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TMI Blog1992 (10) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Ghanashyamdas Hassanand. The firm came into existence with effect from the same date. The object of the firm was to carry on business in medicines and drugs. The firm was reconstituted by another partnership deed dated August 1, 1975. As a result of the reconstitution, one of the partners of the old firm, namely, Shri Arjundas Hassanand, retired and in his place, his wife, Smt. Hirabai, was taken in as a partner. The terms and conditions of the reconstituted firm were set out in the new partnership deed. The name of the firm and the nature of the business, however, continued to be the same as before. The reconstituted firm commenced its business from August 1, 1975. The accounting period of the original as well as reconstituted firm was the Diwali year. The accounting period for the assessment year 1976-77 was Diwali 1974-75. The assessee filed two returns of income for the assessment year 1976-77, (1) for the period from November 14, 1974, to July 31, 1975, during which the original firm was in existence ; and (2) from August 1, 1975, to November 3, 1975, i.e., the period during which the reconstituted firm carried on the business. The assessee contended that two separate ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons v. CIT [1973] 92 ITR 141, which had taken a view contrary to the one taken by the Allahabad High Court in CIT v. Shiv Shanker Lal Ram Nath [1977] 106 ITR 342. In these facts and circumstances, at the instance of the assessee, the present reference has been made by the Tribunal to this court. Before we take up for decision the question referred by the Tribunal, it may be expedient to mention that at one point of time there was a sharp cleavage of opinion between the different High Courts in regard to the clubbing of income in the case of change in constitution of the firm within an accounting year in view of the provisions of section 187(2) of the Act. The Allahabad High Court in CIT v. Shiv Shanker Lal [1977] 106 ITR 342 had taken a view that section 187(2) speaks of the person who is to be assessed in the case of change in the constitution under section 187(2). The assessment has to be made in such a case on the firm as constituted at the time of making the assessment. But so far as the computation of income and determination of tax payable is concerned, it has to be done having regard to the constitution of the firm at the relevant time during the accounting year when the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vishwanath Seth's case [1984] 146 ITR 249. The Allahabad High Court in CIT v. Basant Behari Gopal Behari and Co. [1988] 172 ITR 662, however, did not accept this conclusion as the ratio of the Supreme Court judgment in Wazid Ali Abid Ali's case [1988] 169 ITR 761. According to it, the Supreme Court did not lay down any such proposition and hence, despite the decision in Wazid Ali Abid Ali's case [1988] 169 ITR 761 (SC), the five-judge Full Bench decision of the Allahabad High Court held the field. On a careful perusal of the decision of the Supreme Court in Wazid Ali's case [1988] 169 ITR 761, we find it difficult to agree with the Allahabad High Court and read the Supreme Court decision the way the Allahabad High Court has read it in CIT v. Basant Behari Gopal Behari and Co. [1988] 172 ITR 662. It, therefore, becomes necessary to analyse carefully the decision of the Supreme Court in Wazid Ali's case [1988] 169 ITR 761, in order to ascertain the ratio thereof. The Supreme Court in Wazid Ali's case [1988] 169 ITR 761 was dealing with appeals against the decision of the Allahabad High Court in I. T. R. No. 163 of 1970 and also an appeal against a judgment of the Gujarat High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shanker Lal Ram Nath [1977] 106 ITR 342 (All) and the Full Bench decision in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858 (All). The five-judge Full Bench held that under the general law of partnership under the Indian Partnership Act as well as under section 187 of the Income-tax Act, 1961, in the case of reconstitution of a firm, it retains its identity and is assessable in respect of the entire previous year. All these decisions were noticed by the Supreme Court in Wazid Ali's case [1988] 169 ITR 761. Dealing with the five-judge Full Bench decision of the Allahabad High Court, the Supreme Court observed (at page 777): " In view, however, of the scheme of Chapter XVI of the Act, we are unable to agree ; if we were left with the general position under the Indian Partnership Act, we might have agreed. That decision of the High Court, however, did not deal with the controversy. This decision of the Supreme Court, to which we will revert a little later, should have concluded the controversy but for the decision of the Allahabad High Court soon thereafter in CIT v. Basant Behari Gopal Behari and Co. [1988] 172 ITR 662, wherein the Division Bench of the said High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her case, it is subject to tax. Registration depends on the fulfilment of the requirements of certain provisions of the Act. The treatment of registered firm and unregistered firm for the purpose of assessment and levy of tax is completely different and different consequences flow from registration. Chapter XVI of the Act containing sections 182 to 189 deals with " Special provisions applicable to firms ". Section 182 deals with the assessment of registered firms. Section 183 deals with the assessment of unregistered firms. Sections 184 and. 185 deal with the manner of registration and section 186 deals with cancellation of registration. Section 184(7) of the Act provides that registration granted to a firm shall have effect for every subsequent assessment year provided there is no change in the constitution of the firm or the shares of the partners and the firm furnishes within the specified time a declaration in the prescribed form to that effect. Sub-section (8) makes it clear that : " where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of the section ". From t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment. This section thus speaks of the firm on whom the assessment is to be made and says that it is the firm as constituted at the time of making the assessment who shall be liable for assessment. It has nothing to do with the manner of computation of income or the determination of the tax payable in respect of the business carried on during the relevant previous year. It may be that the firm was registered during a part of the previous year and unregistered during the remaining part of the year as a result of change in the constitution and again registered at the time of making assessment consequent to fulfilment of the requirements for registration contained in section 184 of the Act or vice versa. Assessment in such a case will be made on the firm as constituted on the date of making the assessment. If the firm as constituted during the relevant previous year was an unregistered firm and the firm as constituted at the time of making the assessment is a registered firm, though the assessment shall be made on the registered firm by virtue of section 187 of the Act, the income shall have to be computed and tax determined taking into account the firm as an unregistered firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh against the newly constituted firm, in respect of income derived by the old firm and that derived by the new firm." It was further observed ( at page 346 ) : " As stated earlier, section 187 merely makes the new firm liable to be assessed in respect of the income derived by the old firm. " The High Court, therefore, held (at page 347): " that the income derived by the old firm had to be assessed in its hands ( reconstituted firm ) separately and without clubbing it with the income derived by it during the relevant accounting year." We are fully in agreement with this view. We are also clear in our mind that this decision has in terms been approved by the Supreme Court in Wazid Ali v. CIT [1988] 169 ITR 761. The ratio of this decision of the Supreme Court is absolutely clear as is evident from the following discussion of the facts and law as found therein. Dealing with the appeal from the Allahabad High Court judgment involving a change in the constitution of a firm, the Supreme Court noted the following facts ( at page 775 of 169 ITR ) : " Qamaruddin, one of the partners, died on June 4, 1964, within the relevant time, and his son, Fariduddin, joined the firm as a partner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl. CIT [1978] 115 ITR 858, and did not agree with the view taken by the five-judge Bench in Vishwanath Seth v. CIT [1984] 146 ITR 249 (All). This view is further substantiated by the fact that the Supreme Court categorically disapproved the view taken by the Full Bench of the Madhya Pradesh High Court in Girdharilal Nannelal v. CIT [1984] 147 ITR 529, which was contrary to the one taken by the Division Bench and the three judge Bench of the Allahabad High Court in CIT v. Shiv Shanker Lal Ram Nath [1977] 106 ITR 342 and Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858, respectively. Referring to the Madhya Pradesh decision, the Supreme Court observed at page 778 (of 169 ITR ) : " The Full Bench of the Madhya Pradesh High Court in Girdharilal Nannelal v. CIT [1984] 147 ITR 529, held that any matter for which provision was made in the Income-tax Act, 1961, was to be governed by it, notwithstanding anything different or to the contrary contained in the general law relating to that matter. It was further held that in the case of a change in the constitution of a firm during the accounting year, the income earned by the firm before such change was to be clubbed with the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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