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Issues Involved
1. Whether two separate assessments should be made for the periods before and after the death of a partner, or if it is a case of change in the constitution of the firm under Section 187 of the Income Tax Act, 1961. Issue-wise Detailed Analysis Issue 1: Separate Assessments vs. Change in Constitution Facts: In both cases, the firms experienced the death of a partner during the previous year. The original partnership deeds did not contain provisions for continuation upon a partner's death, leading to the dissolution of the firms. New partnerships were formed with the remaining partners and new entrants. The firms filed separate income returns for the periods before and after the death of the partners, claiming that two separate assessments should be made. Legal Provisions: - Section 187: Deals with changes in the constitution of a firm. - Section 188: Pertains to the succession of one firm by another. - Section 189: Covers the dissolution of a firm or discontinuation of business. Arguments: The Income Tax Officer (ITO) argued that the death of a partner resulted in merely a change in the constitution of the firm under Section 187, necessitating a single assessment for the entire previous year. The Income-tax Appellate Tribunal, however, accepted the assessee's plea for separate assessments, leading to the references to the High Court. Court's Analysis: The court examined various judgments and legal principles, notably: - A firm is not a juristic entity but a compendious name for its partners. - The Indian Partnership Act recognizes the mercantile view of a firm, allowing for dissolution upon a partner's death unless otherwise stipulated. - Section 187 does not contain a deeming provision to continue the firm despite dissolution. The court referred to multiple judgments supporting the view that the death of a partner leads to the dissolution of the firm, necessitating separate assessments. These include decisions from the Allahabad, Andhra Pradesh, Madras, Gujarat, and Calcutta High Courts. Conclusion: The court held that the death of a partner resulted in the dissolution of the firm, and therefore, separate assessments should be made for the periods before and after the dissolution. The Tribunal's decision was upheld for both cases: - ITR No. 1/73: Two assessments should be made for the firm M/s. Sant Lal Arvind Kumar for the periods April 1, 1968, to July 13, 1968, and July 14, 1968, to March 28, 1969. - ITR No. 64/73: Two assessments should be made for the firm M/s. K. Gian Chand Jain & Company for the periods October 24, 1964, to February 5, 1965, and February 6, 1965, to October 23, 1965. The court emphasized that the partnership law principles apply unless explicitly overridden by the Income Tax Act. The decision aligns with the majority view in judicial precedents, ensuring that the dissolution of a firm due to a partner's death is recognized for tax assessment purposes.
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