ORDER
U.T. Shah, Judicial Member
1. These two connected appeals against the orders of the AAC are disposed of together for the sake of convenience.
2. The assessee is a firm. The assessment year is 1978-79. The relevant previous year is S.Y. 2033. The facts in brief are : (c) under a deed of partnership dated 3-2-1968, six persons, including Shri Shantilal Chunilal, entered into an agreement to carry on business in the partnership under the name and style of Gujarat Printing Press (the assessee), (&) the assessee was granted registration/ continuation thereof from year to year, (c) during the relevant previous year, on Chaitra Sud 8, Shri Shantilal Chunilal expired and the remaining partners carried on business of the partnership, (d) for the year under consideration, on 29-7-1978, the assessee filed two returns ; one for the period from Kartak Sud 1 to Chaitra Sud 8 declaring a total income of Rs. 23,110 and the other for the period Chaitra Sud 9 to Aso Vad Amas declaring a total income of Rs. 4,920. The assessee had also filed Form No. 12 for continuation of registration on 20-4-78, (e) on 14-12-78, the ITO framed the assessment under Section 143(1) of the Act for the first period on a total income of Rs. 23,100. He however ignored the return filed for the second period. On the same date i.e. 14-12-1978, the ITO passed a separate order under Section 184(7) of the Act, granting continuation of registration to the assessee.
3. Thereafter, the CIT initiated proceedings under Section 263 of the Act and issued a show cause notice dtd. 27-11-80 on the assessee, the relevant portion of which reads as under :-
On examining the records of the income-tax proceedings in the case of the firm for the assessment year 1978-79, it is seen that the Income-tax Officer has made two separate assessments for the two periods ; one assessment up to the date of death of a partner viz. Shri Shantilal Chunilal i.e. up to the period from Kartak Sud 1 to Chaitra Sud 8 of S.Y. 2033 and the other assessment for remaining period of S.Y. 2033. The Income-tax Officer passed the above two assessment orders for two separate periods on account of the change in the constitution of your firm i.e. due to the death of one of the partner. The change so occurred is one as defined in Section 187(2) of the IT Act. Where in the midst of an accounting year there is a change in the constitution of the firm as defined in Section 187(2) of the Act the assessment should be made on the firm as constituted at the time of making the assessment. According to the provisions of the Income-tax Act, the Income-tax Officer should have made only one assessment for the entire previous year. The order passed on 14-12-1978 in two parts for the assessment year 1978-79 is therefore erroneous in so far as it is prejudicial to the interests of revenue. I, therefore, intend to make an order under Section 263 of the Income-tax Act, 1961 proposing to set aside the orders of the Income-tax Officer and directing him to re-do the assessments in accordance with law.
[Emphasised by us]
4. On the date of hearing fixed by the CIT, no body appeared on behalf of the assessee. As the proceedings were getting time-barred on 4-12-1980, the CIT passed order under Section 263 of the Act, ex parte. The relevant portion of which reads as under :-
As already stated in the first para of this order, the change in the constitution of the firm occurred on account of the death of the partner. The change so occurred is one as defined in Section 187(2) of the Act. In a case where one or more of the old partners is or are retained as partner, the others being changed, or all, the partners may remain but their respective profit sharing ratio may undergo a change, it amounts to a change in the constitution of the firm. If the case falls within these circumstances and the change takes place in the midst of the year, Section 187(2) enacts that there shall be one assessment for the entire year made on the re-constituted firm. The orders of the Income-tax Officer dated 14-12-1978 in two parts are, therefore, erroneous in so far as they are prejudicial to the interests of revenue. In view of what is stated above, I set aside the order made by the Income-tax Officer on 14-12-1978 with a direction to re-do the assessment in accordance with law.
[Emphasised by us]
5. Thereafter, on 30-3-1983, the ITO passed fresh order Under Section 143(3) r.w.s. 263 of the Act in the following manner :-
In this case two separate returns were filed as under :-
(i) on 29-7-1978 declaring income of Rs. 23,110 for the first period i.e., from Kartak Sud 1 to Chaitra Sud 8 of S.Y. 2033 (up to the date of the death of the partner Shri Shantilal Chunilal).
(ii) Another one on 29-7-78 declaring income of Rs. 4,920 declaring income from Chaitra Sud 9 to Aso Vad Amas.
Only one assessment for the first period was finalized under Section 143(1) on 14-12-1978 whereas return of income for the remaining period was ignored. The CIT, Guj-IV, Ahmedabad vide his order under Section 263 dt. 4-12-80 has set aside the assessment order finalized on 14-12-1978 and directed to make fresh assessment by combining the income of the above two periods.
Notice Under Section 143(2) was therefore issued in response to which Shri S.H. Patel, ITP attended.
The total income for both the periods is determined as under;-
Rs.
(i) Income for the first period 23,100
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(ii) Income for the second period 4.920
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Total Income 28,020
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Total Income Rs. 28,020
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Assessed Under Section 143(3) read with Section 263. Issue notice of demand and challan after giving credit of tax paid as per original assessment.
Form No. 12 was filed for the first period on 20-4-1978 but for the 2nd period no registration application in Form Nos. 11 and 11A was filed. As such the firm is treated as U.R.F.
6. Against the aforesaid order of the ITO, the assessee preferred two appeals ; one in respect of the quantum and the other in respect of the order passed Under Section 184(7) of the Act. In the quantum matter, the AAC directed the ITO to frame two separate assessments for the two periods involved in the following manner :-
The ITO has passed one order dt. 30-3-83 taking income of Rs. 23,100 + Rs. 4,920 = Rs. 28,020 and assigned the status of URF. The ITO is not correct in passing one order and it is not in accordance with the law. Provisions of Section 187(2) are not applicable. The partnership deed does not contain any provisions that death of partner could not dissolve partnership. Hence on the death of Shantilal the firm stood dissolved and the business continued after his death amounts to succession. In such events two separate assessments are to be made-
CIT v. Sant Lal Arvind Kumar 136 ITR 379 CIT v. Raghumal Ashok Kumar 149 ITR 466 CIT v. Hind Agencies 148 ITR 94 Addl. CIT v. Harjivandas Hathibhai 108 ITR 517
Section 187 has been amended with retrospective effect from 1-4-1975 by TLA Act, 1984 by adding a proviso to Sub-section (2) to the effect that the provisions of cl. (a) of the sub-section will not apply to a case where the firm is dissolved on the death of any of the partners.
Hence two separate assessments as per returns filed and was done by the ITO by his A.O. dt. 14-12-1978 may be made and inclusion of income of E.s. 4,920 may be deleted and the status of the RF may be assigned.
3. In view of the fact that the partnership deed did not provide for continuation of partnership on death of partner, the profits of period before the death should be taxed in the hands of predecessor firm whereas the profits of the next period should be taxed in the hands of the successor firm.
7. As regards the order passed by the ITO Under Section 184(7) of the Act, the AAC by his separate order directed the ITO to grant renewal of registration in respect of the profits for the period before the death of the partner in the hands of predecessor firm in the following manner:-
Appeal has been brought against the order Under Section 184(7). Before me Shri H.D. Patel attends and makes the following submissions :-
The ITO passed order Under Section 184(7) on 14-12-78 and has renewed registration of firm for 1978-79. The CIT has set aside the order of the ITO for making two separate asstts. Under Section 143(3) but he has not set aside the order passed Under Section 184(7) and hence the original order Under Section 184(7) dt. 14-12-1978 stands and the ITO is not correct in passing the order Under Section 184(7) again. His order Under Section 184(7) dt. 10-3-1983 is illegal and bad in law and beyond his jurisdiction.
In appeal against the order Under Section 143(3) reasons for two separate asstts. have been submitted and according two asstts. may be made. The appellant has filed Form No. 12 in time and hence in the first period asstt. registration as accorded by order dt. 14-12-1978 may be treated as living or in the alternation the ITO may be directed to continue registration of the firm and assigned the status of BF.
2. Having regard to the above facts, I find that the firm should be granted renewal of registration in respect of the profits of the period before the death of the partner in the hands of the predecessor firm.
3. Appeal is allowed.
8. Against the aforesaid orders of the AAC, the revenue has come up in appeal before the Tribunal with the following common grounds:-
1. The learned AAC has erred in law and on the facts of the case in directing that the profits of period before the death of partner Shri Shantilal Chunilal should be taxed in the hands of the predecessor firm whereas the profits of the next period should be taxed in the hands of the successor firm.
2. On the facts and in the circumstances of case, the learned AAC ought to have upheld the order of the Income-tax Officer making a single assessment for both the periods in the status of URF.
3. It is, therefore, prayed the order of the learned AAC may be set aside and that of the Income-tax Officer may be restored to the above extent.
9. The learned representative for the revenue strongly urged that since the assessee had not preferred appeal against the order of the CIT passed Under Section 263 of the Act, the AAC was not justified in directing the ITO to frame two separate assessments for the two periods involved. He, therefore, urged that the order of the AAC in the quantum proceedings should be set aside. The learned counsel for the assessee, on the other hand, submitted that since an appeal is provided against the order of the ITO giving effect to the order of the CIT the fact that the assesses had not preferred appeal against the order of the CIT made Under Section 263 of the Act, was not at all fatal. Inviting our attention to the order of the CIT made Under Section 263 of the Act (reproduced above), he highlighted the fact that in the said order the CIT had simply directed the ITO to re-do the assessment in accordance with law without giving effect to any direction to the ITO as to whether he should frame one assessment or two assessments. He, therefore, urged that since it was premature to file an appeal against the order of the CIT made Under Section 263 of the Act, the assesses had rightly not preferred any appeal against the said order of the CIT. According to him, the assessee was not debarred to file an appeal against the order of the ITO giving effect to the order of the CIT made Under Section 263 of the Act. In this way, he supported the order of the AAC in the quantum proceedings. The learned representative for the department in his reply submitted that since the order of the CIT made Under Section 263 of the Act has to be read as a whole and since in his order, the CIT has clearly indicated that there should be one assessment for the two periods involved, the assessee ought to have preferred an appeal against the said order of the CIT before the Tribunal.
10. We have carefully considered the rival submissions of the parties and we find considerable force in the submissions made on behalf of the revenue. It is pertinent to note that in his order made Under Section 263 of the Act, the CIT has clearly indicated that there should have been one assessment for the two periods involved. As the assessee had not preferred appeal against the said order of the CIT, we entirely agree with the stand taken on behalf of the revenue that in the present proceedings the assessee could not have preferred appeal against the order of the ITO giving effect to the order of the CIT made Under Section 263 of the Act. In this view of the matter, we have no hesitation in setting aside the order of the AAC in the quantum matter and restoring that of the ITO.
11. It is pertinent to note that in his order made Under Section 263 of the Act, the CIT has not touched the issue regarding registration/ continuation of registration granted by the ITO by separate order dt. 14-12-4978 Under Section 184(7) of the Act. If the CIT was of the view that granting of registration/continuation of registration was also prejudicial to the interests of the revenue he ought to have set aside the order of the ITO passed Under Section 184(7) of the Act with appropriate directions. Since he has not done so, the ITO was not justified in treating the assessee as URF in the manner he did. We are fortified in our view by the decision of the Hon’ble Supreme Court in the case of CIT v. Amritlal Bhogilal & Co. [1958] 34 ITE 130. Since the entire proceedings in the matter of registration is bad in law, we have no hesitation in setting aside the orders of the IT authorities in the present proceedings. The net result of our decision would be that the assessee has to be assessed as R.P.
12. In the result, the appeal filed by the revenue in the quantum proceedings is allowed and that filed in the matter of registration is dismissed, as infructuous.