Commissioner of Income Tax vs Sehgal Bros.

Heard the counsel for the parties. At the instance of the revenue, the Tribunal has referred the following question to this Court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the ITO to make two separate assessments for the two periods as claimed by the assessee ?"

The assessee-firm was constituted on 1-4-1976 by as many as 9 partners including one Shri Wasu Ram Sehgal, who died on 13-11-1976 and then the question arose whether the firm stood dissolved by virtue of the death of one of the partners, namely, Shri Wasu Ram Sehgal.

The assessee filed two returns of income for the two periods, viz., from 1-4-1976 to 13-11-1976 and from 17-11-1976 to 31-3-1977 and requested the ITO to make two separate assessments for the said two periods. The ITO, however, was of the view that the provisions of section 188 of the income tax Act, 1961 (''the Act'') were not attracted to the facts of the case and, therefore, he made a single assessment for the entire assessment year. The AAC upheld the order made by the ITO.

On further appeal by the assessee, the Tribunal relying on the two Fu ll Bench decisions of this Court, namely, Dahi Laxmi Dal Factory Vs. Income Tax Officer and Another, and Commissioner of Income Tax Vs. Kunj Behari Shyam Lal, held that the two assessments for the two periods should be made, as the provisions of section 188 were attracted to the facts of the case.

In Wazid Ali Abid Ali Vs. Commissioner of Income Tax, Lucknow, the Supreme Court agreeing with the High Court observed as under :

"... It was accordingly held by the High Court that where the partnership deed of a firm did not contain any provision that the death of a partner would not dissolve the firm, one of the partners of the firm died in the middle of the accounting period and thereafter a fresh deed was executed under which the surviving partner took a fresh partner in the place of the deceased and continued to carry on the business, the case was one of succession and not one of change in the constitution and separate assessments had to be made in regard to the income. With respect, we agree that where in a case, there is a change in the constitution of the firm by taking of a new partner and the old firm is succeeded by a new firm, then, in such a case, there might be succession and there could be two assessments as contemplated u/s 188 of the Act. We accept the reasoning of that decision."

It was clearly pleaded by the assessee in the instant case that there was no clause in the partnership deed indicating the agreement to the contrary that despite death of on of the partner the firm will not be dissolved Therefore, one of the partners having died in the mid of the accounting year, we, following the aforesaid decision of the Supreme Court, hold that the firm stood dissolved on the death of one of the partners and, therefore, the Tribunal was right in holding that two assessments had to be made for two periods in view of section 188. The above question is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the revenue.