Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the period covered by the old constitution, the income was assessable in the hands of the assessee as a registered firm ?

Counsel Appeared

Standing Counsel, for the Revenue : A.N. Mahajan, for the Assessee

OM PRAKASH, J.:

At the instance of the Revenue, the Tribunal, Allahabad, has referred the following question for our opinion:

” Whether the Tribunal was right in holding that even though there had been only a change in the constitution of the firm on the death of Sri Basant Behari, two separate assessments will have to be made-one for the period from April 1, 1972, to November 5, 1972, and the other for the period November 6. 1972, to March 31, 1973 ? “

2. The facts as stated in the statement of the case are that one of the partners of the assesseefirm, namely, Basant Behari, died on November 5, 1972. The dispute relates to the asst. yr. 197374, the accounting year for which was the financial year 1972-73. As the death occurred during the accounting year, the assessment year stood broken up into two parts-one from April 1, 1972, to November 5, 1972, and the other from November 6, 1972, to March 31, 1973. The assessee-firm, however, filed a single return for the entire assessment year. The ITO, therefore, made only one assessment in regard to the entire income shown in the return.

The assessee-firm appealed before the AAC and contended that two assessments should have been made for the two periods, but the appeal failed.

The assessee then carried the dispute to the Tribunal raising the contention that the old firm was dissolved on November 5, 1972, when Basant Behari, one of the partners, died and a new firm came into being thereafter. It was, therefore, conceded that the assessed, though only one return was filed in respect of the income relating to the two periods (sic). Relying on Shiv Shanker Lal’s case 1975 CTR (All) 22 : (1977) 106 ITR 342 (All), it was also contended before the Tribunal on behalf of the assessee that even if it was held that there was no dissolution of the firm on the death of one of the partners and there had been only a change in the constitution of the firm in the event of the death, two separate assessments would have to be made in respect of the income earned by the old firm and the reconstituted firm. The Tribunal found that the partnership deed dated April 1, 1968, whereunder the firm was constituted, clearly provided that the partnership will not dissolve on the death of any partner. Also it was held that there was no evidence to suggest that the firm actually stood dissolved on the death of Basant Behari. This view was taken by the Tribunal on the facts that the same set of account books was continued even after the death of one of the partners and the books were closed only at the end of the accounting year. However, the Tribunal relying on Shiv Shanker Lal’s case (supra), accepted the assessee’s claim that two separate assessments were required to be made though there was only a change in the constitution of the firm. The Tribunal was of the view that the fact that the assessee had shown the income of both the periods in a single return would not change the legal position that two separate assessments had to be made when there was a change in the constitution of the firm. The Tribunal, therefore, directed the ITO to make two separate assessments for the two periods.

It is, therefore, clear that the Tribunal’s decision rests on Shiv Shanker Lal’s case (supra). It is undisputed that a Full Bench of this Court in Vishwanath Seth vs. CIT (1984) 38 CTR (All) 366 (FB) : (1984) 146 ITR 249 (All) has not approved the view taken by this Court in Shiv Shanker Lal’s case (supra) and followed up in the Full Bench case of Badri Narain 1978 CTR (All) 390 FB : (1978) 115 ITR 858 (All). In Vishwanath Seth’s case (supra), the Full Bench relied on Hoshiarpur Electric Supply Co. vs. CIT (1971) 79 ITR 164 (P & H), Addl. CIT vs. Visakha Flour Mills (1977) 108 ITR 466 (AP) (FB) and also that of the Delhi High Court in CIT vs. Sant Lal Arvind Kumar (1986) 25 CTR (Del) 207 : (1982) 136 ITR 379 (Del), which have dissented from Shiv Shanker Lal’s’ case (supra) but which case has been approved in the Full Bench case of Badri Narain (supra). In all these decisions, the aforesaid various High Courts have held that in cases of reconstitution under s. 187, the same firm continues and is assessable in respect of the income of the entire previous year. It is this view which, in the opinion of the Full Bench in Vishwanath Seth’s case (supra), is the correct legal position.

In view of the Full Bench decision in Vishwanath Seth’s case (supra), the view taken by the Tribunal that two assessments could be made for the two broken periods when there is a change in the constitution of the firm, is not sustainable.

Sri Mahajan, learned counsel for the assessee, however, urged before us that the decision of the Full Bench is Vishwanath Seth’s case (supra) is no longer good law, inasmuch as that has been overruled by the Supreme Court in Wazid Ali Abid All vs. CIT and Addl. CIT vs. United Commercial Co. (1988) 67 CTR (SC) 43 : (1988) 169 ITR 761 (SC). Let us see whether the submission of Sri Mahajan is correct. In Wazid Ali Abid Ali’s case (supra), the assessee-firm was constituted under a deed of partnership dated March 17, 1959, with 17 partners. The said deed provided, inter alia, that the firm shall not be dissolved on the death of any partner, but shall be carried on with the remaining partners and that heir and representative of the deceased partner who resides in India on such terms and conditions to which they mutually agree. On June 4, 1964, one of the partners, Qamaruddin, died and his son, Fariduddin, joined the firm as a partner. A new deed of partnership evidencing the change in the constitution of the firm was not executed during the previous year relevant to the asst. yr. 1965-66. The assessee filed a declaration in Form No. 12 for the relevant asst. yr. 1965-66, the previous year for which ended on November 4, 1964, under s. 184(7) of the Act. The declaration was signed by the 16 members, who had continued all along and also by Fariduddin who had become a partner in place of his deceased father. The ITO held that there was a change in the constitution of the firm on the death of Qamaruddin. He, therefore, held that the assessee was not entitled to the continued benefit of registration under s. 184(7) of the Act. He was of the opinion that the firm had failed to file a fresh application for registration and, therefore, he disallowed the benefit of registration to the firm. A similar view was taken in, appeal, by the AAC. On further appeal to the Tribunal, the assessee urged that the change which occurred on the death of Qamaruddin did not require the execution of a new deed of partnership nor a fresh application for registration. Alternatively, it was contended that the assessee was entitled to the continued benefit of registration at least for that part of the previous year during which Qamaruddin had remained alive. The Tribunal was of the view that the death of Qamaruddin and the inclusion of Fariduddin involved a change in the constitution of the firm and, therefore, it was necessary that a fresh deed of partnership should have been executed as well as a fresh application for registration filed. The Tribunal, however, accepted the alternative contention and observed that the conditions laid down in sub-s. (7) of s. 184 of the Act had been satisfied and that the assessee would be entitled to the benefit of registration up to June 4, 1964, that is to say, the first part of the previous year.

In view of s. 187(2) of the Act, it was obligatory according to the Tribunal for the ITO to make only a single assessment on the assessee and to apportion the total income between the partners who were entitled to receive the profits according as they were entitled to share the profits, the firm being assessed as a registered firm in respect of the profits ending June 4, 1964, and as an unregistered firm in respect of the profits for the remaining part of the previous year. Thereupon, the following question was referred to the High Court (at p. 764 of 169 ITR):

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the period covered by the old constitution, the income was assessable in the hands of the assessee as a registered firm ?”

8. The High Court was of the view that on the death of Qamaruddin on June 4, 1964, and on the entry of Fariduddin, there was a change in the constitution of the firm. The view taken by the Tribunal that the profits up to June 4, 1964, should be treated as in the case of a registered firm and the profits for the rest of the previous year should be treated as in the case of an unregistered firm, according to the High Court, found no support in the statute. The High Court was of the view that the Tribunal was not right in holding that the assessee would be entitled to the benefit of registration up to June 4, 1964, that is, the first part of the previous year. On these facts, the Supreme Court observed (at p. 772 of 169 ITR): ” The real question with which we are concerned in both these appeals is, therefore, when there is death of a partner within a previous year in the case of a registered firm, what happens ? “

9. Taking a perspective of the scheme of the Act of the assessment of firms, the Supreme Court upheld the decision of the Tribunal given on the alternative contention that the assessee was entitled to the continued benefit of registration at least for the first part of the previous year during which there was a no change in the constitution. To oppose this view, the Revenue relied on Vishwanath Seth’s case (supra) and thereupon the Supreme Court observed towards the end (at p. 777 of 169 ITR): ” The Full Bench ruled that under the general law of partnership under the Indian Partnership Act as well as under s. 187 of the Act in the case of reconstitution of a firm, it retains its identity and is assessable in respect of the entire previous year. In view, however, of the scheme of Chapter XVI of the Act, we are unable to agree; if we were left with the general position under the Indian Partnership Act, we might have agreed. That decision of the High Court, however, did not deal with the controversy in issue.”

The question is whether from the aforesaid observations it can be inferred that the decision of the Full Bench in Vishwanath Seth’s case (supra) was overruled. From the above reproduced passage, it is sufficiently clear that the Full Bench decision in Vishwanath Seth’s case (supra) was not overruled by the Supreme Court, but the Full Bench decision was not read to the advantage of the Revenue saying that the Full Bench decision ” did not deal with the controversy in issue “. There was no occasion for the Supreme Court to overrule the Full Bench decision in Vishwanath Seth’s case (supra), inasmuch as an absolutely different question was considered in Wazid Ali Abid Ali’s case (supra) by the Supreme Court. Whereas the question before the Supreme Court was whether for the first part of the previous year in which the constitution of a firm remained intact and unchanged, the benefit of continued registration could be given, the question in Vishwanath Seth’s case (supra) was whether two assessments for the two broken periods before and after the change in the constitution of the firm during the previous year could be made.

For the above reasons, we hold that the Full Bench decision in Vishwanath Seth’s case (supra) is still binding on us and we, therefore, answer the question referred to us by the Tribunal in the negative and in favour of the Revenue and hold that there being only a change in the constitution of the firm on the death of one of the partners, only one assessment for the entire assessment year could be made.

Let the record of the case be sent to the Tribunal to pass an order conformably to this judgment.

[Citation : 172 ITR 662]