1982 (4) TMI 1 - SC - Income Tax

Whether the respondent-assessee is entitled to relief under s. 25(4) - whether on a proper construction of the deed dated 30th March, 1959, it is a case of mere reconstitution of the old firm or a new firm succeeding to the business of the old firm entitling the respondent-assessee to claim the relief - Tribunal was right in upholding that the assessee-firm was dissolved on April 1, 1959, and was entitled to relief under s. 25(4), in respect of its income for the asst. yr. 1959-60

Summary

Issues Involved:
1. Entitlement to relief under Section 25(4) of the Indian Income-tax Act, 1922.
2. Determination of whether the case involves mere reconstitution of the old firm or succession by a new firm.
3. Interpretation of the deed dated 30th March, 1959.
4. Distinction between "dissolution" and "reconstitution" of a partnership.

Detailed Analysis:

1. Entitlement to Relief under Section 25(4) of the Indian Income-tax Act, 1922:
The primary issue in this case is whether the respondent-assessee is entitled to relief under Section 25(4) of the Indian Income-tax Act, 1922, for the assessment year 1959-60. This entitlement hinges on whether the business of the old firm was succeeded by a new firm, as opposed to a mere reconstitution of the existing firm. The relevant section provides relief from tax if the business was succeeded by another person, not merely reconstituted.

2. Determination of Reconstitution vs. Succession:
The facts reveal that M/s. Pigot Chapman & Co. underwent several changes in its partnership structure over the years. The key question is whether the changes that took place on April 1, 1959, constituted a reconstitution of the existing firm or a succession by a new firm. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) initially concluded that there was no dissolution, only a change in the firm's constitution. However, the Tribunal and the High Court disagreed, finding that the firm was indeed dissolved, and a new firm succeeded the old business.

3. Interpretation of the Deed Dated 30th March, 1959:
The deed dated 30th March, 1959, is central to this case. It provided that the partnership business of M/s. Pigot Chapman & Co. was dissolved by mutual consent as of April 1, 1959. The deed specified that the business, assets, and goodwill would be carried on by the continuing partners, Ablitt and Roy, while the retiring partner, Mclean, released his claims to the firm's assets and goodwill. The Tribunal and the High Court interpreted this deed as indicating a clear dissolution of the old firm and the formation of a new firm by the continuing partners.

4. Distinction between "Dissolution" and "Reconstitution":
The legal concepts of "dissolution" and "reconstitution" are distinct. Dissolution ends the partnership, while reconstitution continues the partnership under altered circumstances. The Supreme Court noted that dissolution followed by the formation of a new firm by some of the erstwhile partners, who take over the assets and liabilities, can still be considered a succession under Section 25(4). The court emphasized that the intention of the parties, as evidenced by the documents and circumstances, is crucial in determining whether there has been a dissolution and succession or merely a reconstitution.

Conclusion:
The Supreme Court upheld the findings of the Tribunal and the High Court, concluding that the old firm was dissolved on April 1, 1959, and a new firm succeeded to the business. Consequently, the respondent-assessee was entitled to relief under Section 25(4) of the Indian Income-tax Act, 1922, for the assessment year 1959-60. The appeal by the Commissioner of Income-tax was dismissed, with no order as to costs.