Apportionment of firm income depends on entitlement during the previous year, not only partner status at assessment.

Agricultural income of a reconstituted firm had to be apportioned by reference to the partners entitled to that income during the relevant previous year, not merely by the partners in place at assessment. The Court held that no partner could be taxed on income, profits or gains not received by him during that year. A single assessment could still be made on the reconstituted firm, but the pre-reconstitution income had to be allocated to the erstwhile partners and the post-reconstitution income to the partners of the reconstituted firm. The issue was answered against the Revenue and in favour of the assessee.

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Issues: Whether, on the facts and in the circumstances of the case, the agricultural income of a reconstituted firm was liable to be apportioned among the partners according to their status at the time of assessment or according to the partners who were entitled to the income during the relevant previous year.

Analysis: The assessment was made on the reconstituted firm, but the liability to tax had to be worked out with reference to the income earned during the relevant periods. The Court held that no partner could be made liable for income, profits and gains which he had not received during the previous year. Accordingly, although a single assessment was to be made against the reconstituted firm, the income for the period before reconstitution had to be apportioned among the erstwhile partners and the income for the period after reconstitution had to be apportioned among the partners of the reconstituted firm.

Conclusion: The question was answered in the negative against the Revenue and in favour of the assessee.

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