Jagannatha Shetty, J.
1. The following question has been referred under s. 226(1) of the I.T. Act, 1961 by the Income-tax Appellate Tribunal, Bangalore Bench :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that two separate assessments one for the period April 1, 1974, to October 31, 1974, and another for the period November 1, 1974, to March 31, 1975, has to be made ?'
2. The facts behind the legal formulation have been set out in the statement of facts and may briefly be summarised as follows :
One Sri A. Ramakrishna Rao, and three of his brothers were running a lodging and boarding business in partnership at Mahatma Gandhi Road, Bangalore, under the name and style 'of Sri Durga Enterprises, Bangalore'. It was under a partnership deed dated June 20, 1967. This deed was reconstituted with effect from April 1, 1971, by the addition of one more partner called A. Prabhakar Rao, and the new partnership was evidenced by a deed dated April 2, 1971. This partnership continued its business till it was dissolved by a deed dated November 1, 1974. The dissolution took place with effect from October 31, 1974.
3. The terms of the said dissolution are as follows :
Four of the partners were allowed to take their respective shares in the assets of the firm. They were paid in cash. Sri A. Ramakrishna Rao, the first partner, was allowed to carry on the business hitherto run by the partnership under the same trade name with all the goodwill, privileges and rights held and owned by the dissolved firm. He also took upon himself all the liabilities of the firm except the tax liability of the parties up to the date of the dissolution.
4. Clause 15 of the deed of dissolution states in particular that the other partners released and relinquished all their claims and rights over the assets of the firm including the land and buildings thereon situated at No. 43, Mahatma Gandhi Road, Bangalore.
5. On November 3, 1974, a new deed of partnership was executed with five partners inclusive of Sri. A. Ramakrishna Rao and it continued the same old business with effect from November 1, 1974.
6. For the assessment year 1975-76 the ITO made two separate assessments, one in respect of the dissolved firm up to October 31, 1974, and another in respect of the newly constituted firm from November 1, 1974, to March 31, 1975. But, the Commissioner of Income-tax did not agree with the action taken by the ITO. He in the exercise of his powers under s. 263 set aside those two assessments on the ground that there was only a change in the constitution of the firm and there should, therefore, be a single assessment under s. 187(1). He accordingly directed the ITO to re-do the assessment. The assessee went up in appeal before the Tribunal. The Tribunal, largely depending upon the decision of the Madras High Court in Mavukkarai (N.) Estate Tea Factory v. Addl. CIT : 112ITR715(Mad) , held that the case of the assessee called for two assessments. It has observed that the terms of the said dissolution deed indicated that at least for a moment the business of the earlier firm had become proprietary in the hands of the single partner, Sri Ramakrishna Rao, and it was only thereafter that the new firm of partnership was constituted. The Tribunal set aside the order of the Commissioner and restored that of the ITO holding that the case of the assessee was governed by s. 188 and not by s. 187.
7. The Tribunal, however, at the instance of the Revenue has referred the question for the opinion of this court.
8. Mr. Ramgopal, counsel for the assessee who argued the appeal before the Tribunal, repeated his submission before us. His main contention is that upon the dissolution of the firm, Sri Ramakrishna Rao became the proprietor of all the assets left behind after the four partners were allowed to take away their shares and that the proprietary nature of the business continued at least till he became the partner in the newly constituted firm with effect from November 1, 1974. In support of his contention counsel relied upon the decision of the Supreme Court in CIT v. Seth Govindram Sugar Mills : 57ITR510(SC) and also some other decisions of the other High Courts.
9. It appears to us that the contention urged need not be examined in detail, in view of the recent Full Bench decision of this Court in CIT v. Shambulal Nathalal & Co. (I.T.R.C. No. 133 of 1977 disposed of on 6-9-1982) : 145ITR329(KAR) (supra). Therein it was observed that if the dissolution of a firm is followed by the constitution of a new firm with at least one common partner and the new firm takes upon the assets and liabilities of the dissolved firm, then it would be a case falling under s. 187 and not under s. 188 or 189. Chandrasekhar C. J., who spoke for the Full Bench, has approved the ratio of the decision of the Punjab and Haryana High Court in Nandlal Sohanlal v. CIT . The learned Chief Justice observed (p. 349 of 145 ITR) :
'When there is a dissolution of a firm under the law of partnership and a new firm takes over the business of the dissolved firm, it is true that under the general law of partnership the old firm cannot be regarded as being reconstituted. But the legal position of a firm under the income-tax law is different from that under the general law of partnership in several respects. It is not necessary to employ any particular words or phraseology like 'deemed to be' to provide that a firm which is regarded as dissolved under the general law of partnership, shall be regarded as being merely re-constituted under the law of income-tax in certain circumstances.
As regards the objection that section 187 could not have intended to treat a firm which, as a matter of fact, was dissolved under the general law of partnership, a continuing firm which has merely undergone reconstitution, it is sufficient to point out that both in the Indian I.T. Act, 1922, and in the I.T. Act, 1961, there are several provisions to the effect that notwithstanding death, dissolution or discontinuance of persons and bodies, assessment may be made as if such death, dissolution or discontinuance had not taken place.'
10. Mr. Ramgopal, however, made a strenuous effort to distinguish the decision of this court is Shambulal Nathalal's case : 145ITR329(KAR) According to the counsel, in the present case Ramakrishna Rao became the proprietor of all the assets and liabilities of the dissolved firm and he became a partner of the reconstituted firm with his own assets and liabilities and, therefore, the assessment could be only under s. 189 and not under s. 187.
11. There is great difficulty to accept the submission of Mr. Ramgopal in view of the clear recitals in the deed by which the new firm was constituted. It may be recalled that the old firm was dissolved with effect from October 31, 1974, and the new firm was constituted with effect from November 1, 1974, although the deed of partnership was executed on November 3, 1974. Clause (4) of the deed of partnership of the newly constituted firm provides :
'assets and liabilities of the business carried on previously under the partnership deed dated 2-4-1971 and which has been dissolved on 31-10-1974 shall constitute the assets and liabilities of this business.'
12. This clause is fatal to the contention of the learned counsel. What was taken as the assets and liabilities of the newly constituted firm was not the share of Sri Ramakrishna Rao in the dissolved firm, but the assets and liabilities of the entire business of the earlier firm. There was thus a continuance of the business although the partners were changed. One partner at least was common in both the firms. The case, therefore, clearly falls within the ratio of the decision of this court in Shambulal Nathalal's case.
13. In the result, we answer the question in the negative and in favour of the Revenue.
14. In the circumstance, the parties shall pay and bear their own costs.