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TMI Blog1997 (9) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... lly during the relevant accounting period the extent of his interest in the firm is in terms of the provisions in the deed of partnership dated December 18, 1974 ? (ii) Whether the Commissioner was correct in setting aside the order of assessment on the firm without issuance of notice under section 34 to the firm ? Whether notice under section 34 issued to the partners of the firm is sufficient compliance of the Act, so far as notice to the firm is concerned ? (iii) Whether the view taken by the Commissioner that reconstitution of the firm is only a change in the constitution and hence section 28(1) of the Act is attracted for the assessment is correct ? (iv) Is it correct to hold that the constitution of the firm as available at the time of assessment alone is relevant and it clearly provides for assessment of the firm as it exists at the time of assessment in respect of the income received or receivable by it prior to the reconstitution ? (v) Is it correct to hold that the purport of section 28(1) is to raise liability against the firm as it exists at the time of assessment and that the erstwhile partners of the firm are to be approached for recovery only if recovery is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside the assessment order dated April 25, 1980, and remitted back the case to the assessing authority for fresh disposal according to law, apportioning the income based on the extent of interest of the partners of the firm as reconstituted as per the partnership deed executed on March 28, 1978. It is the above finding that is under challenge before this court. The provisions of section 28 of the Agricultural Income-tax Act, 1950, which require an interpretation read as follows : "(1) Where at the time of making an assessment under section 18, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment shall be made on the firm as constituted at the time of making the assessment. If the agricultural income-tax cannot be recovered from the firm as so constituted, such tax shall be recoverable from the persons who were members of the firm during the previous year. (2) Where a person carrying on any business in the course of which agricultural income is received has been succeeded in such capacity by another person, such person and such other person shall each be assessed in respect of his actual share of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a firm may refuse to register it or may cancel its registration, if it is already registered. (5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be-- (a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed, and the sum payable by him on the basis of such assessment shall be determined : Provided that, if such share of any partner is a loss, it shall be set off against his other income or carried forward and set off in accordance with the provisions of section 12 : Provided further that, when any of such partners is a person not resident in the State, his share of the income, profits and gains of the firm shall be assessed on the firm at the rates which would be applicable if it were assessed on him personally ; and the sum so determined as payable shall be paid the firm ; and (b) in the case of an unregistered fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each financial year in accordance with and subject to the provisions of the Act, on the total agricultural income of the previous year of every person. Therefore, according to the assessee, the present partners cannot be made liable to pay tax on any income, which the partners had not received during the previous year. Before we proceed to analyse section 28(1), it is necessary to examine the provisions contained under section 18, which deals with the procedure for assessment of agricultural income. Sub-section (1) of section 18 provides for passing of the assessment order on the basis of the return submitted by the assessee under section 17. Sub-section (2) empowers the Agricultural Income-tax Officer to require the presence of the assessee or production of evidence in support of the return filed. Sub-section (3) deals with the manner in which the assessment has to be made after considering the evidence produced by the assessee. The provisions under sub-section (4) enable the Agricultural Income-tax Officer to make the assessment to the best of his judgment. Sub-section (5) provides for assessment of a firm, when the assessee is a firm and the total income of the firm has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be distributed among 10 partners of the reconstituted firm, they will be in effect compelled to pay tax on income, profits and gains, which they have not received during the previous year. The second clause of sub-section (1) of section 28 has to be given interpretation without doing violence to the provisions contained under the charging section as well as under clause (a) of sub-section (5) of section 18. If that be so, we are of the view that even if the assessment has to be made on the firm as constituted at the time of making the assessment, the recovery can be made only from the persons, who were members of the firm during the previous year. In cases where as a result of reconstitution the existing members continued in the firm along with new members, it will be possible to recover the agricultural income-tax from the firm as reconstituted, since by applying clause (a) of sub-section (5) of section 18, all the partners who had income, profits and gains in the previous year would be there continuing in the partnership and the tax can be recovered from them. But in cases where there is a reduction in the number and change in the person of the partners, as a result of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucceeded the amount of any tax so paid." Under the Income-tax Act, 1961, the relevant provision is section 187. This court had occasion to consider the distinction between cases falling under section 187 dealing with assessment in the case of change in constitution of the firm and section 188 which deals with the situation of succession of one firm by another firm in Excel Productions v. CIT [1971] 80 ITR 356 (Ker). In the above case, the assessee, a registered partnership firm, was originally -registered with five partners. Subsequently, there was a reconstitution of the firm by taking four minors also as partners. Therefore, there was a change in the shares of the original partners. A Bench of this court took the view that such change in the constitution came under clause (a) of sub-section (2) of section 187 and not under section 188. It was then observed that the assessment is to be made on the firm as constituted at the time of making the assessment, namely, the firm as reconstituted. This court took the view that since it is an assessment under section 187, there can be only one assessment even if the change in the constitution of the firm was within the previous year relev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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