1975 (11) TMI 58 - AT - Income Tax

Tribunal orders separate assessments for new firm post-dissolution. Partner composition key.

The Tribunal ruled in favor of the assessee, directing the Income Tax Officer to conduct separate assessments for the two distinct periods due to the ... - Issues:1. Clubbing of income of two different periods for the assessment years 1970-71.Detailed Analysis:The appeal before the Appellate Tribunal ITAT DELHI-C centered around the contention that the Additional Commissioner of Income Tax (AAC) was not justified in confirming the clubbing of income from two distinct periods for the assessment years 1970-71. The facts revealed that a partnership firm named R.C. Chemicals was initially formed on April 1, 1969, with six partners including Roshan Lal and Rikhab Das Jain. Subsequently, on June 10, 1969, a dissolution deed was executed leading to the retirement of Lal and Jain. Following this, a new partnership deed was executed on December 15, 1969, with the remaining partners and four new individuals to continue business under the same name. The new firm's operations commenced on July 1, 1969. The assessee filed two separate income tax returns for the periods April 1, 1969, to June 30, 1969, and July 1, 1969, to March 31, 1970. However, the Income Tax Officer (ITO) consolidated the income of both periods for a single assessment.The assessee appealed to the AAC, arguing against the clubbing of income from the two distinct periods. The AAC determined that the change in the firm's constitution did not amount to succession under section 188 of the Income Tax Act, 1961, based on legal precedents from the Supreme Court and the Allahabad High Court. The AAC concluded that only one assessment for both periods was necessary due to the constitutional change in the firm.Challenging the AAC's decision, the assessee brought the matter before the Tribunal, emphasizing that the dissolution of the original firm and the establishment of a new firm constituted separate entities. Citing Full Bench decisions of the Allahabad High Court, the assessee argued that the new firm succeeding the old firm required separate assessments under section 188. The Department contended that the business continuity with a new constitution constituted a change in the firm's constitution, justifying a single assessment.After careful consideration and reviewing relevant case law, the Tribunal analyzed the distinction between firm reconstitution and dissolution. Relying on the Allahabad High Court's Full Bench decisions, the Tribunal determined that the new firm's establishment post-dissolution of the old firm warranted separate assessments. Noting the differences in partner composition between the two firms, the Tribunal concluded that the firms were distinct and separate entities, mandating two assessments under section 188. Consequently, the Tribunal directed the ITO to conduct separate assessments for the two firms.Additionally, the Tribunal noted that the remaining grounds of appeal were not pursued and that relief under section 154 had been granted to the assessee. As a result, the appeal was partially allowed by the Tribunal.