1995 (11) TMI 77 - HC - Income Tax

High Court affirms Tribunal's decision on firm's existence post-partner's death, rejects Revenue's argument.

The High Court upheld the Tribunal's decision for two separate assessments, ruling that the firm ceased to exist after a partner's death, leading to the ... In Part, Partnership Deed Issues:Interpretation of sections 187 and 188 of the Income-tax Act, 1961 regarding change in firm constitution or succession.Analysis:The case involved a dispute regarding whether there was a mere change in the constitution of the firm under section 187 of the Income-tax Act, 1961, or if it constituted a case of succession under section 188. The assessee contended that the firm was dissolved upon the death of a partner, leading to the formation of a new firm. The Income-tax Officer, however, held that there was only a change in the constitution of the firm, requiring a single assessment for the entire year. The Appellate Assistant Commissioner upheld this decision.The Income-tax Appellate Tribunal examined the facts and found that for a specific period, the firm had different compositions, with a gap where no firm existed. Referring to a previous Full Bench decision, the Tribunal concluded that there were two distinct firms for the two periods in question. The Tribunal set aside the assessment order and directed two separate assessments for the respective periods, emphasizing the presence of separate and distinct entities.The High Court analyzed the Tribunal's findings and the facts of the case. It noted the absence of the firm's existence for three days following the partner's death, with no evidence of the old firm continuing its business during that period. The Court observed that the Revenue failed to establish that the old firm persisted post the partner's demise. Consequently, the Court agreed with the Tribunal's inference that the old firm ceased to exist after the partner's death, leading to the formation of a new firm for the subsequent period. The Court rejected the Revenue's argument of a mere change in constitution under section 187, supporting the Tribunal's decision of two separate assessments based on distinct entities.In conclusion, the High Court answered the question in the affirmative, supporting the Tribunal's decision for two separate assessments. The Court directed the case records to be sent back to the Appellate Tribunal for further action in line with the High Court's decision.