of succession of the old firm by the new firm, the case would be governed by section 188. We, accordingly, answer the questions referred to us as follows: Question No. 1 . In the negative, that is, in favour of the assessee and against the Revenue. Question No. 2 . In the negative, that is, in favour of the assessee and against the Revenue. The Commissioner will pay costs of this reference to the assessee. [The Department preferred an appeal to the Supreme Court.] J. Ramamurth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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