Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in upholding the order of the CIT(A) directing the ITO to assess the income [Vishwanath Seth vs. CIT (1984) 38 CTR (All) (FB): 366 (1984) 146 ITR 249 (All) (FB)] ?

High Court Of Allahabad

CIT vs. United Tin Factory

Section 187(2)(a)

M. Katju & Yatindra Singh, JJ.

IT Ref. No. 22 of 1985

11th December, 2002

Counsel Appeared : Ashok Kumar, for the Revenue : R.S. Agarwal, for the Assessee

JUDGMENT

Yatindra Singh, J. :

Heard Sri R. S. Agarwal, learned counsel for the assessee, and Sri Ashok Kumar, learned counsel for the Department. This is a reference under s. 256(1) of the IT Act, 1961. The following two questions have been referred to us :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in upholding the order of the CIT(A) directing the ITO to assess the income [Vishwanath Seth vs. CIT (1984) 38 CTR (All) (FB): 366 (1984) 146 ITR 249 (All) (FB)] ?

2. Whether, on the facts and in the circumstances of the case, it was not the case of mere change in the constitution of the firm within the meaning of s. 187(2) of the IT Act ?” The assessee is a firm and it was constituted up to 8th Feb., 1978, with the following partners : Shri Ramanand Negotia ; Smt. Shakuntla ; Smt. Urmila ; Smt. Shanti Devi; Smt. Pramod Kumar. The firm was dissolved and on 9th Feb., 1979, a new firm was formed with the following seven members : Smt. Ramnandi; Smt. Urmila Devi; Smt. Shakuntala Devi ; Shri Rajiv Kumar ; Shri Ajai Kumar ; Shri Ram Kali; Shri Ramesh Chandra. No doubt the firm was dissolved and a new firm came into existence so far as the Partnership Act is concerned, but so far as the IT Act is concerned the case is to be decided in the light of ss. 187 and 188 of that Act. Section 188 applies only in those cases where the case is not covered by s. 187(2) of the IT Act. Sec. 187(2) states : “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 : Provided that nothing contained in cl. (a) shall apply to a case where the firm is dissolved on the death of any of its partners.” This section clarifies that if one or more partners cease to be partners, or one or more new partners are admitted, then it would be a case of reconstitution and not dissolution of the firm, provided that at least one of the partners prior to the change in the firm is a partner after the change. In the present case two members, namely, Smt. Shakuntala and Smt. Urmila, are common, three members have gone and five new members have come in. It is thus covered by s. 187(2) (a) of the Act and hence it is a case of reconstitution and not dissolution of the firm. Hence, only one assessment is to be made. In view of this we answer both the questions in the negative, i.e., in favour of the Department and against the assessee.

[Citation : 263 ITR 178]

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