1980 (3) TMI 111 - AT - Income Tax

Summary

Issues:
1. Dissolution of a partnership firm and applicability of section 188.
2. Interpretation of partnership deed clauses regarding retirement and death of a partner.
3. Dispute over whether the firm was dissolved or underwent a change in constitution.
4. Assessment of income for two different periods by the Income Tax Officer (ITO).

Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT Bombay-B concerned the dissolution of a partnership firm for the assessment year 1978-79, with the Revenue challenging the decision of the AAC regarding the firm's status and the application of section 188. The key contention was whether the firm was dissolved on the death of a partner, leading to the necessity of separate assessments for two periods.

2. The registered firm engaged in building construction work and filed two returns for different periods, claiming dissolution effective from 2nd Aug., 1977. The ITO, based on the partnership deed clauses, concluded that there was no dissolution but a change in the firm's constitution. Consequently, the ITO assessed the total income for the entire previous year at Rs. 24,210, considering both periods together.

3. The AAC, on appeal, favored the assessee's argument that the firm was dissolved, as evidenced by a dissolution deed and separate accounts for two periods. The Revenue contended that as per the partnership deed clauses, there was no dissolution but a provision for continuation in case of death of a partner. The disagreement centered on whether the firm underwent dissolution or a mere change in constitution, with reference to specific clauses and legal precedents.

4. The Tribunal analyzed the partnership deed clauses, particularly clauses 13 and 14, which addressed the partnership's continuity on retirement or death of a partner. Despite the partnership deed provisions, the Tribunal upheld the AAC's decision, emphasizing the specific dissolution deed and the subsequent reconstitution of the firm by the surviving partners. The Tribunal found that the dissolution agreement between legal heirs and surviving partners, along with separate accounts, supported the conclusion of firm dissolution, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal dismissed the appeal, affirming the dissolution of the partnership firm and the validity of separate assessments for the two distinct periods, based on the specific dissolution agreement and accounting practices.