ORDER BY THE COURT:
This is a reference under s. 256(1) of the IT Act, 1961, at the instance of the CIT, the Tribunal, Delhi Bench 'C' has referred the following two questions of law for the opinion of this Court :
"1. Whether, on the facts and in the circumstances of the case, the provisions of s. 187(2) were not applicable to the facts of the instant case?"
2. Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in upholding the order of the CIT(A) directing the ITO to make two separate assessments for the two periods?"
2. We have heard learned standing counsel for the Revenue. No one has put in appearance on behalf of the assessee.
3. The dispute pertains to the asst. yr. 1976-77 for which the previous year ended 31st March, 1976. The assessee filed two returns of income, namely, one for the period 1st April, 1975, to 31st Dec., 1975, declaring an income of Rs. 36,762 and the other for the period 1st Jan., 1976, to 31st March, 1976, showing an income of Rs. 67,619. The assessee claimed that there was a change in the constitution of the firm on 31st Dec., 1975, resulting in the admission of three more partners on the said date. The ITO, however, made a single assessment and clubbed the income for the two periods, at one place. On appeal the appellate authority directed that the two assessments should be made for the two broken periods. On further appeal to the Tribunal the appellate order was upheld and the appeal filed by the Revenue was dismissed. The question for consideration is whether the Tribunal was right in directing that two separate assessments were called for on the facts obtaining in the instant case.
4. Sec. 187 of the IT Act, 1961, provides that where at the time of making an assessment is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. Sub-s. (2) of s. 187 states that for the purposes of this section, there is a change in the constitution of the firm :
"(a) if one or more of the partners cease to be partners or one or more new partners are admitted in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change., or
(b) Where all the partners continue with a change in their respective shares or in the shares of some of them."
From the facts of this case, stated earlier, what had happened was that three more partners had joined the partnership business w.e.f. 1st Jan., 1976, and the firm was reconstituted with the addition of those partners. It is evident, that it was only a reconstitution of the firm and not a case of dissolution and in these circumstances a single assessment was to be made in respect of the firm for the entire previous year. We are supported by a view by a decision of this Court in CIT vs. Har Nath Ram Nath (1997) 224 ITR 713 (All). That decision in turn relied upon on an earlier decision in the case of CIT vs. Ramesh Biscwt Factory (1994) 205 M 205 (All) .
In view of the above discussions, in our opinion the Tribunal was wrong in taking the view that s. 187(2) was not applicable to the facts of the instant case and it was also wrong in saying that it was a case where two separate assessments should be made.
In the result, both the questions are answered in the negative in favour of the Revenue and against the assessee.