Girdharilal Nannelal and Sukhlal Jhamaklal Vs. Commissioner of Income-tax - Court Judgment

J.S. Verma, J.

1. In all these four references made under Section 256(1) of the I.T. Act, 1961, the common question of law which arises for determination is the true meaning and scope of Section 187 of the I.T. Act, 1961. So far, there is no direct decision of the Supreme Court on the point and there is divergence of opinion between several High Courts. This reference to a Full Bench has been occasioned by the fact that there have also been conflicting decisions by the Division Benches of this court, sitting at the main seat, and the two Benches at Indore and Gwalior, which were rendered in ignorance of the earlier decisions. When the conflicting decisions of this court were noticed, these four references for the decision of the question by a larger Bench were made. This is how the aforesaid four references came up before us for deciding the common question involved therein.

2. Before proceeding to set out the facts of each of the four references and the specific questions referred therein by the Income-tax Appellate Tribunal under Section 256(1) of the I.T. Act, 1961, for the opinion of this court, we shall mention the real point for determination and our answer to the same.

3. The point involved is whether the expression ' change in constitution of a firm ' occurring in Section 187 of the I.T. Act, 1961, includes within its ambit even cases of dissolution where the firm is reconstituted with at least one of the old partners together with the incoming partners and the business is continued. In other words, the question really is whether on a true construction of Section 187 of the I.T. Act, 1961, the change contemplated by such a situation falls within the ambit of this provision in spite of the fact that under the general law a case of ' dissolution ' of a firm is distinct from a case of ' change in its constitution', which envisages continuance of the firm without its dissolution. It has, therefore, to be seen whether the principles of general law relating to partnership regulate the construction of Section 187.

4. Sections 187, 188 and 189 of the I.T. Act, 1961, are in Chapter XVI of the Act containing ' special provisions applicable to firms' under the sub-head 'Changes in constitution, succession and dissolution'. In so far as they are relevant for our purpose, these sections are as under:

' Chapter XVI

Special provisions applicable to firms

A. Assessment of firms......

B. Registration of firms......

C. Changes in constitution, succession and dissolution.

187. Change in constitution of a firm.--(1) Where at the time of making an assessment under Section 143 or Section 144, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment:

Provided that-

(i) the income of the previous year shall, for the purposes of inclusion in the total income of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same ; and

(ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment.

(2) 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.

188. Succession of one firm by another firm.--Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by Section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of Section 170.

189. Firm dissolved or business discontinued.--(1) Where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Income-tax Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be, to such assessment.'

5. It is clear that in Sections 187, 188 and 189, the Legislature has made special provisions applicable to firms relating to changes in their constitution, succession and dissolution. This exercise was unnecessary, if these expressions were to be construed only according to the existing general law. It cannot be doubted that any matter for which a specific provision is made in the I.T. Act is to be governed by it, notwithstanding anything different or contrary contained in the general law relating to that matter. It would be useful at this stage to refer to the guidance provided for this purpose by the Supreme Court while considering the nature of the law of income-tax. It was pointed out in Rao Bahadur Ravulu Subba Rao v. CIT : [1956]30ITR163(SC) , as under (pp. 169, 173) :

' The Act is, as stated in the preamble, one to consolidate and amend the law relating to income-tax. The rule of construction to be applied to such a statute is thus stated by Lord Herschell in Bank of England v. Vagliano [1891] AC 107:

' I think the proper course is, in the first instance, to examine the language of the statute, and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered......' We must, therefore, construe the provisions of the Indian Income-tax Act as forming a Code complete in itself and exhaustive of the matters dealt with therein, and ascertain what their true scope is...... To sum up the Indian Income-tax Act is a self-contained code exhaustive of the matters dealt with therein, and its provisions show an intention to depart from the common rule, qui facit per alium facit per se.'

6. In this very case, the Supreme Court also reiterated that even though under the general law a firm is not a juristic person, yet, ' inroads have been made by statutes into this conception ' and ' one of those statutes is the Indian Income-tax Act'. In CIT v. A.W. Piggies and Co. : [1953]24ITR405(SC) , their Lordships indicated that the provisions of Sections 26, 48 and 55 of the Indian I.T. Act, 1922, go to show that ' the technical view of the nature of a partnership, under English law or Indian law, cannot be taken in applying the law of income-tax'. It. may be mentioned here that Section 26 of the 1922 Act corresponds to Sections 187 and 188 of the 1961 Act.

7. There can thus be no doubt that if the language of Section 187 of the Act is wide enough to include within its ambit a situation which is ordinarily that of dissolution of a firm under the Indian Partnership Act, as a result of one only of the old partners remaining at the time of the change to continue the business with one or more incoming partners, then the meaning of Section 187 cannot be curtailed to exclude such a situation from its ambit simply because the general law contained in the Indian Partnership Act undoubtedly contemplates continued existence of the firm at the time of the change in its constitution. The real difference in the conflicting views is in the construction made of Section 187. According to one view, the language of Section 187 is not wide enough to cover such a case and, therefore, the principles of general law are applicable, while the contrary view is that the language of Section 187 covers such a situation and, therefore, the applicability of the general law is clearly excluded.

8. We shall now turn to the meaning of Section 187. Sub-section (1) of Section 187 says that where it is found at the time of making an assessment that ' a change has occurred in the constitution of a firm ' the assessment shall be made on the firm as constituted at the time of making the assessment. Sub-section (2) then proceeds to define the expression ' change in the constitution of a firm ' for the purpose of this section. Clause (b) of Sub-section (2) is clear and refers to a situation where all the partners of the firm continue and the change is only in their respective shares. It is significant that under the general law this would not be a change in the constitution of the firm. We then come to Clause (a), the meaning of which has given rise to the controversy. In Clause (a) also, the difficulty is really about the meaning of the words ' 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 '. Clause (a) means that if one or more of the partners cease to be partners, or one or more partners are admitted in the circumstances enumerated therein, there is a change in the constitution of the firm. A person may cease to be a partner for any of several reasons, i.e., death, retirement, etc. There is no difficulty about the first part of Clause (a) which merely refers to one or more partners ceasing to be partners for any reason or one or more hew partners coming in. But this has to be in the circumstances laid down in Clause (a) in order to constitute merely a change in - the constitution of the firm for the purpose of Section 187. We now come to the circumstances laid down in the second part of Clause (a). One of the circumstances expressly provided therein is where only one of the persons who were partners of the firm before the change continues as a partner after the change. Omitting the words from the second part of Clause (a) which are not material to the circumstances of one only of the earlier persons continuing after the change, the expression reads ' in such circumstance that one......of the persons who were partners of the firm before the change continues as partner after the change '. No doubt, this situation can also result without dissolution if this stage is not reached in the very first change, when all except one cease to be partners and one or more persons come in. However, there is nothing in the language of the provision to limit its application only to subsequent changes and not the very first in a firm consisting of two partners only which is clearly a case of dissolution. It is, therefore, obvious that in Clause (a) of Sub-section (2) of Section 187 of the I.T. Act, 1961, a clear provision is made to cover the situation ordinarily that of dissolution under the general law within the meaning of the expression ' change in the constitution of a firm ' for the purpose of this section. Resort to the general law and the concept of ' dissolution ' and ' change in the constitution of a firm ' according to the general law contained in the Indian Partnership Act is, therefore, not warranted.

9. Section 188 of the I.T. Act, 1961, provides for cases of succession of one firm by another and excludes from its ambit the cases covered by Section 187 by using the words ' and the case is not one covered by Section 187 '. These words used in Section 188 go to indicate that a situation which would be ordinarily one of succession under the general law, can also be within the ambit of Section 187 and, therefore, a case of that kind is excluded from the ambit of Section 188. Unless the Legislature had included within the ambit of Section 187 a case which would ordinarily be one of succession, so as to fall under Section 188, there was no occasion to use the words ' and the case is not one covered by Section 187 ' in Section 188. This is another reason to support the construction we have made of Section 187(2)(a). In our opinion, these are some of the strong reasons to support the construction made by us of the expression ' change in the constitution of a firm ' occurring in Section 187.

10. In view of the above conclusion reached by us and our concurrence with the construction made by a Division Bench of this court in Vimal and Amar Talkies v. CIT : [1982]138ITR660(MP) , it is sufficient to quote, a portion of that decision. It was held therein, as under (p. 664):

' The difficulty arises when a dissolved firm is succeeded by another firm, in which some of the partners of the old firm are members. Such a case would also be prima facie covered by the expression 'a change in the constitution of the firm' as defined in Clause (a) of Sub-section (2) of Section 187.

It is, however, argued by the learned counsel for the assessee that Sections 187, 188 and 189 must be construed harmoniously with the Indian Partnership Act, 1932, and Sub-section (2)(a) of Section 187 of the I.T. Act should not be construed to include the case of succession of one firm after it is dissolved by another firm, although some of the partners in the new firm are the same. Reference in this connection is also made to Section 26(1) of the 1922 Act, which provided that ' where, at the time of making an assessment, it is found that a change has occurred in the constitution of the 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'. It is argued that the words ' or that a firm has been newly constituted' as they occurred in Section 26(1) of the 1922 Act, do not find place in Section 187 which is a clear indication that when a firm is dissolved and is succeeded by another firm, the case will not fall under Section 187 and will fall under Section 188, even though some of the partners in the new firm are the same as in the old firm. The provisions of the 1961 Act, as contained in Sections 187 to 189, must first be construed on their own terms. The definition of the expression ' a change in the constitution of the firm' as contained in Section 187(2) is a new definition. Such a definition did not exist in the 1922 Act. The meaning of the definition so enacted has to be gathered from the language that it uses. Plainly construed, if one or more oj the partners of the old firm continue to be the partners in the new firm, it is a case of change as defined in Section 187(2)(a). It is not possible to restrict the definition to cases where there is no dissolution of the old firm and no succession of one firm by another. The inference that Section 187(2)(a) also covers a case where one firm after dissolution is succeeded by another, is strongly supported by the use of the words ' and the case is not one covered by Section 187' as they occur in Section 188. Now, these words would become redundant in Section 188 if it is held that all cases in which a firm after dissolution is succeeded by another firm fall under Section 188. It is a well-settled principle of interpretation that words used by the Legislature are not readily to be accepted as surplusage. The scheme of the sections appears to be that if a firm discontinues business or is dissolved without being succeeded by another firm, the case would be covered by Section 189. If a firm is dissolved and succeeded by another firm which has as its partners one or more partners of the old firm, the case will be one covered by Section 187, as it would be merely a change in the constitution of the firm as defined in Sub-section (2) thereof. If a firm is dissolved and is succeeded by another firm and none of the partners of the old firm is a partner in the new firm, the case would be covered by Section 188. The omission of the words ' or that a firm has been newly constituted ' as they occurred in Section 26(1) of the 1922 Act from Section 187 is not indicative of any contrary intention because of the comprehensive definition enacted in the latter of the expression ' a change in the constitution of the firm ' and also because of the presence of the words ' and the case is not one covered by Section 187' as they occur ins. 188. As the scheme of Sections 187, 188 and 189 is clear and there is no ambiguity in them, recourse to the provisions of the Partnership Act cannot be taken for construing them '. (Underlining by us)

11. We are in entire agreement with the above reasoning and the conclusion reached on that basis.

12. The above conclusion is reinforced by a decision of the Supreme Court in Shivram Poddar v. ITO : [1964]51ITR823(SC) , in which the relevant corresponding provisions of the Indian I.T. Act, 1922, were construed. The question before the Supreme Court was about the applicability of Section 44 of the 1922 Act (corresponding to Section 189 of the 1961 Act), after the firm was dissolved and the business thereof had been discontinued. For deciding that question, their Lordships of the Supreme Court construed the meaning of Sub-sections (1) and (2) of Section 26 (corresponding to Sections 187 and 188 of the 1961 Act), along with some other connected provisions contained in the Indian I,T. Act, 1922, and after examining the scheme of these provisions, it was held as follows (pp. 826, 827):

' It follows that mere dissolution of a firm without discontinuance of the business will not attract the application of Section 44 of the Act. It is only where there is discontinuance of business, whether as a result of dissolution or other cause, that the liability to assessment in respect of the income of the firm under Section 44 arises....

Under the ordinary law governing partnerships, modification in the constitution of the firm in the absence of a special agreement to the contrary amounts to dissolution of the firm and reconstitution thereof, a firm at common law being a group of individuals who have agreed to share the profits of a business carried on by all or any of them acting for all, and supersession of the agreement brings about an end of the relation. But the Income-tax Act recognises a firm for purposes of assessment as a unit independent of the partners constituting it; it invests the firm with a personality which survives reconstitution. A firm discontinuing its business may be assessed in the manner provided by Section 25(1) in the year of account in which it discontinues its business; it may also be assessed in the year of assessment. In either case it is the assessment of the income of the firm. Where the firm is dissolved, but the business is not discontinued, there being change in the constitution of the firm, assessment has to be made under Section 26(1) and if there be succession to the business, assessment has to be made under Section 26(2) '. (Underlining by us)

13. The construction made by the Supreme Court of the corresponding provisions in the 1922 Act is the same as the construction made of Sections 187, 188 and 189 of the 1961 Act, by a Division Bench of this court in Vimal and Amar Talkies v. CIT : [1982]138ITR660(MP) . The difference in the phraseology of Section 26(1) of the 1922 Act with that of Section 187 of the 1961 Act was also noticed in Vimal and Amar Talkies' case : [1982]138ITR660(MP) and it was pointed out that this difference does not affect the conclusion reached about the meaning of Section 187. In our opinion, what was merely implicit in Section 26(1) of the 1922 Act has been made explicit by the definition of the expression 'change in the constitution of a firm' in Sub-section (2) of Section 187 of the 1961 Act. There is no other significant difference between these corresponding provisions in the old and new Act. We are conscious of the fact that Shivram Poddar's case : [1964]51ITR823(SC) , has been referred in the decisions taking the contrary view and an attempt to distinguish it has been made. However, for the reason already given, we find it difficult to accept that Shivram Poddar's case : [1964]51ITR823(SC) , is at all distinguishable. This alone, in our opinion, is sufficient to fortify our conclusion. We shall now refer to the other decisions of this court as well as of other High Courts on the point, which have taken conflicting views.

14. The first decision in point of time of this court is Dangarsidas Kaluram v. Addl. CIT : [1981]132ITR526(MP) , decided on November 28, 1979, by a Division Bench consisting of Sohani and Vijayvargiya JJ. Sohani, J. speaking for the Division Bench, took the view that a change in the constitution of a firm presupposes continued existence of the firm and where a partnership consisted of only two partners, no partnership remains on the death of one of them and, therefore, Section 187 of the I.T. Act, 1961, is not attracted. In short, a case of dissolution under the general law contained in the Partnership Act was held to be outside the scope of Section 187(2) of the I.T. Act, 1961. This view was reiterated by another Division Bench (Sohani and K.N. Shukla, JJ) in Ganesh Dal Mills v. CIT : [1982]136ITR762(MP) , decided on September 30, 1980. Shukla J., speaking for the Division Bench, construed Section 187(2) as referring only to a firm continuing without dissolution. In this decision, it was further stated that the words ' and the case is not one covered by Section 187' occurring in Section 188 were redundant since all cases of succession fall within the ambit of Section 188 and none of them could attract Section 187. It was also stated that a construction made of Section 187 with reference to Section 188 was not a correct method of construction. The decision of their Lordships of the Supreme Court in Shivram Poddar v. ITO : [1964]51ITR823(SC) , was distinguished on the ground that it construed the corresponding provisions in the 1922 Act, in which there was a difference. Both these decisions were by Division Benches sitting at the Indore Bench of the High Court and were the first in point of time. Thereafter came the decision in Vimal and Amar Talkies v. CIT : [1982]138ITR660(MP) , decided on September 30, 1981, by a Division Bench consisting of G.P. Singh C.J, and Faizanuddin J., at the main seat at Jabalpur. We have referred to this decision earlier and expressed our concurrence with the reasons as well as the conclusion reached therein. At the time when this case was decided at the main seat on September 30, 1981, none of the two earlier decisions had been reported and unfortunately they were not cited. This resulted in a conflicting view being taken without referring to the earlier decisions.

15. The last decision of this court on the point is by a Division Bench (Bhachawat and R.C. Shrivastava JJ.), sitting at the Gwalior Bench of the High Court. It is Misc. Civil Case No. 87 of 1976, decided on April 23, 1982 (CIT v. Dwarkadas Radhakishan). Bhachawat J., speaking for the Division Bench, has taken the same view as was taken in the Indore cases. Bhachawat J. emphasised that Sub-section (1) of Section 187 as well as the definition in Sub-section (2) thereof, clearly contemplate continuance of the firm without dissolution to attract Section 187 and where a firm had been dissolved according to the provisions of the Partnership Act, the case was outside the ambit of Section 187. Prior to this decision at the Gwalior Bench on April 23, 1982, the first decision at the Indore Bench in Dwngarsidas Kaluram's case was reported in : [1981]132ITR526(MP) , and the decision at the main seat in Vimal and Amar Talkies v. CIT, had also been reported in the January Part of 1982 M.P.L.J. (Since reported in : [1982]138ITR660(MP) ), so that the two conflicting views taken by the earlier Division Benches of this court had already been reported. It is unfortunate that none of them was brought to the notice of the Division Bench which decided the case at Gwalior, on account of which Bhachawat J. decided the point under the impression that it had arisen for decision for the first time before him.

16. These decisions in the cases decided at Indore and Gwalior are based on the ground that a case of dissolution is not covered by Section 187(2) of the I.T. Act as the meaning of the expression ' change in the constitution of a firm' visualises continued existence of the firm according to the general law contained in the Partnership Act. The view taken by the High Courts of Allahabad, Andhra Pradesh, Delhi, Gujarat and Madras, to the same effect, was preferred to the view taken by the Punjab and Haryana High Court, which found favour with the Division Bench, deciding Vimal and Amar Talkies' case : [1982]138ITR660(MP) . In the result, the main difference between the two views is really in the construction of Section 187 of the I.T. Act, 1961, one view being that it is exhaustive and excludes the applicability of the general law, while the other view is that it merely supplements the provisions of the general law contained in the Indian Partnership Act, even in this respect.

17. In view of the construction we have made of Section 187 of the I.T. Act, 1961, as indicated earlier, we express our concurrence with the decision in Vimal and Amar Talkies' case : [1982]138ITR660(MP) , and we regret our inability to agree with the contrary view taken by the other Division Benches in Dungarsidas Kaluram v. Addl. CIT : [1981]132ITR526(MP) ; Ganesh Dal Mills v. CIT : [1982]136ITR762(MP) and CIT V. Dwarkadas Radhakishan (Misc. Civil Case No. 87 of 1976, decided on April 23, 1982). For the same reason, we are unable to agree with the view taken by the High Courts of Allahabad, Andhra Pradesh, Madras, Gujarat and Delhi, in Dahi Laxmi Dal Factory v. ITO : [1976]103ITR517(All) , Tyresoles (India) Calcutta v. CIT : [1963]49ITR515(Mad) , Kaithari Lungi Stores v. CIT : [1976]104ITR160(Mad) , Mavukkarai (N.) Estate Tea Factory v. Addl. CIT : [1978]112ITR715(Mad) , Addl. CIT v. Thyagasundara Mudaliar : [1981]127ITR520(Mad) , CIT (Addl.) v. Harjivandas Hathibhai : [1977]108ITR517(Guj) , CIT(Addl.) v. Vinayaka Cinema : [1977]110ITR468(AP) and CIT v. Sant Lal Arvind Kumar : [1982]136ITR379(Delhi) . For the same reason, we find ourselves in agreement with the majority view of the Punjab and Haryana High Court in Nandlal Sohanlal v. CIT , making the same construction of Section 187 of the I.T. Act, 1961, as we have done. We may also refer to a decision of the Calcutta High Court which appears to support our view. In Sandersons & Morgans v. ITO : [1973]87ITR270(Cal) , the question was of the meaning of the expression 'change in the constitution of the firm' used in Section 184(7) of the I.T. Act, 1961. Sabyasachi Mukharji J. (as he then was) referred also to Section 187(2) of the Act and came to the conclusion that death, retirement, etc. of partners is included in ' change in the constitution of the firm'. The Karnataka High Court also in Sangam Silks v. CIT : [1980]122ITR479(KAR) , has construed Section 187 as we have done. A decision of the Orissa High Court in I. Ramakrishnaiah and Sons v. CIT : [1978]111ITR296(Orissa) , appears to support the contrary view taken by the majority of the High Courts. However, on facts, that case is distinguishable, inasmuch as the partners, as a fact, had dissolved the firm and discontinued its business and thereafter only a new partnership was made so that it was not a case of the same business being continued by the newly constituted firm, in order to attract Section 187. In these circumstances, it was held to be a case governed by Section 188.

18. It is not necessary to deal with any of the above cases, taking the contrary view because the basis for taking the contrary view has already been indicated by us earlier and particularly while dealing with the three Division Bench decisions of this court taking that view. We would, however, refer briefly to the decision of the Delhi High Court in CIT v. Sant Lal Arvind Kumar : [1982]136ITR379(Delhi) , because great stress was laid on this decision by Shri Lahoti, who strenuously canvassed the contrary view.

19. In the aforesaid Sant. Lal's case : [1982]136ITR379(Delhi) , the Delhi High Court has taken a contrary view for substantially the same reasons. The Delhi High Court appreciated the significance of the words ' of succession not being a case falling under Section 187' used in Section 188, and stated that the language of Section 188 did create a mild ambiguity, but an attempt to get over the difficulty was made by saying that these words were only to clarify the meaning of Section 187, With respect, we are unable to appreciate how these words in Section 188 can be got over by saying that they were merely clarificatory, once the significance of these words is rightly accepted. The Delhi High Court also tried to distinguish the Supreme Court decision in Shivram Poddar's case : [1964]51ITR823(SC) , by saying that it was rendered in the context of Section 44 of the 1922 Act and also that the language used in Section 26(1) of the 1922 Act was wider than that of Section 187 of the 1961 Act, so that the old Section 26(1) ' took in not merely cases of change in constitution, but also cases of a fresh constitution '. We have earlier indicated that the definition of the expression ' change in the constitution of the firm ' having been given in Sub-section (2) of Section 187, which was not there in the old Act, the words ' or that a firm has been newly constituted ' used in the old Section 26(1) were unnecessary in the new Section 187. In other words, what was implicit in the old Section 26(1) has now been made explicit by the definition contained in Sub-section (2) of Section 187. In our opinion, the strong indication given by the Supreme Court decision in Shivram Poddar's case : [1964]51ITR823(SC) , for construing Section 187 in the manner we have done, cannot be circumvented by these reasons.

20. In the Delhi case : [1982]136ITR379(Delhi) , it has been said that the construction of Section 187 to include therein cases of dissolution, would lead to anomalous results in some hypothetical situations. We would, however, not like to answer any hypothetical question which has so far not arisen. Any such question has to be answered as and when it arises. Moreover, if the plain language of the provision has the meaning attributed to it by us, such a result cannot alter its true meaning. Anomalous results are also not unknown under the income-tax law.

21. We shall now briefly state the facts giving rise to the aforesaid four references, the questions referred therein for opinion of this court and our answers to the same for the reasons already given. Misc. Civil Case No. 517 of 1979.

22. The assessee was a registered firm. For the assessment year 1973-74 it filed two returns, i.e., one for the period from October 19, 1971, to October 3, 1972, and the other for the period from October 4, 1972, to November 5, 1972. This was on account of the death of one of the partners, Nannelal, on October 3, 1972, as a result of which the firm was reconstituted by admitting Bansilal, as a new partner therein, which continued the business of the earlier firm. The ITO made one assessment for the entire accounting year. On appeal by the assessee, the AAC took a contrary view. On further appeal, the Income-tax Appellate Tribunal took the view that even after dissolution of the firm as a result of death of one of the partners, the business had been continued by the newly constituted firm consisting of one of the partners of the earlier firm and, therefore, Section 187 of the I.T. Act, 1961, applied. The appeal filed by the Revenue was accordingly allowed. On an application made by the asses-see, the Tribunal has referred for decision under Section 256(1) of the I.T. Act, 1961, the following question of law, namely :

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the new partnership constituted by dissolution of the firm and executing a new deed amounted to a change in the constitution of the original firm as contemplated by Section 187(2) of the Income-tax Act, 1961, and the Income-tax Officer was right in clubbing the income for both the periods in framing this assessment ?'

Answer: The Tribunal was correct in law in holding that the new partnership amounted to a change in the constitution of the original firm as contemplated by Section 187(2) of the Income-tax Act, 1961, and that the Income-tax Officer was right in clubbing the income for both the periods in framing assessment.

Misc. Civil Case No. 209 of 1980.

23. The assessee firm consisted originally of Jhamaklal and Padamkumar as partners. On April 19, 1975, Jhamaklal died and Smt. Jassibai, his widow, was taken into the firm as a partner. The accounting period of the firm was from diwali to diwali. For the assessment year 1976-77, the assessee filed two returns, i.e., one for the period from diwali of 1974 to April 19, 1975, and the other from April 21, 1975, to diwali of 1975. The ITO proceeded to make only one assessment treating it as a case covered by Section 187 of the I.T. Act. On appeal by the assessee, a contrary view was taken and it was held that the case was not covered by Section 187. A second appeal to the Tribunal was preferred by the Revenue. The Tribunal held that since one of the partners of the old firm continued to be a partner in the new firm, the case was covered by Section 187 of the I.T. Act and the appeal was accordingly allowed. On an application for a reference made by the assessee, the Tribunal has made this reference under Section 256(1) of the I.T. Act to answer the following question of law, namely:

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that there was a change in the constitution of the firm within the meaning of Section 187(2) of the Income-tax Act, 1961, and, thereby directing the making of one assessment for the entire accounting period ?'

Answer: The Tribunal was justified in law in holding that there was a change in the constitution of the firm within the meaning of Section 187(2) of the Income-tax Act, 1961, and thereby directing making of one assessment for the entire accounting period.

Misc. Civil Case No. 40 of 1981.

24. The assessee was a partnership firm. It had five partners of whom Ramkishan died on May 11, 1972. In his place, Smt. Kamlabai was taken as a partner. The accounting period was from diwali to diwali. For the assessment year 1973-74 the firm filed two returns, i.e., one for the period from October 18, 1971, to May 11, 1972, and the other for the period from May 12, 1972, to November 5, 1972. The ITO held that there was a change in the constitution of the firm within the meaning of Section 187 of the I.T. Act, 1961. He, therefore, made a single assessment for the entire period. The assessee's appeal was dismissed by the AAC. A further appeal to the Tribunal succeeded. The Tribunal held that Section 187(2) of the I.T. Act, 1961, was not attracted. On an application by the Revenue, the Tribunal made a reference under Section 256(1) of the Act for answering the following questions of law, namely :

'(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the old firm stood dissolved on May 11, 1972, on the death of Shri Ramkishan ?

(ii) Whether the Tribunal was right in law in holding that the provisions of Section 187 of the I.T. Act, 1961, are not attracted to the assessee's case and consequently in directing the ITO to make two separate assessments, i.e., one for the period from October 18, 1971, to May 11, 1972, and the other one for the period from May 12, 1972, to Novembers, 1972?'

Answer: The Tribunal was not right in law in holding that the provisions of Section 187 of the Income-tax Act, 1961, are not attracted to the assessee's case or that two separate assessments were required to be made to cover the entire period.

Misc. Civil Case No. 175 of 1981.

25. The assessee-firm originally consisted of three partners, namely, Alim Beg, Salim Beg and Aziz Beg. Alim Beg died on January 8, 1974. A new partnership deed was executed on January 11, 1974, and Smt. Khatam Bi, widow of Alim Beg, was taken in as partner. The accounting period of the firm was from diwali to diwali. For the assessment year 1975-76, the assessee filed two returns, i.e., one for the period from diwali 1973 to January 8, 1974, and the other for the period from January 10, 1974, to diwali, 1974. The ITO was of the opinion that there was only a change in' the constitution of the firm within the meaning of Section 187(2) of the I.T. Act, 1961, and, therefore, he made a single assessment for the entire period. The CIT (Appeals) upheld the order of the ITO. However, the Tribunal in a further appeal held that Section 188 and not Section 187 of the Act applied and, therefore, the ITO was directed to make two separate assessments during that period. On an application by the Revenue, the Tribunal has made a reference under Section 256(1) of the Act to answer the following question of law, namely :

' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that there were two different entities for the two periods, i. e., diwali, 1973 to January 8, 1974, and January 10, 1974, to diwali, 1974 and that it was a case of succession of one firm by another under Section 188 of the I.T. Act, 1961 '

Answer : The Tribunal was not justified in law in holding that there were two different entities during that accounting period or that it was a case of succession of one firm by another governed by Section 188 of the Income-tax Act, 1961.

26. All these references are answered accordingly. No costs.