JUDGMENT
1. The Income-tax Appellate Tribunal, at the instance of the Revenue, referred the following question for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that two separate assessments in respect of two periods should be made in the hands of newly constituted firm ?"
2. The facts are that the assessee-firm was constituted under a partnership deed dated May 8, 1967, by two partners, namely, Bhagwan Dass and Chandu Lal, having equal shares. They claimed having represented the respective shares of their Hindu undivided families in the firm. It was pleaded that a partial partition had taken place in both the Hindu undivided families on September 30, 1975, and then a fresh partnership deed dated August 12, 1976, was drawn up between the four partners, including the two original partners. Arun Kumar, son of Sri Bhagwan Dass, and Swatantra Kumar, son of Sri Chandu Lal, were inducted into the partnership under the deed dated August 12, 1976.
3. The assessee filed two returns of income for the periods from April 1, 1975, to September 30, 1975, and from October 1, 1975, to March 31, 1976. The assessee pleaded that after partial partition of the Hindu undivided families, the firm stood dissolved and, therefore, two assessments for the two broken periods should have been made. The contention of the assessee-firm was rejected by the Assessing Officer who was of the view that there was only a change in the constitution of the firm, inasmuch as the two original partners, namely, Bhagwan Dass and Chandu Lal, continued to be the partners under the new partnership deed. The Assessing Officer was of the view that the only change was that the two new partners were inducted into the assessee-firm and that the effect of the two new partners being inducted was that there was only a change in the constitution of the firm. He, therefore, held that only one assessment was required to be made and that was made accordingly.
4. On appeal, the Appellate Assistant Commissioner referring to the case of Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858 (All), held that the said decision being a decision of the Allahabad High Court was binding. In Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858 (All) a Full Bench of the Allahabad High Court held (headnote) :
"Where there is a change in the constitution of a firm, Section 187 merely makes the new firm liable to be assessed in respect of the income derived by the old firm. But this Section even by implication does not create a fiction that the income derived by the old firm becomes the income of the reconstituted firm. The income of the old firm cannot be clubbed with the income of the reconstituted firm. After reconstitution, the firm becomes a distinct assessable entity, different from the firm before its reconstitution. Therefore, two different assessment orders have to be passed against the reconstituted firm--one in respect of the income derived by it before reconstitution and the other in respect of the income derived by it after reconstitution."
5. The decision in the case of Badri Narain Kashi Prasad [1978] 115 ITR 858 (All) [FB], has been overruled by a larger Bench in Vishwanath Seth v. CIT [1984] 146 ITR 249 (All) [FB], which ruled down that under the general law of partnership under the Indian Partnership Act as well as under Section 187 of the Income-tax Act, 1961, in the case of reconstitution of a firm, it retains its identity and continues and is assessable in respect of the income for the entire previous year. Similar view has been taken by the Supreme Court recently in CIT v. Empire Estate [1996] 218 ITR 355 (SC), in which the court clearly observed that "change in the constitution of the firm" is defined in Section 187. The relevant part of the definition states that if one or more of the partners cease to be partners in such circumstances that one or more of the persons, who are partners of the firm before the change, continue as partner or partners after the change, there is a change in the constitution of the firm.
6. Let us apply this principle to the case at hand. Originally, there were two partners and by a fresh partnership deed dated August 12, 1976, two more partners were inducted and, therefore, on these facts the only conclusion that can be drawn is that there was a change in the constitution of the firm and no dissolution, as averred by the assessee-firm. If there is merely a change in the constitution of the firm, then only one assessment has to be made. We, therefore, do not approve of the view taken by the appellate authorities.
7. In the result, the abovementioned question is answered in the negative, i.e., against the assessee and in favour of the Revenue.