"Stylish Trends" filed its return of income as partnership firm for the relevant assessment year admitting a total income of ₹160 Lakh. The firm consisted of fifteen individuals and two firms. The return of income was se

The issues under consideration are as under: Whether a firm can be a partner of another firm? Whether the CIT (Appeals) has the power to change the status of assessee. These issues came up before the Madras High Court in Mega Trends Inc. v. CIT (2016) . The Court observed that since a partnership firm is a relationship between persons who have agreed to share the profits of the business carried on by all are any of them acting for all, and the term "persons" can connote only natural person. Since some of the partners are other firms, the assessment cannot be carried out as a firm, as per the Supreme Court ruling in Dhulichand Laxminarayan v. Cff (1956) . The contention of the Commissioner (Appeals) that a firm cannot be a partner of another firm is, therefore, correct. In Mega Trends Inc's case, the Madras High Court further observed that, under section 251(1), the powers of the first appellate authority are co-terminous with those of the Assessing Officer and the appellate authority can do what the Assessing Officer ought to have done and also direct him to do what he had failed to do. If the Assessing Officer had erred in concluding the status as a firm, it could not be said that the Commissioner (Appeals) had no jurisdiction to go into the issue. The appeal was in continuation of the original proceedings and unless fetters were placed upon the powers of the appellate authority by express words, the appellate authority could exercise all the powers of the original authority. The High Court held that the power to change the status of the assessee is available to the assessing authority and when it is not used by him, the appellate authority is empowered to use such power and change the status. The Court relied on a full bench decision of the Madras High Court in State of Tamil Nadu v. Arulmurugan and Co. reported in [1982] to come to much conclusion accordingly, applying the rationale of the Madras High Court ruling to the case on hand; the CIT (Appeals) has the power to change the status of the assessee.