2013 (4) TMI 190 - HC - Income Tax

High Court: Re-constituted partnership's income assessed for full previous year. Tribunal decision overturned.

The High Court ruled that the assessment of income for a re-constituted partnership firm had to be done for the entire previous year, regardless of the ... Assessment of firm - reconstitution - Tribunal as well as the First Appellate Tribunal, have placed reliance upon judgment in the case of Commissioner of Income Tax, Lucknow vs. Shiv Shanker Lal Ram Nath; [1974 (10) TMI 12 - ALLAHABAD HIGH COURT] and Full Bench judgment in the case of Badri Narain Kashi Prasad vs. Additional Commissioner of Income Tax; [1978 (5) TMI 32 - ALLAHABAD HIGH COURT] Held that:- the decisions relied upon by the Tribunal are no longer good law in view of the subsequent judgment of a larger Bench of this Court in the case of Vishwanath Seth vs. CIT; [1983 (11) TMI 59 - ALLAHABAD HIGH COURT] - the order of the Tribunal cannot be allowed to stand. - It is in effect a case of re-constitution of the firm and as such, the assessment has to be made in respect of entire previous year, irrespective of the fact that the firm was re-constituted on 20.10.1977 - Decided in favor of revenue. Issues:1. Interpretation of partnership deed regarding profit and loss determination date.2. Assessment of income for re-constituted firm for the assessment years 1979-80 and 1980-81.3. Reliance on previous court judgments.4. Applicability of subsequent court judgment on re-constitution of the firm.Analysis:1. The main issue in this case revolves around the interpretation of the partnership deed concerning the determination of profit and loss. The partnership firm, known as M/s. Ghanshyam Das Radha Kishan Tandon, Amroha, was formed on 1.4.1975 with a provision in the deed stating that profit and loss shall be determined on 31st March or any other agreed-upon date. Following the retirement of a partner on 20.10.1977, a new partnership deed was executed on 24.10.1977, reconstituting the firm with a new accounting period from 21.10.1977 to 30.6.1978. The question arose regarding the assessment of income for the assessment years 1979-80 and 1980-81 based on the returns filed by the assessee.2. The Assessing Officer assessed the income for the full year relevant to the assessment years 1979-80 and 1980-81, which was appealed before the Commissioner of Income Tax (Appeals) and subsequently before the Income Tax Appellate Tribunal. The Tribunal directed the assessment to be made on the basis of the returns filed by the assessee. However, the High Court, after considering the re-constitution of the firm, held that the assessment had to be made for the entire previous year, regardless of the re-constitution date of the firm on 20.10.1977.3. The Tribunal and the First Appellate Tribunal relied on previous court judgments, including the case of Commissioner of Income Tax, Lucknow vs. Shiv Shanker Lal Ram Nath (1977) 106 ITR 342 and the Full Bench judgment in the case of Badri Narain Kashi Prasad vs. Additional Commissioner of Income Tax (1978) 115 ITR 858. However, the appellant contended that these decisions were no longer valid in light of a subsequent judgment by a larger Bench in the case of Vishwanath Seth vs. CIT (1984) 146 ITR 249.4. The High Court, after considering the arguments and the subsequent judgment, concluded that the order of the Tribunal could not be upheld. The court determined that the re-constitution of the firm necessitated the assessment for the entire previous year, irrespective of the re-constitution date. Consequently, the reference was answered in the negative, against the assessee and in favor of the Department.