1975 (7) TMI 46 - HC - Income Tax

Summary

Issues Involved:
1. Whether there was merely a change in the constitution of the firm within the meaning of section 187(2) when one of the partners died or retired, and when new partners were admitted.
2. Whether section 187 contemplates a single assessment on the firm as constituted at the time of making the assessment on the income of the previous year, or if separate assessments for different periods are warranted.

Judgment Summary:

Issue 1: Change in the Constitution of the Firm u/s 187(2)
The court examined whether the death of a partner on May 27, 1963, the retirement of two partners on December 15, 1963, and the admission of seven new partners constituted a change in the constitution of the firm u/s 187(2). Section 187(2) states that a change in the constitution of the firm occurs if one or more partners cease to be partners or new partners are admitted. The court noted that a change in the constitution of a firm may arise by admission, retirement, expulsion, insolvency, or death of partners, provided there is a contract, express or implied, that the firm shall not be dissolved by such events. The court found that the partnership deeds and the conduct of the parties implied that the firm was intended to continue despite the death or retirement of partners. Therefore, the court concluded that there was no dissolution, only a reconstitution of the firm, making section 187 applicable.

Issue 2: Single Assessment u/s 187
The court addressed whether section 187 requires a single assessment on the firm as constituted at the time of making the assessment, or if separate assessments for different periods are necessary. Section 187(1) refers to the assessment on the firm as constituted at the time of making the assessment on the total income of the previous year. The court held that the section contemplates one assessment on the firm for the entire income of the previous year, not separate assessments for different periods. The proviso to section 187(1) supports this interpretation by stating that the income of the previous year shall be apportioned between the partners entitled to it during that year. The court found that separate assessments were not warranted and that the aggregation of the income for the entire previous year was justified.

Conclusion:
The court answered the reference in the affirmative, holding that the aggregation of the incomes of the three different partnerships constituted under three separate deeds for the assessment year 1964-65 was proper and valid in law. The revenue was entitled to its costs, with a counsel fee of Rs. 250.