9911796707
TMI Blog1988 (12) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... the said partnership deed envisages that in case of the death of any one of the partners the legal representative of the deceased partner shall be admitted as a partner in his place. One Shri N. Venkatareddy who is admittedly a partner to the partnership deed dated 6-1-1983 happened to die on 22-2-1984 and in his place his eldest son Shri Sanjeevareddy was admitted as a partner. The assessee-firm filed two returns of income--one for the period from 1-1-1984 to 22-2-1984 under which it had admitted of income of Rs. 35,000, whereas under the return covering the period from 23-2-1984 to 31-12-1984, it had a returned income of Rs. 84,007. The Income-tax Officer completed two assessments separately for the two periods mentioned above, holding d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in second appeal before this Tribunal. Consistent stand was taken by the revenue. The learned CIT hold that the assessment orders separately passed dated 26-12-1985 under sec. 143(3) assessing the income for the two periods are erroneous in so far as they are prejudicial to the interest of revenue and therefore he set aside the same with directions to recompute the total income with a single assessment covering the entire period from 1-1-1984 to 31-12-1984. 3. Aggrieved against the order of the CIT the assessee came up in second appeal before this Tribunal. Thus the matter stands for our consideration. We summoned the income-tax records, saw the partnership deed dated 6-1-1983. Clause 15 of the said partnership deed reads as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive a partner in the firm. He further contends that the appropriate provision applicable to him is the Full Bench decision of the Andhra Pradesh High Court in Addl. CIT v. Vinayaka Cinema [1977] 110 ITR 468. After hearing both sides we are in agreement with the contentions of the learned counsel for the assessee. Clause 15 of the partnership deed does not in so many words exclude the operation of sec. 42(c) of the Partnership Act which is as follows :-- " Sec. 42. Dissolution on the happening of certain contingencies--Subject to contract between the partners a firm is dissolved,-- (a) ........... (b) ........... (c) by the death of a partner, and (d) ........... The only question is whether the term that on the death of a partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o doubt true that it is open to the partners to provide by agreement that the partnership will not be dissolved on the death of a particular partner, but there is no such provision in the deed of partnership. Further, as the Supreme Court pointed out in CIT v. G.S. Mills AIR 1966 SC 24 if a firm consists of two partners only, the firm automatically comes to an end on the death of one of them. While in the case of a partnership where there are more than two partners, if there is a contract to the contrary the firm may be continued by the surviving partners ; if there are only two partners and one of them dies, there is no partnership for a third party to be introduced. An agreement between the two partners on the death of any one of them tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows :-- " If there is a dissolution, the firm comes to an end and if a firm comes to an end there cannot be a continuity of the firm as it stood prior to its dissolution, and therefore, after the dissolution, there cannot be said to be a mere change in the constitution of the firm. " The learned Advocate for the assessee argued that in this case after the death of the deceased partner the books were closed, profits were divided up to the date of death, thereafter separate accounts were started and separate partnership deed was also executed. It is no doubt true that the subsequently formed partnership took over the assets and liabilities of the old firm but, however, the cumulative effect of all the above acts would clearly point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the accounting year which is a sine qua non for a firm being considered as a merely reconstituted firm under sec. 187. Therefore, making two assessments one for the period from 1-1-1984 to 22-2-1984 and another from 23-2-1984 to 31-12-1984, in our opinion is quite correct. That means we approve the two orders passed by the ITO on 26-12-1985. The learned counsel for the assessee cited Wazid Ali Abid Ali v. CIT [1988] 169 ITR 761 (SC) and 170 ITR 622 (Raj.) (sic) for the proposition that when the partnership deed itself is ambiguous then the intention of the partners should be found out by their conduct as well as by the surrounding circumstances and all of them should be looked into for a purpose of coming to a conclusion whether there i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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