9911796707
TMI Blog1980 (9) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... tirement of any of the partners, the firm will continue. On 11th February, 1971, one of the partners, namely, Tejram, died and another partner, Omprakash, retired. A fresh deed of partnership was executed on 4th March, 1971, which was operative with effect from 12th February, 1971. This partnership deed was executed between the two surviving partners, Shri Bhukhraj and Shri Chandmal, and one Shri Surjamal, who was taken as a new partner. The firm also admitted four minors to the benefits of the partnership. The share of Shri Chandmal in the original firm was reduced from 0.25 paise to 0.13 paise in the rupee in the newly constituted firm. The business of the original firm was continued by the newly constituted firm, The same accounting years and the same books of account continued after the new partnership came into existence. The newly constituted firm took over the assets and liabilities of the old firm though this fact was not specifically stated in the new partnership deed. For the assessment year 1972-73, the assessee filed, two returns for the two periods, i. e., for the period from Diwali, 1970, to February 11, 1971, and for the period from February 12, 1971, to Diwali, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nues without dissolution, and also where a dissolved firm is reconstituted and carries on the business with the property and assets of the dissolved firm. For this reason, the chapter is given the non-committal title of Incoming and outgoing partners', rather than the restricted title 'change in a firm' which would otherwise have been more suitable. " (underlined by us) Chapter VI of the Partnership Act contains provisions about the dissolution of a firm. These two separate chapters provide for two different situations. Sections 31 to 35 of the Act in Chap. V refer to a change in the constitution while ss. 39 to 44 in Chap. VI refer to the dissolution of firm. Conceptually, therefore, " change in the constitution of a firm " and " dissolution of a firm " are expressions defined and explained in the Partnership Act itself. The I.T. Act in its reference to these terms does not make any marked departure from their meaning in the Partnership Act. According to us, there is no substantial conflict between these two enactments so far as the various meanings assigned to the terms used in the two Acts are concerned, though we are aware of the fact that under the income-tax law, a firm is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Corporation Taxes Act, 1970. In the case of such change, the partnership is deemed to be permanently discontinued at the date of change and the cessation and commencing provisions are applied as from such date. " After considering the expressions "change in constitution " and de succession " under the Partnership Act, we may now proceed to examine the provisions under the I.T. Act. Relevant sections of the I.T. Act are as follows : " 187. Change in constitution of a firm.-(1) Where at the time, of making an assessment under section 143 or section 144 it is found that change has occurred in the constitution of a firm the assessment shall be made on the firm as constituted at the time of making the assessment Provided that (i) the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same; and (ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment. (2) For the purposes of this section, there is a change in the constitution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitution of a firm " if the firm is dissolved in terms of the Partnership Act. Learned counsel for the department, Shri Bagadiya, argued that if the above construction is accepted, the words " and the case is not one covered by section 187 " occurring in s. 188 will become redundant. This method of construing a provision by reference to another provision is not correct the correct method will be to examine the provision itself and find out its true meaning. Section 187 speaks about "change in constitution " and, therefore, it is not necessary to refer to s. 188 for understanding the meaning and scope of s. 187. We are not supposed to search for a hypothetical case wherein there may be a succession of one firm by another and " a case is not covered by section 187 ". Such a situation might arise for aught we know. Indeed, Sampath lyengar at p. 1815 observes: "These words create some difficulty in properly construing the provisions of ss. 187 and 188. They suggest that there may be cases of succession of one firm by another which may be covered by s. 187 and lend to the interpretation that where a firm is dissolved and a fresh partnership is constituted with some common partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a writ petition challenging the notice of demand issued to the petitioner without a prior notice under s. 143 of the I.T. Act, though the firm had been dissolved and a new firm bad taken over. The court while making observations about reconstitution an succession, held that, whether s. 187 was applicable or s. 188, a notice under s. 143 was mandatory. In Sangam Silks [1980] 122 ITR 479 (Kar), the question was entirely different. There it was not in dispute that the assessee-firm had been reconstituted, i.e., " there was a change in the constitution " only. The contention of the assessee was that even on such reconstitution, there should be two assessments though the liability may be fixed on the new firm for the entire income. Repelling this argument, the court held thus (p. 485): " ...In cases where the change has occurred in the constitution of the firm, the assessment has to be made on the firm as reconstituted at the time of making the assessment in view of section 187(1) of the Act. " Paragraph 2 at p. 488 of the report makes it clear that the question before the Karnataka High Court in Sangam Silks' case [1980] 122 ITR 479 was not the same as it is before us. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has properly brought out the distinction between the provision contained in section 26(1) of the 1922 Act and section 187 of the 1961 Act." [Reference is to Harjivandas Hathibhai [1977] 108 ITR 517 (Guj).] The observations in Shivram Poddar's case [1964] 51 ITR 823 (SC), therefore, cannot be pressed into service for supporting the contention of the revenue that even when there is a dissolution by contract or statute, it will be treated under the I.T. Act as merely a change in the constitution of the firm provided one of the partners of the old firm becomes partner in the new or successor firm. In view of the discussion above, we hold that when a firm is dissolved due to the death of a partner, in view of the provision contained in s. 42(c) of the Partnership Act, the now Arm will be a successor firm and two assessments will have to be made under s. 188 of the "I.T. Act. Oar answer to the referred question is that: "On the facts and circumstances of the case, the Appellate Tribunal was not right in law in holding that it was a case of change in the constitution of the firm as contemplated, by section 187(2)(a) of the Income-tax Act, 1961, and was not a case of succession o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
