New partnership deed doesn't warrant separate assessment: ITAT ruling on Income-tax Act

Kwality Restaurant. Versus Income-Tax Officer.

Kwality Restaurant. Versus Income-Tax Officer. - TTJ 020, 011, Issues:
- Whether there should have been one assessment or two assessments for the relevant accounting year.

Analysis:
The judgment by the Appellate Tribunal ITAT CALCUTTA-B revolves around the issue of whether there should have been one assessment or two assessments for the relevant accounting year. The dispute arose due to a new partnership deed executed during the accounting period ending on 31st March, 1978. The Income Tax Officer (ITO) conducted a single assessment for the entire income despite the new partnership deed. The assessee appealed, contending that there should have been separate assessments. The Tribunal noted divergent views on this issue from various High Courts. The assessee relied on decisions from the Allahabad High Court and the Andhra Pradesh High Court to support their case for separate assessments.

The Department, however, referred to conflicting decisions from the Andhra Pradesh High Court and the Punjab and Haryana High Court. The Tribunal observed that there was no direct decision from the Calcutta High Court on the matter. The Tribunal also considered a Full Bench decision from the Karnataka High Court, which emphasized the distinction between the legal position of a firm under income tax law and general partnership law. The Tribunal highlighted Section 187(2) of the Income-tax Act, which specifies circumstances constituting a change in the constitution of a firm for assessment purposes. The Tribunal concluded that even if a firm is dissolved and reconstituted, leading to a change in partners or shares, it should be assessed as a new entity, subject to higher tax implications.

In light of the legislative intent behind Section 187(2) and the specific language of the provision, the Tribunal dismissed the appeal, upholding the single assessment made by the ITO. The judgment emphasizes the importance of adhering to the statutory framework governing partnership firm assessments under the Income-tax Act, ensuring that reconstituted firms are treated as distinct entities for tax purposes.