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TMI Blog1977 (8) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... son of one Juthalal Motilal. Juthalal was a partner in three firms, namely, (1) M/s. Chimanram Motilal (Cotton Wheat), (2) Chimanram Motilal (Gold Silver), and (3) M/s. Kamlapat Juthalal died on October 22, 1955, having him surviving his four heirs, including the assessee. The assessee inberited one-fourth of his father's share of interest in the three firms referred to above. In the assessment years up to 1956-57 all the three firms were assessed as registered firms. There were certain losses and those losses had been apportioned amongst the partners including Juthalal. In the assessment for the year 1958-59, the assessee claimed that to the extent to which he had succeeded to his father's interest in the said firms the share of loss apportionable to the father was liable to be allowed in his hands under section 24(2)(iii)(e) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"). The Income-tax Officer rejected the contention for a set-off of the losses incurred in the earlier years so far as the assessee was concerned. According to him such set-off was not permissible under section 24(2)(iii)(e) of the Act. He took the view that after the death of Jutha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can only be available if the assessee was taken up as a partner in the new firm by way of inheritance. His submission was that if regard be had to the terms of the original deed of partnership and the new deed of partnership that was entered into after the death of Juthalal, it is quite clear that as a result of a separate and independent agreement the assessee had become a partner and he was not admitted as a partner simply by reason of inheritance and the benefit of set-off given by the Tribunal was not justified under the provisions of section 24(2)(iii)(e). So far as the decision of this court in Bai Maniben's case [1960] 38 ITR 80 (Bom) was concerned, he submitted that the case was decided on its own facts and cannot be regarded as an authority for the present case if regard be had to the original deed of partnership under which Juthalal was a partner and the fresh deed of partnership that was entered into after his death. Section 24 of the Act provides for set-off Of loss in computing aggregate income. We are concerned in the present case with the provisions of section 24(2)(iii)(e) and we have to consider whether as a result of these provisions the claim of the assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship. It will suffice for the present purpose if we refer to the partnership agreement of the firm of Chimanram Motilal (Cotton Wheat). That agreement was entered into on June 1, 1949 between three partners, namely, Juthalal, who later on died, Vishnudayal Dwarkadas and Mahabirprasad Juthalal, one of the sons of Juthalal. The three partners were to share the profits and bear the losses the following proportion : Rs. Juthalal 0-6-0 in a rupee Vishnudayal Dwarkadas 0-6-0 in a rupee Mahabirprasad 0-4-0 in a rupee It is necessary for the present case to refer to two of the terms of this partnership agreement, namely, clauses (3) and (6), which are as under: " (3) The partnership shall be a partnership at will terminable by any partner on his giving to the others three months' previous notice of his intention so to do. (6) The death of any partner shall not dissolve the partnership. On the death of any partner unless the surviving partners otherwise decide, the share of the deceased partner shall be continued up to the end of the accounting year in which he dies after which it shall cease and determine." Relying upon the language used in clause (6) it is urged by Mr. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of inheritance. In this new agreement it is, inter alia, stated that consequent on the death of Juthalal his Rs. 0-6-0 share in the old partnership devolved by inheritance on his four heirs, one of them being a minor, and further it states that the parties to the new agreement agreed to continue with effect from October 23, 1955, the business together in partnership with Arunkumar alias Kailashpat, being minor admitted to the benefits of the partnership, on terms and conditions and in the manner laid down in the said deed. Thus, it is quite clear that as option was given to the surviving partners under the earlier partnership agreement to continue the partnership by taking heirs of deceased partner as partners by way of inheritance, they have chosen to do so. Thus, in the present case, the heirs of Juthalal had acquired rights as partners in the new firms that were constituted after the death of Juthalal by way of inheritance, and when such is the case the right of set-off will be available to them under section 24(2)(iii)(e) of the Act. That such is the clear position in law is supported by the decision of this court in the case of Commissioner of Income-tax v. Bai Maniben [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d partner nor did he decide to wind up the partnership. On the other hand, he entered into a fresh partnership agreement on August 15, 1953, whereunder the business conducted in the name of Hiralal Mathuradas was conducted in partnership between the surviving partner, Jayantilal, and the assessee, Bai Mani, widow of Hiralal. On these facts the Tribunal's finding that the widow Bai Mani was taken up as a partner by inheritance was not disturbed by the High Court and the benefit of set-off as contemplated by clause (e) was made available to Bai Mani. We are unable to see any difference between the facts of the present case and the facts in Bai Maniben's case [1960] 38 ITR 80 (Bom) and the principle laid down by this court in that case will equally be attracted in the present case, more so, when the surviving partners have while entering into a new agreement decided to continue the partnership by taking the heirs of the deceased partner as partnes. Thus, in our opinion, the Tribunal was right in coming to the conclusion that the assessee was entitled to claim a set-off to the extent of one-fourth, share, of the losses. In the result, our answers to the two questions referred are as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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