9911796707
TMI Blog1983 (10) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of Rs. 5,40,000. On 24-6-1974, the four partners executed a deed of dissolution of their partnership. It was stated in this document that the assessee-firm had discontinued its business with effect from 12-4-1974 and that the firm shall be deemed to have been dissolved by mutual consent with effect from 12-4-1974. 3. Before the ITO, it was claimed by the assessee-firm that the transfers effected by the four partners to the Bombay firm were of their individual shares in their individual capacity, that this transfer was effected after the dissolution of the firm and that the capital gains and the profit under section 41(2) of the Income-tax Act, 1961 ('the Act') arising from the transaction are not assessable in the hands of the firm. The claim was rejected by the ITO, who held that there could be no retrospective dissolution of a firm, that the dissolution of the firm was effective only from 24-6-1974 when the deed of dissolution was executed, that the transfer of the assets of the firm was, therefore, by the firm itself and that the capital gains and profits under section 41(2) arising therefrom are taxable in the hands of the firm. Treating the costs of acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recede the dissolution and there is no evidence of any earlier consent or contract, oral or written, in the present case. In support of the position that retrospectivity is available only to the Legislature and not to the parties, the learned departmental representative relied upon the ruling of the Supreme Court in Fazal Bhai Dhala v. Custodian-General AIR 1961 SC 1397. He also relied upon the commentaries at page 53 of Law and Practice of Income-tax by Kanga and Palkhivala, Vol. 1, 7th edition to the effect that if a partnership was in fact dissolved on a particular date, it cannot be held to have been dissolved earlier even though the deed of dissolution might refer to an earlier date as the date of dissolution for the purposes of adjusting the rights of the partners inter se and that no deed can alter the past. He also pointed out that under section 176(3) of the Act, notice of the discontinuance of the business should have been given within 15 days from the discontinuance, that in the present case, the assessee only wrote a letter on 28-11-1975 forwarding the return and stating that the business was discontinued on 12-4-1974. He also pointed out that, although this letter refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny immovable property. What was, therefore, transferred was only the individual rights of the partner and not of the firm. With regard to the ruling of the Madras High Court in Dadha Co.'s case, it is pointed out by the learned representative that the sale deed in that case was by all the partners and that the purchase price was credited in the accounts of the firm. 8. We have carefully considered the matter. It has been held by the Madras High Court in the case of Dadha Co., relied upon by the learned departmental representative, that immovable properties which belonged to a firm will cease to belong to the firm only when the partnership is actually dissolved or when a partition deed or a mutual release is executed by the partners. Although, in that case, the sale deed was executed by all the partners, this was executed in their individual capacity. As there was no prior dissolution of the partnership or partition of the properties, it was held by the Madras High Court that the properties should be deemed to have belonged to the firm and that the capital gains arising from the sale of the properties should be assessed in the hands of the firm. In the light of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dissolution deed embodying the terms and conditions of the dissolution of the partnership. NOW THIS DEED WITNESSETH and the parties hereto mutually agree between each other as follows : 1. The said partnership shall be deemed to have been dissolved by mutual consent with effect from 12th April, 1974." These recitals do not support the case of the assessee that there was a dissolution of the firm on 12-4-1974. What is stated is that the business has been discontinued with effect from 12-4-1974. The dissolution is effected only by the execution of the document. It is true that in the document they have stated that the dissolution shall be deemed to have been effective from 12-4-1974. In this context, the following passage in Kanga and Palkhivala's Law Practice of Income-tax, Vol. 1, 7th edition is relevant : " Partnership must be deemed to commence from the date when in fact it has commenced, even though a partnership deed may be executed later. Where partnership has in fact commenced from the date of execution of the partnership deed, it cannot be deemed to have commenced earlier even if the deed provides for retrospective operation : no deed can alter the past. Likewise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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