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TMI Blog1991 (7) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... former having 60 per cent and the latter 40 per cent share. The business of the firm wherein the aforesaid three persons father and two sons were partners, was dealing in gold, silver and money lending and it was also having agency of Hindustan Petroleum product in kerosene and lubricant. The assessee filed two returns and also Form 11A and requested that two assessments should be made under s. 188 for the two periods one before and another after 19th Feb., 1986. The ITO, however, held that this was a case of change of constitution of firm observing that the firm wherein the aforesaid three partners were partners, father and two sons was never dissolved and the other facts like continuation of the same business in the same premises. He added the income of the two periods and made the assessment on that total income. The Commissioner, however, directed the ITO to make two separate assessments as desired by the assessee on the ground that there was no mention in the partnership deed of the firm where there were three partners that the firm will continue inspite of death of one of the partners. 3. On behalf of the Revenue, following submissions were made: (i) The Commissioner has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was a case of succession. (8) In reply to the submissions of the learned departmental representative that there was no dissolution, because no accounts were taken, it was submitted that taking the accounts was subsequent to dissolution and so the question of dissolution should not be decided on that basis. (9) The fact that the old account books continued did not necessarily mean that the old firm continued relying on Ganesh Dal Mills vs. CIT (1982) 136 ITR 762 (MP). (10) The dissolution deed was not material relying upon 1 TTJ page 19. (11) The agreement not to dissolve the firm on the death of a partner could be inferred from the facts relying upon Bombay High Court decision in the case of CIT vs. E.H. Kathawala Co. (1984) 38 CTR (Bom) 194 : (1985) 151 ITR 348 (Bom), Calcutta High Court decision in the case of Mathurdas Govardhandas vs. CIT (1980) 125 ITR 470 (Cal) and Rajasthan High Court decision in the case of CIT vs. G.N. Textiles (1986) 57 CTR (Raj) 286 (1987) 167 ITR 181 (Raj). (12) The income of the two periods should not, in any case, be clubbed together relying upon the decision of Allahabad High Court in the case of CIT vs. Shiv Shankar Lal Ram Nath (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution of the firm each time when the partner died and three separate assessments for the three periods were to be made. In the case of Joshi Co. the Calcutta High Court was concerned with a case where the deed of partnership provided that if any partner died, his heir could continue as a partner. One of the partners died and three weeks thereafter, a new partnership deed was executed taking his son as a partner with the same share as that of the father. The assessee filed form Nos. 11 and 11A for registration. The High Court held that the proviso to s. 187(2) did not provide for automatic dissolution and could not be interpreted to mean that the firm must be held to be dissolved when the partner died. Therefore, according to it, there was a change in the constitution of the firm and the firm was entitled to registration for the asst. yr. 1976-77 on the strength of a new partnership deed executed after the end of the accounting period. In this case, the High Court has dissented from the decision of the Madhya Pradesh High Court in the case of CIT vs. Jasumal Devandas, where it has been held that by reason of the said proviso a firm would stand automatically dissolved on the death ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip deed provides that by the death of one of the partners the firm should stand dissolved, from the circumstances of the case it may be possible to infer that before the death of a partner there was an agreement between surviving partner and the partner who died that in the event of death of one of the partners the firm should not stand dissolved. In the case of Bikaner Woollen Press there was no contract to the contrary and there was no suggestion of any such circumstances that the partnership would not be dissolved on the death of a partner. In the case of Joshi Co. there was a clause in the partnership deed that the firm would not be dissolved in the death of a partner and the High Court held that the firm had continued with reconstitution taking into account the other CIT which showed the continuation of the same firm. The Bombay High Court in the case of Dhanraj Sons shows that where there is a clause in the partnership deed that the firm would not be dissolved on the death of a partner and there are other facts which shows that the same firm would continue then the subsequent dissolution would not be regarded as genuine and the firm would be regarded as reconstituted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given a retrospective effect from the very next day after the death of the grandfather. This would clearly show the intention to continue the same firm. In the case of Dhanraj Sons, the High Court has taken this particular fact of retrospective effect into account. The assessee's counsel argued that since the grandson has been inducted into the firm on the next day after the death of grandfather and the son Dattulal had retired at least for a moment there was only one person in the firm which implied dissolution but, as rightly pointed out by the learned departmental representative, Dattulal had retired on the next day after the death of the father and when he went out on that very day, the grandson was induced into a partnership and so there was not even a moment when there was only person in the partnership. Moreover, there is the fact that the accounts were not taken on the death of Mannalal. The assessee's counsel's argument that taking of account is subsequent to dissolution is correct but taking of account does throw light on the fact of dissolution. Further, substantially the same business was continued and that too in the same premises and the ITO was not informed about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court consisting of five learned judges in Vishwanath Seth vs. CIT (1984) 38 CTR (All) 366 (FB) : (1984) 146 ITR 249 (All) (FB) overruled the previous decision of that Court in CIT vs. Shiv Shankar Lal Ram Nath (1977) 106 ITR 342 (All) and Badri Narain Kashi Prasad vs. Addl. CIT 1978 CTR (All) 390 (FB) : (1978) 115 ITR 858 (All) (FB). This Full Bench ruled that under the general law of partnership under the Indian Partnership Act as well as under s. 187 of the Act in the case of reconstitution of a firm, it retains its identity and is assessable in respect of the entire previous year. In view, however, of the scheme of Chapter XVI of the Act, we are unable to agree; if we were left with the general position under the Indian Partnership Act, we might have agreed." 8. To clarify this position, we may state the ratio of the three decisions referred to above separately. In the case of Shiv Shanker Lal Ram Nath the High Court held that after the reconstitution the new firm was distinct assessable entity different from the firm before its reconstitution, and that the Tribunal was right in its view that two different assessments had to be made against the assessee. Thereafter in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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