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TMI Blog1979 (2) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... lution of the partnership was executed between the retiring partner and the remaining two partners. The assessee submitted two returns, one for the period from1-4-1973 to31-10-1973 and the other for the period from1-11-1973 to31-3-1974. Before the ITO it was submitted that there was not a mere change in the partnership on the retirement of Shri Kesho Nath Gupta and a new partnership came into existence on the dissolution of the old partnership and on the execution of a new deed of partnership dated 1-11-1973 and that section 187(2) of the Income-tax Act, 1961 ('the Act') was not attracted as it was a case of succession of one firm by another and section 188 of the Act was applicable. The ITO rejected this contention of the assessee and made a single assessment clubbing the income for the two periods that is for the entire period from1-4-1973 to31-3-1974. 2. In appeal, the AAC agreed with the ITO and affirmed his order. Aggrieved by the order of the AAC, the assessee is in appeal before the Tribunal. It is submitted by the learned counsel for the assessee that the old firm which came into existence by the deed of partnership dated21-1-1969came to an end on the retirement of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a firm under section 187 and that section 188 applied. It has been held by majority of the Lordships of the Allahabad High Court in this case as follows : " Section 187 of the Income-tax Act, 1961, applies only where a firm is reconstituted in accordance with sections 31 and 32 of the Indian Partnership Act namely, when a new partner is taken or an existing partner retires with the consent of all the partners or without their consent if the contract of partnership so provides. But where a firm is dissolved either by agreement of the partners or by operation of law and another firm takes over the business, that will be a case of succession governed by section 188 of the Act, even though some of the partners of the two firms are common. In the present case, the old firm was constituted by two partners. One of them died and there was no stipulation in the partnership deed that the firm shall not stand dissolved on the death of a partner. Even if there had been such a stipulation, the firm could not have been saved from dissolution, because, after the death of J, only one partner was left and one man cannot constitute a firm ; the firm automatically came to an end. Since the erstwhil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on the business of the erstwhile firm. It was claimed an behalf of the assessee that two assessments should be made--one against the erstwhile firm for the period ending 22-3-1964 and the other against the assessee-firm for the period 23-3-1964 to the end of the relevant period on the ground that on the death of one of the partners, the firm had dissolved and the assessee-firm which had taken over the business of the erstwhile firm was a successor and that section 188 was applicable. The ITO and the AAC did not accept this contention. According to them, section 187 was applicable as it was a case of reconstitution of the firm. The Tribunal took a contrary view. It was held by the majority of their Lordships of the Allahabad High Court that the partnership deed of the erstwhile firm did not contain any stipulation to the fact that the firm would not dissolve on the death of one of the partners and by virtue of section 42(c) of the Indian Partnership Act, the firm stood dissolved and the firm which took over the business after the dissolution of the erstwhile firm could not be said to be a reconstituted firm and section 188 and not section 187 would apply and that the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some change in their respective shares as after the death of the deceased partner no new partnership took his place. It may be pointed out that in this case there was a stipulation in the contract for the non-dissolution of the firm on account of the death of the partner. But there was a dissolution of the firm by act of partners. 8. TheGujaratHigh Court has taken the same view in the case of Harjivandas Hathibhai. It has been held in this case that on general principles, unless the words of the Act compel, it would not be correct to depart from the well known principles of the partnership law. Under the partnership law, even though a partner retires the firm continues as before. What is meant by a change in the constitution of the firm is the coming in of a new partner with the consent of all the existing partners or retiring of an old partner with the consent of all the partners. In such a case, there is a mere change in the constitution of the firm and nothing more. The same firm continues as before. The question of dissolution of a firm by either operation of law or by acts of parties is a different thing altogether. When a firm is dissolved, the old partnership comes to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... throughout the year under consideration. Even if there is a change in the constitution of the firm, the firm, as an entity, must continue as one and single throughout the period. When the case falls under section 187, there must be a single assessment because there is only one assessee, namely, the firm as it stood at the end of the assessment year, and it cannot be contended that in such a case there should be two assessments.Where the firm ceases to exist as contemplated by section 42 of the Partnership Act, the relationship of the partners inter se comes to an end and, thereafter, the firm can no longer be said to continue as before.If there has been a dissolution, the firm comes to an end and if the firm comes to an end, there cannot be a continuity of the firm and, therefore, after dissolution, there cannot be said to be a mere change in the constitution of the firm.Sections 187, 188 and 189 deal with three different situations. Section 187 deals with the case where the firm continues the same as before in the eye of law but there is change in the constitution either because of the partner going out or any partner coming in and so long as one of the partners is common. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further held that a particular case can be covered by section 188 Only when it is a succession of one firm by another, meaning there by that there is a complete change and no one of the partners in the previous firm continues to be a partner in the latter firm which is not the present case. The assessment for both the periods was justified in view of the provision of section 187(2). 13. The Punjab and Haryana High Court has again expressed the above view by a majority judgment in the case of Nandlal Sohanlal v. CIT [1977] 110 ITR 170 (FB). 14. The decision of the Kerala High Court in the case of CIT v. Kelukutty [1972] 85 ITR 102 does not help the department. It has been held in this case that a mere change in the personnel of the partners and in their respective shares without a dissolution of the firm or continuation of the assets and liabilities would not be sufficient to bring into being a totally different assessable unit. In the present case the old firm was dissolved on1-11-1973on the retirement of the partner and by the execution of the deed of dissolution dated1-11-1973and the decision in the above-mentioned case does not apply to the fact of the present case. 15. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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