Rajasthan H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in directing the passing of two separate assessments, one for pre-change and the other for post-change period specially when the Tribunal has held that it is a case of change in the constitution of the firm within the meaning of s. 187(2) ?

Counsel Appeared

B.R. Arora, for the Revenue : Vineet Kothari, for the Assessee

BY THE COURT :

This reference under s. 256(1) of the IT Act, 1961, is at the instance of the Revenue to decide the following question of law, namely:

” Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in directing the passing of two separate assessments, one for pre-change and the other for post-change period specially when the Tribunal has held that it is a case of change in the constitution of the firm within the meaning of s. 187(2) ?”

The relevant assessment year is 1979-80. One of the partners of the assessee-firm retired during the relevant period. The assessee filed two separate returns, one for the period up to the date of retirement and the other for the period thereafter. The assessee claimed that it was a case of dissolution of the firm and, therefore, of succession to which s. 188 of the Act applied. The ITO rejected the contention and so also the CIT (Appeals). In the assessee’s further appeal to the Tribunal, it was held by the Tribunal that it was a case of change in the constitution of the firm and not of succession. All the same, the Tribunal directed the making of two separate assessments for the two different periods as claimed by the assessee. Aggrieved by this ultimate direction, the Revenue has come up in reference to this Court.

It is obvious that the Tribunal having held that it is a case of a mere change in the constitution of the firm and not of succession, it had to logically flow from this finding that it is a case governed by s. 187 of the Act and the income for the two periods had to be clubbed together for making one assessment. Obviously, s. 188 is attracted only when s. 187 is inapplicable. The ultimate direction by the Tribunal to make two assessments is, therefore, not sustainable.

Consequently, the reference is answered in favour of the Revenue and against the assessee as under : ” The Tribunal having held that it is a case of change in the constitution of the firm within the meaning of s. 187(2) of the IT Act, 1961, it was not justified in directing the making of two separate assessments instead of one for the entire period. “

No costs.

[Citation : 171 ITR 292]