COMMISSIONER OF INCOME-TAX VS HAR NATH RAM NATH, 1998 PTD-ALLAHABAD-HIGH-COURT-INDIA 1156 (1996)

Income-tax---

----Assessment---Firm---Five major partners and two minors---One minor electing to become partner on attaining majority---Fresh partnership deed executed---Other minor opting out of partnership---Firm only reconstituted-- Single assessment to be made for the entire previous year---Indian Income Tax Act, 1961, S.187(2).

The assessee-firm was constituted under a partnership deed with five major partners and two minors admitted to the benefits of partnership. One of the minors, R, on attaining majority, became a full-fledged partner. This resulted in a fresh partnership being executed by the five major partners and R on April 1, 1974. The other minor opted out of the partnership on attaining majority. The question arose whether the partnership firm which existed before April 1, 1974, stood dissolved or continued after being reconstituted. On a reference:

Held, that the five major partners continued in the firm which was reconstituted on April 1, 1974, and it was only a reconstitution of the firm and not a dissolution. A single assessment was to be made in respect of the income for the entire previous years.

CIT v. Ramesh Biscuit Factory (1994) 205 ITR 205 (All.) ref.

JUDGMENT

At the instance of the- Revenue, the Income-tax Appellate Tribunal has referred the following question to this Court for its opinion:

"Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that two separate assessments should be made ignoring the provisions of section 187(2)(a) of the Income Tax Act, 1961?"

.The facts as stated in the statement of the case and as gleaned from the order of the Appellate Tribunal are that the assessee-firm was constituted under a partnership deed; dated April 1, 1968, with five major partners and two minors, who were admitted to the benefits of the partnership. In December, 1973, one of minors, namely, Rakesh Mishra, attained majority and he opted to become a full-fledged partner in the firm. That necessitated a fresh partnership deed which was executed on April 1, 1974, by the five existing partners and Rakesh Mishra, who attained majority in December, 1973. Sri Rajiv Mishra, another minor, who was admitted to the benefits of the partnership, opted out of the partnership. The question arose whether the partnership firm which existed from before April 1, 1974, stood dissolved or continued after being reconstituted. Section 187, subsection (2), of the Income Tax Act, 1961, provides as follows:

"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 as reproduced above, it is clear that the five major partners continued in the firm, which was reconstituted on April 1, 1974, and, therefore, it is a case of merely reconstitution of the firm and not of dissolution as envisaged by section 188 of the Act.

No authority need be cited to support of this proposition but if at all one is needed, we may rely on the case of CIT v. Ramesh Biscuit Factory (1994) 205 ITR 205 (All), in which it has been held that in the cases falling under section 187, a single assessment is required to be made for the purposes of the income for the entire previous year, clubbing the income of both pre and post-change periods at one place.

For the reasons, we answer the aforementioned question in the negative, that is, in favour of the Revenue and against the assessee.

M.B.A./1436/FC Question answered in negative.