JUDGMENT BY THE COURT :
At the instance of the Revenue the Tribunal, Delhi Bench EMC Delhi referred the following questions for the opinion of this Court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the incomes of the two periods could not be clubbed and that two separate assessments should be framed on the basis of the two returns of income filed by the assessee ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in taking the view that it was a case of succession of one firm by the another and not that of a change in the constitution of the firm within the meaning of s. 187 of the IT Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the AACs finding that full depreciation would be allowable to the firm that existed during the second period ?"
2. So far as questions No. 1 and 2 are concerned, they revolve around one and the same controversy and, therefore, we take up these two questions together.
The question for consideration is whether on the facts and in the circumstances of the case, one assessment was required to be made or two for two different periods.
The facts are that the assessee firm was constituted by partners, namely, Sarvasri Suraj Bhan, Jagdish Prasad, Hari Babu and Ram Prasad. Sri Suraj Bhan expired on 30th November, 1977 and then Smt. Rukmani Devi wife of the deceased and Sri Arun Kumar were admitted as new partners of the firm. The assessing authority was of the view that there was a change in constitution of the firm in the middle of the year and, therefore, he made one assessment for the entire period.
On appeal, the AAC was of the view that one of the partners having died it was the case of succession and not of change in constitution of the firm. He, therefore, held that two assessments should have been made for two different periods.
On further appeal, the Tribunal concurred with the AAC.
3. Admittedly, there was no agreement to the contrary amongst the partners that despite death of one of the partners, the firm would continue to exist. The controversy is fully covered by the decision of the Supreme Court in the case of CIT vs. Empire Estate (19 (1996) 218 ITR 355 (SC) in which the Court clearly held that if there is no agreement to the contrary and a partner dies then the firm would stand dissolved. Relying upon this authority we are of the view that the AAC rightly held that on the death of one of the partners the firm stood dissolved and his view was rightly upheld by the Tribunal.
Questions No. 1 and 2 are, therefore, decided in the affirmative, i.e., in favour of the assessee and against the Revenue.
4. Coming to the third question, it would be appropriate to reproduce the finding of the AAC.
"6. Depreciation was not claimed in the return for the first period but full depreciation was claimed in the return for the 2nd period. The ITO has framed a single assessment for the two periods and has allowed proportionate deduction for depreciation while computing the profits of each of the two periods. The argument of the appellant was that if two separate assessments are to be framed on two different firms, full depreciation is allowable to each of them.
7. Sec. 32 of the IT Act, 1961 which provides for grant of depreciation allowance does not even by implication, authorise the apportionment of the depreciation allowance between two entities. I am, therefore, of the opinion that full depreciation is allowable to the firm that existed during the 2nd period. As regards the firm that existed in the first period, the assessee has admittedly made no claim for deduction on account of depreciation and, therefore, I refuse to entertain its plea that the ITO should have on his own allowed full depreciation. It follows that no depreciation would be allowable to the firm that existed in the first period and full depreciation as claimed by the assessee, would be allowable to the firm that existed during the 2nd period."
The Tribunal affirmed the aforesaid finding of the AAC. We do not see any legal infirmity in the view taken by the AAC which was affirmed by the Tribunal. The standing counsel also could not point out any legal infirmity to us. We, therefore, decide the third question also in the affirmative, i.e., in favour of the assessee and against the Revenue.