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TMI Blog1991 (8) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... year ending on October 31, 1979. The next previous year, therefore, would commence on November 1, 1979. The firm continued as hitherto with its earlier constitution till April 15, 1980, on which date there was a change In the constitution of the firm by alterations with regard to share of profits. (Though the assessee claimed that, on April 15, 1980, the firm stood dissolved and a new firm came into existence, it is now too late for the firm to advance such a contention). For the assessment year 1981-82, the assessee filed two returns, one return (referred to here as the first return, for the sake of convenience) was for the accounting period November 1, 1979, to April 15, 1980, and the second one for the accounting period April 16, 1980, to March 31, 1981. The Income-tax Officer held that it was not possible to make two assessments on the assumption that the earlier firm was dissolved on April 15, 1980, and in the instant case, there has only been a reconstitution of the firm ; therefore, he made an order of assessment for the entire accounting period November 1, 1979, to March 31, 1981 (i.e., for 17 months). This order was affirmed by the Commissioner of Income-tax (Appeals). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had been that there were two separate firms." In these circumstances, the Tribunal thought it fit to provide the assessee with an opportunity to exercise its option as to the previous year in the light of section 187(2). Consequently, the matter was remanded to the Income-tax Officer with a direction that, in case the assessee now makes a request that it would like to change the previous year to March 31, then the Income-tax Officer was competent to assess the entire income of 17 months under a single assessment. From the above, it is clear that the Tribunal has given a definite finding as to the circumstances leading to the filing of two returns by the assessee. The assessee laboured under an erroneous view of the relevant provisions of the Act governing the "previous year" and "firm" ; in these circumstances, an equitable order was made to enable the assessee to adopt a course it may choose in the light of the correct position in law. Learned counsel for the Revenue contended before us that there can be no dispute that the assessee's case is covered by section 187 and if so, the assessment has to be made in the hands of the present partnership firm ; in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended before the Supreme Court that there cannot be a "previous year" consisting of 21 months. The question was considered in the light of section 2(l 1) of the Indian Income-tax Act, 1922, which was almost similar to the present section 3. It was held at page 415: "The assessee has the option to choose his accounting year ending on any date within the preceding financial year as his previous year. Once he exercises this option, the meaning of the expression 'previous year' as applicable to him is determined, and he cannot exercise this option again 'so as to vary the, meaning of the expression "previous year" as then applicable to him except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose'. If the assessee wants to change the meaning of the previous year as then applicable to him, he must obtain the consent of the Income-tax Officer, and the Income-tax Officer may accord such consent on proper terms. The Income-tax Officer may refuse to give his consent, but if he does give his consent, he has ample power to impose the condition that the full period from the end of the 'previous year' for the preceding year's a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has created two previous years in respect of the same assessment year. This seems to be, prima facie, opposed to the principle stated by the Supreme Court in the above decision. The contention of the assessee in Esthuri Aswathaiah's case [1966] 60 ITR 411 (SC) based on section 25(1) of the old Act (similar to the present section 176), to the effect that the said section provides for two previous years was rejected and the Supreme Court pointed out (at page 416) : "section 25(1) provides that in case of discontinuance of any business, profession or vocation in any assessment year, the Income-tax Officer may in that year make an accelerated assessment in respect of the income of the period between the end of the previous year and the date of such discontinuance, in addition to the usual assessment in respect of the income of the previous year. Section 25(1) contemplates the usual assessment in respect of the income of the previous year and a special and separate assessment in the same assessment year in respect of the income of the broken period between the end of the previous year and the end of the discontinuance ; it does not contemplate, as counsel submitted, assessment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eat the reconstituted firm same as the firm before its reconstitution notwithstanding the change of one or more partners. Obviously, this section is aimed at prevention of evasion of the liability of partnership firms to pay tax on the basis of the total income of a given year by merely substituting one or more partners in the middle of the year and creating two or more taxable entities and filing separate returns in the names of such firms. Section 187, therefore, provides that the reconstituted firm existing at the time of making the assessment alone should be assessed for the relevant assessment year." Again at page 488, it was held: "There is no substance in the submission made for the assessee that section 187(1) only makes the reconstituted firm liable to pay tax of the firm before its reconstitution, but does not authorise the making of one assessment for the whole year on the reconstituted firm. In this behalf it is sufficient to point out that section 187(1) only speaks of making the assessment on the firm as reconstituted at the time of making the assessment and says nothing about the recovery of the tax due from the firm before its reconstitution. If the intention was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the requisite consent (vide Rattan Lal Ved Prakash v. CIT [1983] 144 ITR 135 (All). The Income-tax Officer cannot impose arbitrary conditions while granting the requisite consent. (Assam Frontier Tea Ltd. v. IAC of I. T. [1987] 164 ITR 253 (Gauhati). The several propositions advanced by learned counsel for the Revenue, no doubt, are legally sound and are to be accepted. But here, we are faced with a particular set of facts from which the Tribunal found that the assessee did not act voluntarily while changing the previous year. The assessee was guided by legal concepts as to the dissolution of a firm and the formation of a new firm, by the change in its constitution ; the assessee had obviously not thought about the legal implications of section 187(2). Throughout, its stand has been that there were two units which are to be taxed separately and, therefore, two returns were filed resulting in the splitting up of the previous year. In these circumstances, we are of the opinion that the Tribunal did not commit any error in law when it remanded the matter to afford an opportunity to the assessee to exercise the option specifically. In the light of the decision of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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