1989 (5) TMI 124 - AT - Income Tax

Interpreting Tax Law: Tribunal Clarifies Partnership Act Alignment

The Tribunal allowed one appeal and dismissed the other in interconnected cases concerning assessment orders for 1980-81 and 1981-82. The High Courts ... - Issues:Interconnected appeals regarding assessment orders for the assessment years 1980-81 and 1981-82, involving the constitution of a firm, change in previous year, grant of registration, and interpretation of relevant sections of the IT Act.Analysis:1. The appeals involved two interconnected matters - one by the assessee-firm against the CIT's order for the assessment year 1980-81 and the other by the Department against the AAC's order regarding grant of registration for the assessment year 1981-82.2. The facts revolved around the constitution of two separate firms, changes in partnerships, and the observation of previous years ending on Diwali. The CIT considered the assessment for 1980-81 erroneous, leading to the direction for a de novo assessment based on the change in firm constitution.3. The assessment for 1981-82 was challenged due to the ITO's view on the constitution of the new firm, leading to a protective assessment. The AAC directed the ITO to allow registration, which was appealed by the Department.4. The controversies primarily centered around the interpretation of sections 187, 188, and 189 of the IT Act, specifically regarding changes in firm constitution and the distinction between a change and the constitution of a new firm.5. The High Courts had differing opinions on whether general partnership law principles apply to the construction of section 187. The Supreme Court's decision in Wazid Ali Abid Ali vs. CIT clarified that section 187 should be construed in light of the Partnership Act, 1932.6. The Tribunal found that the case involved a dissolution of the firm, settlement of accounts, and closure of account books, indicating a new firm rather than a mere change in constitution. Therefore, the Commissioner's view on the assessment for 1980-81 was deemed unsustainable.7. The Tribunal upheld the AAC's order regarding the assessment for 1981-82, stating that the new firm had indeed come into existence, and the applications for registration were not premature. The ITO should have allowed registration to the new firm.8. Consequently, the Tribunal allowed one appeal and dismissed the other, based on the findings related to the constitution of the firm and the correct interpretation of the relevant provisions of the IT Act and Partnership Act.