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TMI Blog1989 (12) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and admission. 3. A little later, on 1-2-1983, the firm was again reconstituted with the admission of one more partner viz. Annapurna Agro Products Pvt Ltd., Eluru, represented by its Managing Director Sri Kodali Venkateswara Rao, who was also incidentally the managing partner of the firm. Subsequently, the firm was dissolved on 30-4-1983 upon conversion into a limited company. The dissolution of the firm is evidenced by a deed of dissolution dated 30-1 983. 4. For the previous year ended on 30-4-1983 relevant to the assessment year 1984-85, the firm as reconstituted applied for registration complying with the requirements of sec. 184. The Income-tax Officer issued a show-cause notice on 5-2-1987 setting out his proposal to reject the claim for registration on the following grounds : "(1) There is no certainty about the partners, while M/s. Annapurna Agro Chemicals Pvt. Ltd. is shown as a party to the partnership, in the preamble narrated above and also in para 5 of the deed dated 1-2-1983, M/s. Annapurna Agro Products Pvt. Ltd. is shown as a partner. (2) Shri K. Venkateswara Rao is a party to the deed in dual capacity--one in his individual status and the other as Mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied to the show-cause notice as seen in para 7 of the Income-tax Officer's order wherein they have stated as follows :-- "We fully concur with your letter cited and all your findings therein listed. Only Mr. K. Venkateswara Rao is responsible for the dubious methods and sham transactions cited in your letter since they were performed without the knowledge of unsuspecting partners." The Income-tax Officer dealt with the objections raised by the assessee and agreed that the mentioning of the partner's name as Annapurna Agro Chemicals Pvt. Ltd. was only a typographical error. But, on the main issue whether Sri Gangadhara Rao and Smt. Vasundhara Devi had in fact retired from the firm, he held that they did not retire from the firm and at any rate there was practically a big question-mark as to who were the partners on or after 1-12-1982 and in this view of the matter, he declined to grant registration and treated the assessee as an association of persons. 5. The assessee appealed. The learned Commissioner of Income-tax (Appeals) concurred with the Income-tax Officer's conclusion that in view of disputes it was difficult to spell out who were the real partners ; that Sri Gangadh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etire from the firm by sending in the letter of retirement stands disproved. Very unfortunately, the authorities below preferred to believe the statement of Sri Gangadhara Rao that he had not given any notice of retirement Smt Vasundhara Devi attended the partners meeting on 17-11-1982 at which it was decided to enhance the capital requiring the partners to bring their share-of additional capital. Soon after the meeting, she expressed her desire to the managing partner when all other partners were present that she would be unable to keep her capital in the firm and expressed her desire to retire from the firm. This had happened immediately after the meeting was over. Her husband was also present. After a few months, she wanted copies of the balance-sheet and copies of her accounts which were duly given to her. Then only she started challenging her retirement. In this connection, Sri Prasad referred to the letters written by the firm (as contained in the paper book) and also the suit filed by Smt. Vasundhara Devi in the court of Subordinate Judge, Eluru (page 163 of the paper book). Her assertion that she did not express a desire to retire from the firm is false. In fact, after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r effect. He further submitted, rellying on the decision of the Gujarat High Court in Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747, that when assessments have been made in the hands of some of the partners on the basis of share income from the Registered firm, it is not now open to the Income-tax Officer to refuse to grant registration to the firm. He also relied on a number of decisions among them being : CIT v. Sivakasi Match Exporting Co. [1964] 53 ITR 204 (SC); ClT v. Balaji Pictures [1983] 144 ITR 807 (AP); and Punjab Fruit Co. v. CIT [1984] 149 ITR 42 (Delhi). 9. Sri K. Rangabhashyam, learned Senior Departmental Representative, objected to the filing of the judgment of the Civil Court and other related papers. We overrule the objection on the ground that the Income-tax Officer had referred to pending suits in his order and the assessee as soon as it got copies of the judgment of the Civil Court had filed the papers before us and these documents are in a way germane to the issue on hand. 10. The learned Senior Departmental Representative further submitted that the two partners have not given notice of retirement in writing in terms of clause 4 of the partnership deed. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship on giving the other partners not less than one calendar month's notice in writing of his intention to do so. A partner retiring as aforesaid shall be entitled to be paid by the partners remaining within 6 months of his retirement the credit balances, if any, till such date but shall not be entitled to any share in the assets or goodwill or reserves of the firm. The retirement, death or insolvency of any of the partners for the time being shall not dissolve the partnership. In the event of death or insolvency of a partner the share of the deceased or insolvent partner shall be determined as if he had retired on the date of his death. " Obviously, in this case, the notice in writing as stipulated in clause 4 of the partnership deed, i.e. "not less than one calendar month's notice" was not given. This is one of the grounds for rejection of registration. Sec. 32 of the Partnership Act is as follows : "32. Retirement of a partner :--(1) A partner may retire-- (a) with the consent of all the other partners, (b) in accordance with an express agreement by the partners, or (c) where the partnership is at will, by giving notice in writing to all the other partners of his inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instance of a mediator, Sri Sitaramadas, who is now deceased, on the understanding that his account would be settled and that thereupon, he signed the letter in which he had expressed his determination to retire from the firm Thus, there is inconsistency in his statement -- before the CIT (Appeals) he had stated that he had signed a blank paper and before the court he had stated that he had signed the letter at the instance of a mediator. The Subordinate Judge in his judgment dated 1-3-1984 in I.A.No. 3160/1982 in O.S. 230/1983, has categorically held as follows (page 251 of paper book) :-- "In fact, plaintiff admits about his passing letter of retirement and about his signing all the forms in the presence of a gentleman mediator also. But, his contention is that his signatures were obtained under duress and coercion. Of course, he has not placed any documentary evidence to that effect." Thus, the statement of Sri Gangadhara Rao that the letter was given under duress or coercion cannot be relied upon. Even in his letter addressed to the Income-tax Officer dated 8-7-1986, he admits as follows : "Though I gave letter prepared by the management of Annapurna Flour Mills, Elu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1982 to 30-11-1982 for which you were the partner". It also mentions that "the profits from 1-7-1982 to 30-11-1982 will be given credit to your account as soon as the audit is completed". The letter goes on to state as follows :-- "While retiring as partner, you have requested us to make arrangement for allotment of shares of Annapurna Agro Products Pvt. Ltd. in your name and in the name of your daughter from the amount standing to your credit. You please let us know about the total number of shares required by you in your name and in the name of your daughter, within one week of receipt of this letter so that we could arrange for allotment by debiting your account. In case you have changed your mind, please let us know about that, so that we could arrange for a Cheque in your favour for the amount standing to your credit." This letter was addressed to her on 19-5-1983 and served on her through registered post on 27-5-1983. In response to this, she had requested the firm to send through her husband Sri E. Prabhakara Rao, a copy of the partnership deed and the last year's balance-sheet and also the regulated statement of account till date. She had not in that letter questioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id D. Gangadhara Rao, E. Vasundhara and Ch. Pitcheswara Rao, have expressed their desire to retire from partnership with effect from 1-12-1982 to which the parties 1 to 15 hereto have agreed." 16. For these reasons, we hold that the retirement of Sri Gangadhara Rao and Smt. Vasundhara Devi and incidentally of Sri Pitcheswara Rao, have all taken place with effect from 1-12-1982 under clause (a) of sub-sec. (1) of sec. 32 of the Partnership Act. It was erroneous on the part of the lower authorities to have declined to grant registration to the firm as reconstituted merely because two of the three retired partners have made allegations and assertions that they have not retired from the firm as against the statement of all other partners to the contrary. In the view which we have taken in this matter that there has been retirement notwithstanding the dispute raised by the two partners, it was competent for the other partners to admit any person into the partnership and this is exactly what has happened on 1-12-1982. Two more persons were admitted into the partnership on the retirement of the three partners and the firm was reconstituted as evidenced by a deed dated 6-12-1982. By anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en intimated to the Registrar of Firms. ln fact, according to the provisions of sec. 63 of the Partnership Act, any incoming, continuing or outgoing partner may give notice to the Registrar of any change in the constitution specifying the date thereof. So, it cannot be said that it is the responsibility of the continuing partners alone to give notice of change to the Registrar. In other words, no adverse inference can be drawn against the assessee if the changes that had occurred in the firm had not been notified by the firm to the Registrar of Firms. 19. The reconstitutions are evidenced by duly executed deeds of partnership. There is no dispute about who are partners in the firm as reconstituted from time to time as their names are specified therein. Their respective shares of profits and losses have also been specified therein and dealt with accordingly. The business was continued by the firm as reconstituted from time to time till its dissolution. The firm was ultimately dissolved upon conversion into a limited company which is also evidenced by an instrument in writing. Neither the objects of the partnership nor the business carried on by it is unlawful or illegal. In the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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