Commissioner Of Income-Tax, ... vs J.N. Gopal & Co.
1982 Latest Caselaw 214 Del

JUDGMENT

D.K. Kapur, J.

1. The question sought to be referred at the instance of the Department in this application under s. 256(2) of the I.T. Act, 1961, is as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in upholding the AAC's order directing the ITO to make two separate assessments for the two periods during which the assessed-firm continued its business under different partnerships ?"

2. The learned counsel for the applicant urged that the Tribunal was wrong in refusing to make a reference as the question is a mixed question of law and fact. It is also pointed out that the view of this High Court in CIT v. Arvind Construction Co. [1975] 98 ITR 571, has since been differed from by a Full Bench.

3. The relevant provision of law which applies to the present case is s. 187 or s. 188 of the I.T. Act, 1961. Where there is a change in the constitution of the firm, then under s. 187 the newly constituted firm has to be assessed, i.e., there has to be one assessment. On the other hand, if one firm is succeeded by another firm, then s. 188 applies and separate assessments have to be made. The two assessments in such a case have to be an assessments of the pre-succession income on the original firm and an assessment of the post-succession income in the hands of the new firm. Whether factually there has been a change in the constitution of the firm or there has been a succession is obviously a question of fact but it can be a mixed question of fact and law because the statute has provided in s. 187 circumstances in which there is a change in the constitution of the firm.

4. Section 187(2) of the Act says :

"For the purposes of this section, there is a change in the constitution of the firm -

(a) if one or more of the partners cease to be partners or one or more new partners are admitted in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change; or

(b) where all the partners continue with a change in their respective shares or in the shares of some of them."

5. In the present case, the facts as found by the Tribunal were that there was a partnership with three partners which had no clause for continuing the firm in case it was dissolved. The firm was a partnership at will. On 8th July, 1972, Jagan Nath Khullar, one of the partners, died, so there was a dissolution of the partnership by operation of law. On 14th July, 1972 the two surviving partners entered into a partnership with Mrs. Sheela Rani Khullar, window of the deceased partner. The books of account of the old firm were closed on 7th July, 1972, and the profit and loss was ascertained and apportioned in accordance with the original partnership deed. On these facts, the ITO through that it was a case of change in constitution but both the AAC and the Tribunal had found this to be a case of one firm ceasing to do business and settling its accounts and a new firm being constituted by the two surviving partners and the widow of the partner who had died. Prima facie, it must be said that this appears to be a question of fact and it also appears that there was a succession of the old firm, a settlement of its accounts and then a new firm. The Tribunal also noted in its judgment that there was a unanimity amongst the High Courts, except the Punjab and Haryana High Court, that in such a case there was a succession and not a change n the constitution of the firm. The decision of the Punjab and Haryana High Court which was not accepted was Nandlal Sohanlal v. CIT [1977] 110 ITR 170 [FB].

6. It appears to us that though the questions in this case seems to be a questions of fact, it also appears to have been the subject-matter of a number of decisions. So, in the circumstance, we would take the course of calling upon the Income-tax Tribunal to state a case concerning the question set out earlier so that the view of this High Court on this point may also be expressed. No costs as there was no appearance for the respondent.