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Karupukula Suryanarayana Shetty and Sons Vs. Commissioner of Income-tax, Mysore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 23 of 1971
Judge
Reported in[1973]92ITR141(KAR); [1973]92ITR141(Karn)
ActsIncome Tax Act, 1961 - Sections 4, 143, 144, 170, 182, 187(1) and 188
AppellantKarupukula Suryanarayana Shetty and Sons
RespondentCommissioner of Income-tax, Mysore
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateS.R. Rajashekara Murthy, Adv.
Excerpt:
- section 149; [ram mohan reddy, j] compensation - claimants were passengers in the goods carriage and not loaders appeal against fastening liability on the insurance company held, the motor vehicle in question, indisputably a goods carriage, meant for carrying goods and not passengers in which the 1st respondent /claimant travelled and sustained injuries. it is for the insured owner of the vehicle to make good the compensation and no liability could be fastened on the appellant / insurer. - the assessee's appeal to the appellate assistant commissioner and a further appeal to the income-tax appellate tribunal were both unsuccessful. 14. in our opinion, the contention of the learned counsel is clearly untenable. it is clearly not a case of succession of one firm by another firm......facts and circumstances of the assessee's case, when there was a change in the constitution of the assessee-firm the appellate tribunal was justified in law in holding that only one assessment should be made ?' 2. the assessee is a partnership firm carrying on business in the manufacture of agarbatties. the assessment year is 1966-67 for which the relevant previous year is the year ended march 31, 1966. there was a change in the constitution of the firm on september 1, 1965. before the said date there were six partners in the firm. thirteen more partners were introduced into the firm with effect from september 1, 1965. 3. the assessee filed a return on august 1, 1966, declaring an income of rs. 1,12,628. however, the said return was revised and two returns were filed on october 31, 1966,.....
Judgment:

Govinda Bhat, C.J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has stated as case and referred under section 256(1) of the Income-tax Act, 1961 (hereinafter called 'the Act'), the following question of law for opinion of this court :

'Whether, on the facts and circumstances of the assessee's case, when there was a change in the constitution of the assessee-firm the Appellate Tribunal was justified in law in holding that only one assessment should be made ?'

2. The assessee is a partnership firm carrying on business in the manufacture of agarbatties. The assessment year is 1966-67 for which the relevant previous year is the year ended March 31, 1966. There was a change in the constitution of the firm on September 1, 1965. Before the said date there were six partners in the firm. Thirteen more partners were introduced into the firm with effect from September 1, 1965.

3. The assessee filed a return on August 1, 1966, declaring an income of Rs. 1,12,628. However, the said return was revised and two returns were filed on October 31, 1966, one return was for the period ended August 31, 1965, and the other was for the period from September 1, 1965, to March 31, 1966. The contention of the assessee was that a new firm was constituted with effect from September 1, 1965, and, therefore, for the aforesaid two periods two separate assessment shall be made.

4. The Income-tax Officer rejected that contention and made one order of assessment on the assessee. The assessee's appeal to the Appellate Assistant Commissioner and a further appeal to the Income-tax Appellate Tribunal were both unsuccessful. According to the Appellate Tribunal, whenever a change has occurred in the constitution of a firm the assessment has to be made on the firm as constituted at the time of making the assessment and that only one assessment has to be made for one assessment year and not two separate assessments for the two periods.

5. The Income-tax Officer has assessed the assessee in the status of an unregistered firm. The claim for registration of the firm was refused by the order of the Income-tax Officer dated April 9, 1969. The said order was taken up on appeal to the Income-tax Appellate Tribunal which allowed it and directed the Income-tax Officer to grant the registration for the assessment year 1966-67. Learned counsel for the assessee produced before us a copy of the order of the Income-tax Officer dated June 30, 1971, granting registration of the firm in pursuance of the order of the Appellate Tribunal.

6. In order to appreciate the contention of the learned counsel for the assessee, it is necessary to set out a few more facts. The net taxable income of the assessee for the period April 1, 1965, to August 31, 1965, was Rs. 74,443; the net taxable income for the second period from September 1, 1965 to March 31, 1966 was Rs. 68,913. On the Income-tax Officer granting registration to the firm the income of the two periods was apportioned amongst the partners.

7. Section 182 read with section 4 of the Act levies a tax on registered firms. the Income-tax together with surcharges, etc., payable by the firm was determined at Rs. 14,127. That amount was fixed on the basis of the total taxable income of the firm which was Rs. 1,43,356.

8. It was urged by Sri K. Srinivasan, learned counsel for the assessee, that every change in the constitution of a firm bring into existence a new firm; that although by virtue of section 187 of the Act the assessment has to be made on the firm as constituted at the time of making the assessment, there shall be two separate assessments for two different periods. According to the learned counsel, the income of the firm in existence prior to September 1, 1965, is not the income of the new firm which came into existence on the reconstitution of the firm. He relied on the the observation of Hegde J. in Commissioner of Income-tax v. Bharat Engineering and Construction Co. to the following effect :

'For the purpose of assessment, every change in the constitution of a firm brings into existence a new firm.'

9. That case did not lay down that whenever there is a change in the constitution of a firm, two separate assessment orders shall be made. Therefore, the decision relied on is not an authority for the proposition now contended for by the learned counsel for the assessee.

10. An identical question as now presented before us came up before the Kerala High court in Excel Productions v. Commissioner of Income-tax. In the said case it was held that if the case falls under section 187, separate assessment under section 188 is ruled out. No case has been brought to our notice taking a different view.

11. The material provisions of the Act are section 187(1) and section 188 and they read :

'187. Change in constitution of a firm. - (1) Whether at the time of making an assessment under section 143 or section 144 it 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 :

Provided that -

(i) the income of the previous year shall, for the purpose of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year were entitled to receive the same; and

(ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment...

188. Succession of one firm by another firm. - Where a firm carrying on business or profession is succeeded by another firm, and the case is not one covered by section 187 separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of section 170.'

12. By virtue of section 187(1) the assessment shall be made on the firm as constituted at the time of making the assessment notwithstanding that a change has occurred in the constitution of the firm. Section 188 provides for separate assessments on the predecessor firm and the successor firm where firm carrying on business is succeeded by another firm and the case is not one governed by section 187. The language of section 188 is clear and leaves no room for doubt that separate assessments are required to be made on the predecessor firm and the successor firm when a particular case is not one covered by section 187. The case of change in the constitution of firm is one covered by section 187. It was not the case of the learned counsel for the assessee that the case does not fall under section 187. His submission was that it is no doubt true that notwithstanding the fact that a change has occurred in the constitution of the firm, the assessment shall be made on the firms as constituted at the time of making the assessment; but since the firm tax has to be deducted from the income of the firm and the balance has to be apportioned between the two sets of partners in existence during the relevant periods, the firm tax has to be assessed separately-one for the period prior to the change in the constitution and the other for the subsequent period. According to him if the firm tax for the two periods is assessed separately, the total amount of tax will be much less than what it would be if the total net taxable income for the entire accounting period is taken into account and the assessment order is made.

13. In the reference before us we, are not concerned with the allocation of income between the parties. That question was not before the Tribunal. The only question that was raised before the Tribunal was the whether there shall be two separate assessment orders. The learned counsel for the assessee also argued that unless two separate assessments are made, the income cannot be properly apportioned between the two sets of partners.

14. In our opinion, the contention of the learned counsel is clearly untenable. The learned counsel for the department submitted that the net taxable income for the two periods was determined separately and the said income was apportioned between the partners. The correctness of the allocation or apportionment of profits between the two sets of partners is a matter that never arose before the Tribunal and, therefore, that is not a question that can be answered in the present reference. As already stated, the instant case is one where there has been a change in the constitution of the firm and assessment is made on the firm as constituted at the time of making the assessment. It is clearly not a case of succession of one firm by another firm. That being so, it is one covered by section 187(1) and, consequently, the matter does not fall under section 188.

15. The view taken by the Tribunal, therefore, was right. Accordingly, we answer the question referred in the affirmative and against the assessee. The department is entitled to its costs. Advocate's fee Rs. 250.

16. Question answered in the affirmative.


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