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TMI Blog1985 (8) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for the previous year relevant to the assessment year 1975-76 filed two returns of income declaring an income of Rs. 40,320 and Rs. 20,403. Prior to the formation of the assessee-firm, there was an old firm, Surajbhan Om Prakash. Its two partners were (1) Surajbhan and (2) Om Prakash. The partnership deed executed by them is dated August 31, 1957. The relevant two clauses of the aforesaid partnership deed are 6 and 11 which are as follows: "6. That the partnership is a partnership at will. 11. That all other relations of the parties shall be governed by the provisions of the Indian Partnership Act save and except that on the death or demise of any partner, the firm shall not stand dissolved but shall remain continued by the surviving partner and the legal heirs or representatives of the deceased on such terms and conditions as may be agreed upon by them thereafter." According to clause 11 of the partnership deed, on the death of any partner, the firm could not stand dissolved but was to be continued by the surviving partner and the legal heirs or representatives of the deceased partner. Surajbhan was one of the partners of the old firm. Surajbhan Om Prakash died o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Act as under: " 7. Partnership at will.-Where no provision is made by a contract between the partners for the duration of their partnership, or the determination of their partnership, the partnership is a 'partnership at will'."' Chapter VI of the Partnership Act deals with dissolution of firms. Section 42 which occurs in Chapter VI relates to the dissolution on the happening of certain contingencies. The relevant portion of section 42 of the Partnership Act for our purpose is as follows: " 42. Dissolution on the happening of certain contingencies.-Subject to contract between the partners a firm is dissolved . ...... (c) by the death of a partner; and ........" A careful examination of section 7 and clause (c) of section 42 of the Partnership Act clearly shows that a partnership at will is dissolved by the death of a partner but this is, however, subject to the contract between the partners. There is no doubt that clause 11 of the partnership deed provides for continuance of the partnership after the death of one of the partners, if the surviving partner and the legal heirs or representatives of the deceased partner agree on the terms and conditions to be settled by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rajbhan Om Prakash on the terms and conditions mutually settled between them verbally and took over the assets and liabilities of the firm, M/s. Surajbhan Om Prakash, Raisinghnagar, and its branch an old firm which had been dissolved on account of death of Shri Surajbhan on July 1, 1974, at book value appearing in the books of the said dissolved firm and whereas since then, that is, July 1, 1974, the parties have been acting upon those terms and conditions mutually settled between them on July 1, 1974." (Emphasis supplied) Section 42(c) of the Partnership Act was examined in CIT v. Seth Govindram Sugar Mills [1965] 57 ITR 510 (SC). In that case, the firm consisted of two partners who represented their joint families. There was provision in the deed for a heir or nominee taking the place of the deceased partner. One partner out of the two died leaving his widow and minor sons. The question arose whether the firm which consisted of two partners had dissolved after the death of one of the partners. Their Lordships have expressed themselves in the following words (p. 514 and 515): " Partnership, under section 4 of the Partnership Act, is the relation between persons who have agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, on his death, the firm, Surajbhan Om Prakash, automatically came to an end and there was no occasion or question for Om Prakash to have inducted the legal representatives of Surajbhan and Banshidhar Sarda (thirty party) as partners to the old firm, Surajbhan Om Prakash, so as to infer in law that the old firm was continuing and it was merely a change in the constitution of the firm within the meaning of section 187 of the Act. Mr. C.R. Mehta, learned counsel appearing for the Revenue, has placed reliance on Nandlal Sohanlal's case [1977] 110 ITR 170 (P H) which is a Full Bench decision of the Punjab and Haryana Court which was held not applicable to this case by the Tribunal. We have carefully read the aforesaid decision of the Full Bench of the Punjab and Haryana High Court. In our opinion, this authority has no bearing on the facts of the case on hand for the simple reason that in the partnership deed before it, there was no provision in the deed as to the dissolution of the firm on the death of the partner. Of course, in that case, the son of the deceased partner was taken as a partner and the business was continued and a new deed of partnership was executed. It may al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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