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TMI Blog1978 (2) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1967-68 ? " For the purpose of appreciation of the point of law in controversy, the relevant facts of the case may be summarised. A firm under the name and style of Messrs. Jagat Ram Om Parkash, Bazar Ghantaghar, Amritsar, was brought into existence by a partnership deed dated February 7, 1963. Its business was the purchase and sale of shawls, yarn and woollen goods. The partnership comprised of the following six partners : 1. Shri Sham Dass Virmani; 2. Shri Shiv Parkash Khanna; 3. Shri Om Parkash Khanna; 4. Shri Satish Parkash Khanna; 5. Shri Narpinder Parkash Khanna; and 6. Shri Kulbhushan Khanna. This firm was dissolved by the deed of dissolution dated May 11, 1965. This was necessitated because two of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was in similar terms. The other retiring partner, Shri Shiv Kumar Khanna, was, however, not to be liable to and responsible for any bad debt whether recovered or otherwise. The total amount of the bad debt was Rs. 46,372. A separate atta account was opened in the books of the reconstituted firm and the total amount of the bad debts was shown in the account for the assessment year 1965-66. The same state of affairs continued in the account for the assessment year 1966-67. The reconstituted firm carried on the same business which was carried by the earlier firm. Cl. 12 of the new partnership deed was to the following effect : " That the firm hereby formed has taken over and succeeded to all the assets, liabilities, quota rights, sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) Rs. 9,530 in proportion to the seven annas and six pies share of Sham Dass Virmani; and (2) Rs. 2,223 in proportion to one anna and nine pies share of Shiv Parkash Khanna ; the total being Rs. 11,753. However, in appeal before the AAC, the entire amount of the remaining bad debt of Rs. 20,329 was disallowed and the AAC held that it was a case of a reconstituted firm under s. 187(2) of the Act, and not of a successor-firm. In appeal by the assessee before the Tribunal, it was held that out of the total bad debt of Rs. 20,329, the share of Sham Dass Virmani, that is Rs. 9,530, could not be allowed as a bad debt in view of the terms of the agreement between the parties. The remaining amount of Rs. 10,799, was, however, allowed as bad de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill, name of the firm, etc., of the previous firm were also continued. Even the liabilities and assets were taken over by the second firm. The scope and ambit of ss. 187 and 188 of the Act, in the light of the provisions of the Indian Partnership Act, was considered by a Full Bench of this court in Income-tax Reference No. 20 of 1972 (Nandlal Sohanlal v. CIT [ 1977] 110 ITR 170 (Punj) [FB]) wherein it was held at pages 196, 197: " The purport of s. 187(1) is that assessment on the firm which undergoes change in its constitution has to be made as it stands reconstituted at the time of the making of assessment, provided of course one of its old partners continues to be its member at the time of framing the assessment. In a way it gives a sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All that the section requires is that if the same business is continued by a reconstituted firm of which at least one of the old partners continues to be a partner of the new firm, the firm will be treated as a continuing entity in the eyes of law." According to the learned counsel, in the aforesaid case decided by the Full Bench, one of the partners of the first firm had died, but no dissolution deed had been executed and only a minor son of the outgoing partner was admitted to the benefits of the partnership and, therefore, the ratio of the said decision is not applicable in the present case. We do not find any merit in this contention. The formal execution of the dissolution deed and the fact that dissolution of the partnership results ..... X X X X Extracts X X X X X X X X Extracts X X X X
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