1. This reference under Section 256(1) of the Income-tax Act, 1961, isat the instance of the Revenue to decide the following question of law, namely:
'Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in directing the Income-tax Officer to make two separate assessments, one for the period prior to the change and the other for the period after the change in the constitution of the firm, notwithstanding the fact that it was a change in the constitution of the firm as contemplated under Section 187(2) of the Income-tax Act, 1961 ?'
2. The relevant assessment year is 1977-78. The assessee was a partnership firm constituted by a deed of partnership dated January 1, 1976. It consisted of five partners, of whom one died on March 20, 1976, during the accounting period of the relevant assessment year. Thereafter, the firm was reconstituted from the same date by executing another partnership, deed on April 14, 1976, The question for decision before the Income-tax Officer was whether, in these circumstances, it was merely a case of change in the constitution of the firm governed by Section 187 of the Act, so that only one assessment had to be made for the entire period of assessment. The Income-tax Officer held that it was a case governed by Section 187 of the Act and, accordingly, he made one assessment for the entire period. The Commissioner of Income-tax (Appeals) upheld the order of the Income-tax Officer. In the assessee's further appeal to the Tribunal, a different conclusion has been reached. The Tribunal has held initially that by virtue of a term in the partnership deed dated January 1 1976, the partnership was not dissolved on the death of one of its partners and the same firm continued with merely a change in its constitution within the meaning of Section 187(2) of the Act. However, the Tribunal thereafter held that notwithstanding this fact, two assessments were to be made instead of one for the entire period. Aggrieved by this ultimate conclusion and the direction to make two assessments instead of one, the Revenue has come up to this court for the decision of the above question of law.
3. The Tribunal having rightly held that the firm was not dissolved as a result of death of one of its partners on account of a contract to the contrary incorporated in one of the terms of the partnership deed dated January 1, 1976, the ultimate conclusion must logically follow from this finding that only one assessment has to be made for the entire period instead of two. This is further evident from the fact that the Tribunal itself has held that the death of one of the partners did not result in the dissolution of the firm on account of a contract to the contrary and it was a mere change in the constitution of the firm within the meaning of Section 187(2) of the Act. After recording this finding, the effect thereof cannot be avoided inasmuch as in a case governed by Section 187 of the Act, the income for the two periods has to be lumped together and only one assessment has to be made for the entire period since Section 188, under which alone two separate assessments have to be made, has no application. The ultimate conclusion of the Tribunal being inconsistent with the initial finding, the same is not justified. It may be added that the proviso inserted in Section (2) of Section 187 of the Act restrospectively with effect from April 1, 1975, by the Taxation Laws (Amendment) Act, 1984, has no application since it excludes from the ambit of Clause (a) of Section (2) of Section 187 only a case where a firm is dissolved on the death of any of its partners. In a case like the present where there is no dissolution of the firm on the death of any of its partners on account of a contract to the contrary in the deed of partnership, the said proviso is not attracted.
4. Consequently, the reference is answered in favour of the Revenue and against the assessee as under:
'The Tribunal having held that it was a case of a change in the constitution of the firm as contemplated by Section 187(2) of the Income-tax Act, 1961, it was not justified in directing the Income-tax Officer to make two separate assessments.'
5. No costs.