Commissioner of Income Tax vs Ram Babu Kapoor Chand

This is an Income Tax reference u/s 256(1) of the Income Tax Act, 1961. In which following questions have been referred to us for our opinion :

"1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that it was not the case of a change in the constitution of the firm and that the income of the two periods could not be clubbed ?

2.Whetlier on the facts and in the circumstances of the case, it can be said that the assessee was entitled to registration in respect of both the periods ?"

The relevant assessment year is 1976-77. The firm consisted of 8 partners including one Bhana Mal who died on 2-2-1975. In the original partnership deed there is no mention that on the death of a partner the firm will continue in existence, hence in view of section 42(c) of the Partnership Act, the firm stood automatically dissolved on the death of a partner. Hence, it is a case of dissolution of the firm and not re-constitution, and there have to be two assessments and not one assessment in view of the Supreme Court decision in COMMISSIONER OF INCOME TAX Vs. EMPIRE ESTATE., . In view of our answer to the first question we decide the second question by holding that there was dissolution of the firm and not mere change of its constitution and hence two separate assessments have to be made for. the assessment year. We, therefore, answer both the questions referred to us in the affirmative, i.e., in favour of the assessee and against the department. The reference is answered accordingly.