JUDGMENT
1. The Income-tax Appellate Tribunal has referred the following question under Section 256(1) of the Income-tax Act, 1961 (briefly, "the Act"), for our opinion :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that two separate assessments for the two periods, should be framed, there being separate, distinct and different entities, i.e., firms being in existence during the previous year relevant for the assessment year 1976-77 ?"
2. The facts, as briefly stated, are that the assessment year involved is 1976-77. The assessee, a dealer on wholesale basis in cloth, filed two returns of its income one for the period April 1, 1975, to August 14, 1975, and the other for the period from August 18, 1975, to March 31, 1976. The case of the assessee was that one of its partners, Sri Sobh Raj, died on August 14, 1975, and, therefore, the firm stood dissolved and an absolutely new firm came into existence on August 18, 1975. The assessee, therefore, contended that two assessments for two different periods on separate firms be made for the year 1975-76.
3. The Income-tax Officer held that the firm was not dissolved on the death of Sobh Raj. He was of the view that the same firm continued with changed constitution and there being a case of change only in the constitution of the firm within the meaning of Section 187 of the Act, a single assessment was legally required for the whole year.
4. The assessee filed an appeal before the Appellate Assistant Commissioner contending that there was no change in the constitution of the firm but dissolution of the old firm and, therefore, the case was covered by Section 188 of the Act and two assessments for two different periods on two different entities should have been made. The Appellate Assistant Commissioner confirmed the assessment order as made by the Income-tax Officer.
5. The assessee then went up in further appeal to the Income-tax Appellate Tribunal which found as follows :
"For the first period, that is, for the period April 1, 1975, to August 14, 1975, the firm was constituted, apart from Shri Sobh Raj (deceased), by four other adult persons whereas for the second period which begins from August 18, 1975, and ends on March 31, 1976, the firm was constituted by three adult persons and two minors admitted only to the benefits of the partnership. There, has been no firm in existence for (he days and period as from August 15, 1975, to August 17, 1975. This period has not been linked by the Revenue and according to the contention of learned counsel for the assessee, the second firm came into being as on August 18, 1975, as against the date of August 14, 1975, when the earlier firm was dissolved. The death of a partner on the, one hand had the effect of dissolving the firm, while, the continuity for the whole of the period of 12 months is absent and is found lacking as from the reading of the assessment order .... The cumulative effect of all these, is that, applying respectfully, the ratio of the decision of the Full Bench of the Allahabad High Court in the case of Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858, there can be no other inference, but, that there were two different firms in existence for the two different periods and, accordingly, on the facts and in the circumstances of the present case, in appeal before us, we are of the opinion and do hold that the assessment order of the Income-tax Officer, which has since been sustained by the Appellate Assistant Commissioner in appeal, merits to be set aside with the directions that two separate assessments in the case of the assessee for the two respective periods, i.e., as from April 1, 1975, to August 14, 1975, and again as from August 18, 1975, to March 31, 1976, shall be made, there being two separate, distinct and different entities...." (underlining ours).
6. The question for consideration is whether there was only change in the constitution of the firm within the meaning of Section 187 or succession within the meaning of Section 188 of the Act. The categorical finding of fact as recorded by the Appellate Tribunal is that there has been no firm in existence for three days, i.e., from August 15, 1975, to August 17, 1975 (both days inclusive). No material has been brought on record by the Revenue to controvert this finding. This is not the case of the Revenue that any inquiry was made into the factual position and the firm which existed up to August 14, 1975, when one of the partners, Sobh Raj, died is found to have continued to carry on its business on three days, i.e., from August 15, 1975, to August 17, 1975. Also there is no material to indicate that the partnership deed of the firm which existed up to August 14, 1975, contained a stipulation that the firm will continue, notwithstanding the death of one of its partners. This being so, the Revenue failed to establish, either in fact or in law, that the old firm continued to exist notwithstanding the death of one of its partners. A clear finding being recorded by the Appellate Assistant Commissioner that no business was continued by the firm which existed up to August 14, 1975, on three days, the Appellate Tribunal was right in drawing the inference that the old firm came to an end upon the death of one of its partners on August 14, 1975, continued the business for the subsequent period (sic) and the contention of the Revenue that it is a case of change in the constitution of the firm within the meaning of Section 187 of the Act cannot be accepted.
7. For the reasons, we answer the above question in the affirmative.
8. The records of this case be sent down to the Appellate Tribunal within fifteen days to enable it to pass an order conformably to our decision.