Commissioner of Income Tax vs Sethi Electricals

In this reference u/s 256(1) of the income tax Act, 1961, the following question of law is referred for our opinion:- Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that the case of the assessee is covered by section 188 of the income tax Act, 1961?

The statement of case reveals that the firm consisting of four partners dissolved itself on 20-8-1976 and on that date a dissolution deed was executed. Thereafter three of the remaining partners constituted themselves a partnership as per the partnership deed dated 22-8-1977. 2. According to the assessee, two separate assessment orders were required to be passed in view of the provisions of section 188 of income tax Act, 1961. This contention was rejected not only by the income tax Officer but also by the Appellate Assistant Commissioner.

On further appeal, the income tax Appellate Tribunal was of the view that section 188 of the Act was applicable to the facts of the case since there was dissolution of the partnership firm. It was held that section 187 of the Act was not applicable in as much as there was no change of the constitution of the firm but a dissolution of an existing firm.

Our attention has been drawn in Commissioner of Income Tax, West Bengal-III Vs. Pigot Champan and Company, wherein the Supreme Court held that when a firm is dissolved and a new firm is constituted, the new firm succeeds to the old business and it is not a mere change in the constitution of he existing firm.

Under the circumstances, we are of the opinion that the question referred for our opinion is required to be answered in the affirmative, in favour of the assessee and against the revenue. The reference is disposed of accordingly.