COMMISSIONER OF INCOME-TAX VS GHASITA MAL MELA RAM
1999 P T D 1014
[226I T R 239]
[Delhi High Court (India)]
Before Y. K. Sabharwal and D. K. Jain, JJ
COMMISSIONER OF INCOME-TAX
Versus
GHASITA MAL MELA RAM
I.T.R. No.65 of 1979, decided on 06/02/1997.
Income-tax---
----Business---Previous year---Firm---Dissolution of firm and formation of new firm---New firm carrying on business of dissolved firm---Business was a new one---New firm was entitled to adopt a previous year different from one adopted by dissolved firm---Indian Income Tax Act, 1961, Ss.3 & 28.
A firm carried on two businesses, one in paper and the other in stationery, up to the accounting year relevant to the assessment year 1969-70. At that time, the firm consisted of three partners. The firm was dissolved by a dissolution deed, dated March 31, 1969. A new firm, the assessee, was constituted with effect from April 1, 1969. The old business of paper and stationery were discontinued. The assessee took over the paper business. There was another firm, which took over the stationery business. The Income-tax Officer took the view that the business of paper carried on by the, assessee-firm was the same as was carried on by the erstwhile firm and there was only a change in the constitution of the firm. The assessee-firm adopted the accounting year ending on September 30, 1969. The Income-tax Officer, however, required the assessee to prepare a trading and profit and loss account up to March 31, 1970, and assessed the assessee on the basis of the financial year, the previous year adopted by the erstwhile firm. The Tribunal on consideration of the 'facts held that the integrity of the old business was disrupted and the paper and stationery business came to be separately carried on by two new firms. The Tribunal further held that the paper business was a newly set up business and the assessee could adopt a new accounting year ending on September 30, 1969. On a reference:
Held, (i) that it had been contended that the newly constituted firm had not set up a new business within the meaning of section 3(1)(d) of the Income Tax Act, 1961, and therefore, the assessee was not entitled to change its previous year. This contention did not arise from either of the questions referred. Secondly, the finding of the Tribunal that the paper business was a newly set up business had not been challenged by the Revenue. Moreover, a new firm can be set up to carry on an old business. The business of the assessee was a new one;
(ii) that the provisions of section 3(1)(d) were applicable and the assessee could adopt a previous year different from the one followed by the dissolved firm.
C.I.T. v. Bharat Builders and Engineers (1982) 29 CTR 267 (All.) ref.
B. Gupta for the Commissioner.
O.P. Dua for the Assessee.
JUDGMENT
At the instance of the Revenue, in respect of the assessment year 1970-71, the following questions have been referred for the opinion of this Court:
"(1)? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding it is a case of constitution of a new firm and not a case of change in the constitution of the firm keeping in view the provisions of section 187(2) of the Income Tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the deletion of Rs.1,66,956 by the Appellate Assistant Commissioner being income for the period October 1, 1969 to March 31, 1970?"
The facts in brief as discernible from the statement of case are these:
The assessee carried on two businesses, one in paper and the other in stationery up to the accounting year relevant to the assessment year 1969-70. At that time, the firm consisted of three partners. The firm was dissolved by a dissolution deed March 31, 1969. A new firm was constituted with effect from April 1 m 1969. The old business of paper and stationery were discontinued. The assessee took over the paper business. There was another firm, which took over the stationery business. The Income-tax Officer took the view that the business of paper carried on by the assessee-firm was the same as was carried on by the erstwhile firm and there was only a change .in the constitution of the firm. The new assessee-firm adopted the accounting year ending on September 30, 1969. The Income-tax Officer, however, required the assessee to prepare a trading and profit and loss account up to March 31, 1970, and assessed the assessee on the basis of the financial year, the previous year adopted by the erstwhile firm.
In appeal, however, the Appellate Assistant Commissioner held that the facts of the case indicated that the old firm which was carrying on business in two items ceased to function as such; the paper and stationery businesses were separated; there was a proper dissolution of the old firm by a dissolution deed and that the Income-tax Officer granted registration to both the new firms. On these facts, in appeal, it was held that the assessee-firm was entitled to change its previous year particularly when the business was a new one and attracted the provisions of section 3(1)(d) of the Income Tax Act, 1961. .
The Department took the matter in appeal to the Tribunal, The Tribunal on a consideration of the facts, held that the integrity of the old business was disrupted and the paper and stationery business came to be separately carried on by the two new firms. The Tribunal further held that the paper business was a newly set up business and the assessee could certainly adopt a new accounting year ending on September 30, 1969.
Learned counsel for the Revenue concedes, in so far as question No. l is concerned, that the Tribunal rightly found that it is not a case of change in the constitution of the firm within the meaning of section 187(2) of the Income Tax Act, 1961, and, therefore, question No. l is redundant. Learned counsel contends that in any case question No. l is not relevant to the assessment year in question. We, accordingly, proceed on the basis that new firm came into existence with effect from April 1, 1969.
?
Mr. Gupta, learned counsel for the Revenue, not disputing that a new firm came into existence, however, contends that such newly constituted firm had not set up a new business within the meaning of section 3(1)(d) of the Act and, therefore, the assessee was not entitled to change its previous year.
This contention has been raised by learned counsel with reference to question No 2. For more than one reason we are unable to accept .the contention of Mr. Gupta. Firstly, the contention raised does not flow from either of the questions referred. Secondly, the finding of the Tribunal that the paper business was a newly set up business has not been challenged in the question referred for opinion. We may notice that the Tribunal has held that since the paper business was a newly set up business, therefore, the assessee can adopt a new accounting year ending September 30, 1969. We may also note that the Appellate Assistant Commissioner also recorded a finding that the business of the assessee was a new one and attracted the provisions of section 3(1)(d) of the Act. Thirdly, we find it difficult to hold that a new firm can be said to have not set up a new business merely because it carries on one of the old businesses. In this regard, a useful reference can be made to the decision of the Allahabad High Court in the case of C.I.T. v. Bharat Builders and Engineers (1982) 29 CTR 267, relied upon by Sh. O.P: Dua, learned counsel for the assessee, holding that the firm after its reconstitution can elect to adopt a previous year which may be different from the one which was being followed by the old firm because the firm when it is reconstituted, the erstwhile firm ceases to exist.
In view of the aforesaid discussion, both the questions are answered in the affirmative, in favour of the assessee and against the Revenue. No costs.
M.B.A./1895/FC???????????????????????????????????????????????????????????????????????????????? References answered.