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TMI Blog1990 (11) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... he death of one of the partners, Shri Loganathan, on August 4, 1973 ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's view that a separate assessment should be made for the period September 1, 1973, to March 31, 1974, after considering the question of grant of registration is sustainable in law ?" In T. C. No. 116 of 1980, the assessee is a firm, viz., Nalli Silk Emporium. The firm consisted of five partners. During the course of the accounting year ending with March 31, 1974, relevant for the assessment year 1974-75, one of the partners died and the remaining four partners continued the partnership up to August 31, 1973, when the accounts were closed for the period April 1, 1973, to August 31, 1973, and the profits were apportioned to the five partners including the deceased partner, though the share of profits of the deceased partner was credited to the account of his legal heir. For this period, a return disclosing an income of Rs. 98,800 was filed. On September 1, 1973, a new partnership deed was drawn up among the four partners, admitting a minor, viz., the widow and legal heir of the deceased partner, to the benefits of the partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not mention anything about the dissolution of the firm or the codicil or the admission of the legal heir of the deceased partner with effect from August 5, 1973, and that the partnership deed was a fresh one unconnected with the earlier ones. Ultimately, the Income-tax Officer, in view of the absence of the deeds of the partnership operative for the entire period and the false declaration, treated the assessee as an unregistered firm and proceeded to assess the income between the periods April 1, 1973, to August 31, 1973, and September 1, 1973, to March 31, 1974, as such. On appeal by the assessee to the Appellate Assistant Commissioner, placing reliance upon Kaithari Lungi Stores v. CIT [1976] 104 ITR 160 (Mad), it was held that the original firm stood dissolved on August 4, 1973, when one of the partners died, and a fresh firm came into existence on August 5, 1973, which carried on business till August 31, 1973, when the accounts were closed and that, on September 1, 1973, another partnership came into being with the remaining four partners along with the minor admitted to the benefits of the partnership. According to the Appellate Assistant Commissioner, the entire period be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had admitted that there was only a change in the constitution of the firm and not a dissolution, the Tribunal, on a consideration of the terms of the partnership deed and the provisions of the Act, found that the firm stood dissolved on the death of one of the partners and the question of change in the constitution could at all arise only if the firm continued to exist and that the firm which came into existence after the death of one of the partners was a new firm and, upholding the direction given by the Appellate Assistant Commissioner, dismissed the appeal. That is how the three questions of law earlier set out have arisen. In T. C. No. 117 of 1980 also, one of the partners of the assessee-firm (who appears to have been a common partner for both the firms) died and the very same events that had taken place in relation to the firm Nalli Silk Emporium upon the death of one of the partners took place with reference to the assessee-firm in this case also and the Income-tax Officer treated the firm as an unregistered firm and completed the assessment. On appeal, the Appellate Assistant Commissioner gave similar directions as in the case P., of the assessee in T. C. No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the deeds of partnership relating to the assessees in these cases. We may observe that there is no provision in the partnership deeds to the effect that the firm shall continue undissolved despite the death of a partner. It is also provided that, in all other matters, viz., matters not specifically referred to in the deeds of partnership, the provisions of the Indian Partnership Act shall be applicable. In other words, there is, under the terms of the partnership, no contract to the contrary, as envisaged in section 42(c) of the Indian Partnership Act. Section 42(c) of the Indian Partnership Act provides that, subject to contract between the partners, a firm is dissolved by the death of a partner. We have already pointed out that there is no contract contra and, by the force of the operation of section 42(c) of the Indian Partnership Act, on the death of one of the partners on August 4, 1973, the firms stood dissolved. The stand taken by the assessee earlier or later in the course of the assessment proceedings cannot be decisive when dissolution is brought about by the operation of law. It may be that the assessee had taken different and even contradictory stands that there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business between August 5, 1973, and August 31, 1973, it cannot be concluded that there was no dissolution on August 4, 1973, but there was only a change in the constitution. We may in this connection also point out that the dissolution brought about by operation of law, as in these cases, sets at large the contractual obligations entered into by individual partners at the time of the formation of the partnership and renders them free. Our attention has not been drawn to any provision of the Act which compels us to depart from the well-understood concepts in the partnership law for purposes of the Act. Even under section 2(23) of the Act provision is made to the effect that the expressions "firm", "partner" and "partnership" have the same meanings as they have under the Indian Partnership Act which, in our view, means and includes that, even for resolving questions arising under the Act, the ordinary concepts of partnership law have application, unless there is a compelling provision contra. We, therefore, hold on a consideration of the terms of the deed of partnership and the provisions of the Indian Partnership Act that, on the death of one of the partners of the assessee-firms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th of one of the partners, would not stand dissolved and one of the partners died and thereafter a fresh deed was executed under which the surviving partners took a fresh partner in the place of the deceased and continued to carry on the business, the case was one of succession and not change in the constitution and that separate assessments had to be made in regard to the incomes for the period from the first day of the accounting period up to the date of the death and for the rest of the accounting period up to the last day of the accounting period. We are, therefore, of the view that the principle of this decision would be squarely applicable to these cases justifying the direction of the Appellate Assistant Commissioner concurred in by the Tribunal that the question of assessment has to be considered in relation to the three periods aforesaid. We may, in this connection, also refer to Wazid All Abid All v. CIT [1988] 169 ITR 761 (SC), which approved the decision in CIT v. Sant Lal Arvind Kumar [1982] 136 ITR 379 (Delhi), at page 778, in the following terms : ". . Where there is, however, no agreement to treat the firm as continuing notwithstanding the death of a partner, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firms stood dissolved and, thereafter, there was no question of the firms having continued, in which there was a change in the constitution by the happening of one or more of the events leading to a change in the constitution. We, therefore, answer the second question referred to us in the affirmative and against the Revenue. We now proceed to consider questions Nos. 1 and 3. While considering the second question, we have pointed out how the firms stood dissolved on August 4, 1973, on the death of one of the partners and, thereafter, the business was continued by the surviving partners till August 31, 1973, and thereafter, another firm had come into being from September 1, 1973. In view of what we had earlier stated regarding the dissolution of the firms on August 4, 1973, and the coming into being of another firm from September 1, 1973, it follows that the Income-tax Officer was not justified in making single assessment, but the assessments will have to be made for the three different periods as indicated in the order of the Appellate Assistant Commissioner and affirmed by the Tribunal. For the same reasons, the view of the Tribunal with reference to the third question referre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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