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TMI Blog1978 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... nga Reddi, who was one of the partners of the firm, died on September 29, 1972. A new partnership firm came into existence under a fresh partnership deed executed on June 6, 1973, with retrospective effect from September 30, 1972. The two widows of Linga Reddi were admitted as partners into the new firm with effect from September 30, 1972. This firm consisted of 16 partners as against 15 partners of the previous firm. The business was carried on in the name of Messrs. Venkateswara Stone Company. The books of account were not closed on September 29, 1972, on the date when Linga Reddi died. They were continued till December 31, 1972, when the accounts of the partnership firm were closed for that calendar year. By mutual consent of the parties, the profits up to September 29, 1972, were apportioned on time basis and disbursed among the partners in accordance with the earlier partnership deed dated May 3, 1971. The profits of the subsequent period September 30, 1972, to December 31, 1972, were also ascertained on the same basis and distributed among the partners in accordance with the second deed of partnership dated June 6, 1973. The firm filed a return for the first period declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1 and 2 at Gandlepally and quarry in Survey No. 662 at Angadi Raichur by excavating stones, etc., and selling the same under the name and style of M/s. Sri Venkateswara Stone Co. was carried on at Gandlepally and Angadi Raichur with head office at Kasturpalli, in partnership by the parties of the first 14 parts along with Shri T. Linga Reddi on terms and conditions incorporated in the deed of partnership dated 3rd May, 1971, till 29th September, 1972, on which date the said T. Linga Reddi died. AND WHEREAS with effect from 30th September, 1972, the said business is continued in partnership by the parties referred to hereinabove, the parties of the first 14 parts having agreed to take up the party of the 15th part, namely, Smt. T. Bhagya Devi w/o late T. Linga Reddi, as partner, to which she has also agreed on terms and conditions mutually agreed upon with 6%,11%, 6%, 3%, 6%, 6%, 8%,4%, 9%,11%, 5%,5%,11%, 2% and 2% respectively. And whereas the parties hereto hereby agree to continue the said business on the said terms and conditions in future. AND WHEREAS the parties hereto are desirous of reducing to writing and recording hereunder the terms and conditions so mutually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the firm was not discontinued, the partnership accounts were not closed for profit and loss and no separate books of accounts were opened for the subsequent period. It is on these grounds that the Tribunal concluded that in effect, the partners of the firm never thought of dissolution of the firm . The test in a case of this nature is to see whether there was any implied contract between the deceased and the other partners that the partnership shall continue notwithstanding the death of any one of them. None of the lower authorities had directed itself to this aspect of the case. Section 42 of the Partnership Act to the extent relevant reads : 42. (c) Subject to contract between the partners a firm is dissolved by the death of a partner. There was no express contract between the partners. There is also nothing to suggest that the conduct of the partners was such that during the lifetime of Linga Reddi they intended there would be no dissolution of the firm by reason of the death of a partner. The mere fact that no separate sets of accounts were opened or that the accounts were not closed for profit and loss will not by itself establish that there was a contract t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets and liabilities of the old firm, it is a case of change in the constitution of the firm and the income of the firm for the entire assessment year is liable for a single assessment. The assessment should be made on the firm as constituted at the time of assessment under section 187(2)(a). Section 188 does not apply to such firm inasmuch as there is no question of the new firm succeeding to the old one and the income and business of the old firm continued as such throughout the accounting year. That decision was affirmed by the Full Bench in Visakha Flour Mills' case [1977] 108 ITR 466 (AP). The Division Bench decision was also affirmed by the Full Bench of five judges in Vinayaka Cinema's case [1977] 110 ITR 468 (AP). Divan C.J., who spoke for the majority, referring to Veeraraghavulu Chetty's case [1975] 100 ITR 723 (AP), observed thus : In Commissioner of Income-tax v. T. Veeraraghavulu Chetty Sons [1975] 100 ITR 723 (AP), a Division Bench of this court consisting of Obul Reddy C.J. and Sriramulu J. dealt with a situation where there was introduction of new partners in the midst of the accounting year. They were not dealing with a situation where a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew partnership deed, seven of the partners of the old firm together with two new partners, viz., Smt. Y. V. Ramani and K. Panchala Lakshmamma, started a new partnership firm. This new firm was also registered under the Income-tax Act. For the assessment year 1969-70, two separate returns were filed, one for the period April 1, 1968, to August 17, 1968, and the other for the period August 18, 1968, to March 31, 1969. The question that was ultimately referred on those facts was : Whether, on the facts and in the circumstances of the case, and in view of section 187(2)(a) of the Income-tax Act, 1961, a single assessment could not be made on the aggregate of the income for the two periods and the tax charged on such aggregate income ? Per majority, the Full Bench held : Therefore, when a partner dies and the firm is dissolved though it can be said that he ceases to be a partner, it cannot be said that there is a mere change in the constitution of the firm. In our opinion, the view expressed by the Full Bench governs this case also. The facts there too were that there was no clause in the partnership deed to the effect that, in the event of the death of one of the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X
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