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TMI Blog1977 (8) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... dissolution of the partnership firm, the business of the firm is continued by another partnership firm in which one or more of the partners of the dissolved firm have also joined and there are thus common partners between the dissolved firm and the new firm which continues the business of the old firm. In order to appreciate the controversies arising in both these matters, we will first refer to the facts in R. C. No. 22 of 1975. We are concerned in this case with assessment year 1969-70. The relevant accounting year is financial year 1968-69. The assessee is a registered firm carrying on business of running a cinema theatre under the name and style of "Sri Vinayaka Cinema" at Nellore. The partnership was constituted by a partnership deed dated April 29, 1967. This partnership was duly registered under the provisions of the Income-tax Act. Amongst 9 partners of the firm, Srinivasulu and his son, Kamalakara Rao, were also partners. Kamalakara Rao was a major at the relevant time and was the managing partner of the firm. Srinivasalu had gifted away four out of the twelve shares that he held in the firm to his daughter, Smt. Y. V. Ramani, and had formed a sub-partnership with her in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the firm, which came into existence on August 18, 1968, was a new firm. The matter was taken in appeal to the Tribunal by the revenue. The Tribunal held that the Appellate Assistant Commissioner was right in directing that there should be two separate assessments, one for the period April 1, 1968, to August 17, 1968, and the other August 18, 1968, to March 31, 1969. On these facts, ultimately, at the instance of the revenue, the following question came to be referred to this court for its opinion : "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 incomes for the two periods and the tax charged on such aggregate income?" In R.C. No. 67 of 1975, the facts are as follows: The assessment year under consideration is 1971-72. The accounting year is the financial year from April 1, 1970, to March 31, 1971. There were originally two partners in the firm, M/s. Prasad Motors and Electricals. They were Ch.Suryanarayana and K. Sanyasi Raju. Each of these two partners represented his Hindu undivided family in the business of the partnership firm. Durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated October 26, 1970, was a new firm which succeeded the earlier firm in terms of section 188 of the Act." It is obvious from the narration of facts set out hereinabove that the main question that we have to consider is the effect of the provisions of section 187(2) of the Income-tax Act when, under the provisions of the Partnership Act, a firm is dissolved. In order to appreciate the controversy that has arisen, it will be necessary to refer to some of the provisions of the Income-tax Act. Sub-section (23) of section 2 says that the words "firm", "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (9 of 1932) ; but the expression "partner" shall also include any person who, being a minor, has been admitted to the benefits of the partnership. It is thus clear that a departure to this limited extent from the provisions of the Partnership Act has been made by the Income-tax Act because, under the provisions of the Partnership Act, a minor can only be admitted to the benefits of the partnership, but cannot be a partner because partnership requires an agreement between the partners and the minor cannot enter into a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 188 provides for succession of one firm by another firm. It may be pointed out that section 170 of the Act provides for succession to business otherwise than on death and it deals with all persons and not merely with succession of one firm by another. Under section 188, where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by section 187, separate assessments shall be made on the predecessor-firm and the successor-firm in accordance with the provisions of section 170. Therefore, it is obvious that section 188 is a specific provision which has to be applied when there is a succession of one firm by another as distinguished from a change in the constitution of the firm and the case is not one covered by section 187. Section 189 deals with a situation when the firm is dissolved or the business of a firm has been discontinued and under sub-section (1), where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Income-tax Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, by the expiry of that term; (b) if constituted to carry out one or more adventures or undertakings, by the completion thereof; (c) by the death of a partner ; and (d) by the adjudication of a partner as an insolvent." It is, therefore, clear that, subject to contract between the partners, a firm is dissolved by the death of a partner or by the adjudication of a partner as an insolvent. If, under the partnership deed or any other agreement entered into between the partners before the date of death of one of the partners or before the date of the adjudication of one of the partners as an insolvent, it is agreed between the partners, inter se, that the firm shall not be dissolved on the death or on the adjudication of one of the partners as an insolvent, the firm would continue. Mr. Rama Rao, the learned counsel for the revenue, has emphasised before us that the words "cease to be partners" which occur in section 187(2)(a) of the Income-tax Act, are also to be found in the Partnership Act, because it is obvious that, if one or more of the partners cease to be partners or one or more new partners are admitted in a firm which exists and continues both under the Partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a distinct person or quasi-corporation." Mr. Rama Rao drew our attention to Black's Law Dictionary, fourth edition, page 282, where the word "cease" has been defined to mean to stop, to become extinct, to pass away, to come to an end. Similarly, in Webster's International Dictionary, the word "cease" has been defined to mean a discontinuance or a temporary or final ceasing. In Corpus juris Secundum, volume 14, at page 58, the word "cease" has been defined to mean to become extinct or pass away, to come to an end, or stop. Mr. Rama Rao also drew our attention to the fact that section 37 of the Partnership Act mentions the words "ceased to be a partner". Section 45(1) of the Partnership Act provides for liability for acts of partners done after dissolution, and it says "45. (1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution: Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 26(1) of the 1922 Act and section 187(1) of the 1961 Act will clearly remain in the forefront. To deal in a chronological order with the authorities under the Income-tax Act, we will refer to the decision of the Supreme Court in Commissioner of Income-tax v. A. W. Figgies and Company [1953] 24 ITR 405 (SC). The court there was concerned with succession under section 26(1) and the question was one of the applicability of section 25(4) and section 26(1) of the 1922 Act. Mahajan J. (as he then was), speaking for the Supreme Court, observed at page 409 of the report: But under the Income-tax Act, the position is somewhat different. A firm can be charged as a distinct assessable entity as distinct from its partners who can also be assessed individually." After referring to the charging section 3 of the 1922 Act, analogous to the charging section 4 of the 1961 Act, Mahajan J. observed : "The partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purposes of assessment. Sections 26, 48 and 55 of the Act fully bear out this position. These provisions of the Act go to show that the technical view of the nature of a partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to assessment on reconstituted or newly constituted firms, and on succession to the business are obligatory. Therefore, even when there is change in the ownership of the business carried on by a firm on reconstitution or because of a new constitution, assessment must still be made upon the firm." (Emphasis supplied by us). Mr. Rama Rao for the revenue has very strongly relied upon the particular words in the above passage which we have underlined; but it must not be forgotten that it was while dealing with the provisions of section 26(1) which dealt with both changes occurring in the constitution of the firm and a newly constituted firm that those observations were made. Assessment undoubtedly had to be made under section 26(1) when there was a change in the constitution of the firm and when a firm was newly constituted. If a partnership firm was dissolved and the business of the firm was continued by another firm under the provisions of the 1922 Act, since there would be a newly constituted firm as distinguished from a change in the constitution of the firm the provisions of section 26(1) of the 1922 Act had to be invoked. But the question is whether, with the change in the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate. I am not going into it any further because it is essentially a question of fact, but I cannot avoid the view that there was material upon which the Commissioners might arrive at the conclusion that there was a succession." Commenting upon this observation of Finlay J., Subba Rao J. (as he then was) observed: "This is an authority for the position that if a business was taken over as a going concern the mere fact that some assets, which were not required by the successor for the carrying on of the business, were not transferred to him would not make it any the less a succession in law. It is not necessary to multiply decisions. Succession involves change of ownership; that is, the transferor goes out and the transferee comes in ; it connotes that the whole business is transferred; it also implies that substantially the identity and the continuity of the business are preserved. If there is a transfer of a business, any arrangement between the transferor and the transferee in respect of some of the assets and liabilities not with a view to enable the transferor to run a part of the business transferred but to enable the transferee to run the business unhampered by the load of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that one and the same firm must be continuing throughout the assessment year under consideration. But there is a change in the constitution of the firm, though the firm, as an entity, continues as one and single entity throughout the period. If the firm ceases to exist, the relationship of partners inter se comes to an end and, therefore, the firm can no longer be said to continue as before. Since the continuance or the existence of the firm is the basic concept underlying section 187(1), which speaks of a change in the constitution of the firm, it is obvious that the provisions of section 187(2), which defines "for the purposes of this section" what is meant by change in the constitution of the firm, cannot go contrary to the basic concept underlying section 187(1). Clause (a) of section 187(2) provides that, for the purposes of this section, there is a change in the constitution of the firm if one or more of the partners cease to be partners or one or more new partners are admitted. In such circumstances, one or more of the persons who were partners of the firm before the change continue as partner or partners after the change. Similarly, where all the partners continued with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 184 with a view to point out that the notions and concepts in the Partnership Act are not totally to be overlooked when considering the provisions of the 1961 Act. Moreover, section 2(23) requires the words "firm" "partner" and "partnership" to be interpreted in the same manner as has been done in the Partnership Act. Once a firm is dissolved in view of the provisions of the Partnership Act, it is obvious that that firm comes to an end and there cannot be said to be a change in the constitution of such a firm just because after the dissolution of the firm, by virtue of a new agreement between some of the partners of the dissolved firm, the business of the firm is continued and the new firm takes over the business of the old firm. It is possible to urge that, in the event of a firm being dissolved under the provisions of the Partnership Act, if some of the partners of the dissolved firm agree to restart the business by virtue of a new agreement, there is a newly constituted firm; but the words "a newly constituted firm" which were present in section 26(1) of the 1922 Act are absent from section 187(1) of the 1961 Act. Under these circumstances, by a mere process of interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectfully agree with the conclusions of the learned judges of the Madras High Court because, on our own analysis of the wording of the sections, we have come to the same conclusions. We will now examine in a chronological order the decisions of the different High Courts delivered in the context of section 187. In Dharam Pal Sat Dev v. Commissioner of Income-tax [1974] 97 ITR 302 (Punj), a Division Bench of the Punjab and Haryana High Court dealt with a situation where three partners were carrying on the partnership business and one of the partners died. The remaining two partners and the son of the deceased entered into partnership after the death of the deceased partner and they carried on the same business as previous partnership. There was no clause in the partnership deed before the death of the partner providing for non-dissolution of the firm in the event of the death of one of the partners. On these facts, the Division Bench held that the provisions of the Partnership Act can be referred to only if it is found that a particular situation is not covered by the provisions of the Income-tax Act. A particular case can be covered by section 188 of the Act only when it is a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm shall not stand dissolved on the death of a partner. Even if there had been such a stipulation, the firm could not have been saved from dissolution, because, after the death of one of the partners, only one partner was left and one man cannot constitute a firm. The firm automatically came to an end. Since the erstwhile firm stood dissolved on the death of one of the partners, the new firm which took over the same business could be assessed only in accordance with section 188 and a single assessment for the whole year was not valid. With respect we agree with the learned judges who delivered the majority decision of the Full Beach of the Allahabad High Court, but we differ from them only to the limited extent that the reconstitution of the firm is covered not only by sections 31 and 32 of the Partnership Act but also by the other provisions of Chapter V of the Partnership Act under which because of a contract to the contrary a firm is not dissolved even on the death of one of the partners of the firm or on the adjudication of a partner as an insolvent. We agree with the comment of the learned judges of the Madras High Courtin Kaithari Lungi Stores v. Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the Gujarat High Court pointed out: "Even apart from the decision of the learned judges of the Allahabad High Court in the Full Bench decision referred to above, Dahi Laxmi Dal Factory's case [1976] 103 ITR 517 (All) [FBI, it is obvious on general principles that unless the words of the Income-tax Act compel us to do so, it would not be correct to depart from the well-known principles of partnership law. The partnership law contemplates retirement of a partner and even though a partner retires, the firm continues as before. What is meant by a change in the constitution of the firm is coming in of a new partner with the consent of all the existing partners or by the retirement of a partner with the consent of all the partners ; in such cases there is a mere change in the constitution of the firm and nothing more. The same firm continues as before." We are in agreement with this conclusion of the learned judges of the Division Bench of the Gujarat High Court. In Additional Commissioner of Income-tax v. Visakha Flour Mills [1977] 108 ITR 466 (AP) [FB], a Full Bench of this court consisting of one of us (Raghuvir J), Kondaiah and Gangadhara Rao JJ. held : A change in the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs continuing as partners in the second firm, it must be construed to be only a change in the constitution of the firm within the meaning of section 187 but not a case of succession as contemplated by section 188." With great respect to the learned judges of the Full Bench of this court, we are unable to agree with their interpretation of sections 187 and 188 of the income-tax Act, 1961. Sections 187, 188 and 189 deal with three different situations. Section 187 deals with a case where the firm continues to be the same as before in the eye of law, but there is a change in the constitution either because of a partner coming into or another partner going out and so long as one partner is common, there is said to be a mere change in the constitution of the firm. Section 188 deals with a situation where there is succession of one firm by another firm and in such a situation, the assessment has to be made in the light of section 170. Section 189 deals with a situation where a partnership firm is dissolved or its business discontinued. Just because some of the partners of the dissolved firm constitute a new partnership firm by a new agreement arrived at among themselves, it cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the electrical undertaking at Hoshiarpur from the very begining right down to its purchase by the Punjab Government, and it continued to be the same unit throughout, carrying on the same business of supply of electricity, at the same place and there was no cesser of that business or any change in the unit." The question which we have to consider in the present case did not arise strictly for the decision in that particular case and it is not necessary for us to deal with that particular case in greater detail. In Sandersons & Morgans v. Income-tax Officer [1973] 87 ITR 270 (Cal). Sabyasachi Mukharji J. of the Calcutta High Court, sitting singly, dealt with a situation where there was a contract to the contrary providing that, in the event of death of one of the Partners, the partnership firm was not to be dissolved. Thus, it is obvious that the case would clearly fall under the provisions of section 187 of the Income-tax Act, 1961. At page 281 of the report, Sabyasachi Mukharji J. observed: "Therefore, the expression 'change in the constitution of the firm' must be construed in the light of the ordinary meaning unless the language of the section or the purpose of the Act comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners, after the dissolution of the firm, is any indication regarding the existence of the contract to the contrary before the death of the deceased person, which brings about the dissolution of the firm. Even the subsequent conduct of the surviving partners may indicate under certain circumstances that there must have been a contract to the contrary between the surviving partners and the deceased partner during the life-time of the deceased partner. But, as we have stated above, it is a mere question of inference from the facts. The decision of the Gujarat High Court in Pt. Ramprasad Chhotalal Firm v. Bai Reva AIR 1970 Guj 269, which was relied upon by Mr. Rama Rao in support of his argument, merely lays down the same proposition and it does not advance the case of the revenue any further. These are all the decisions which have been cited before us at the Bar and on a perusal and consideration of these different decisions and in the light of the provisions of section 187 as interpreted by us, it must be held that section 187 does not apply to a situation where a firm is dissolved by the operation of one or the other provisions of the Partnership Act and after dissolution, one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., in favour of the assessee as to both parts of the question. The Commissioner will pay the costs of the reference to the assessees in each of these two matters. Advocate's fee Rs. 250 in each. LAKSHMAIAH J.-The point that arises for determination in this reference pertains to the interpretation of section 187 of the Income-tax Act, 1961. The main question "that we have to consider on the facts of the two cases referred, as formulated by my Lord Chief justice, is "the effect of the provisions of section 187(2) of the Income-tax Act, when, under the provisions of the Partnership Act, a firm is dissolved ". But the crucial problem that requires solution in this reference is whether it can be said that "a change had occurred in the constitution of a firm" within the meaning of that expression as occurring in section 187 of the Income-tax Act, 1961, when a partner dies "in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change " In other words, to put it differently, the question is whether, if a partner dies, he does not cease to be a partner under section 187(2) of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a change in the constitution of the firm-- (a) if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change ; or (b) where all the partners continue with a change in their respective shares or in the shares of some of them." Chapter XVI of the Act wherein the above section occurs deals with special provision applicable to firms" with regard to assessment. Section 182 provides for assessment of registered firms and section 183 for assessment of unregistered firms. Sections 184 to 186 deal with "registration of firms". Of the remaining other three sections in that Chapter, section 187 deals with "Change in constitution of a firm", section 188, with "Succession of one firm by another firm", and section 189, with "Firm dissolved or business discontinued". Chapter XIV deals with the general "Procedure for assessment". Section 139, the first section under that Chapter, provides for the return of the total income by an assessee. Where a return has been made under section 139, section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and original sense, as the words themselves best declare the intention of the legislature. The safer and correct course of dealing with a question of construction is to take the words themselves and arrive at their meaning, without, in the first place, reference to cases and other extrinsic material. When the language is not only plain but admits of one meaning the task of interpretation can hardly be said to arise. It is not allowable to interpret what has no need of interpretation. I am, therefore, of the opinion that when a partner of a firm dies, such a partner ceases to be a partner and as such there will be "a change in the constitution of the firm" under sub-section (2) of section 187 of the Act provided that one or more of the persons who were partners of the firm before the change continues as partner or partners after the change. The contextual theory of interpretation of section 187 of the Act to which we now propose to advert does not in any way militate against the aforesaid view. How far reference to and reliance upon the concepts of the Partnership Act militate against the aforesaid interpretation of section 187 of the Act is a question proposed to be answere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law should be ascertained by interpreting the language used instead of, as before, by roaming over a vast number of authorities in order to discover what the law was, extracting it by a minute critical examination of the prior decisions ......." In Rogers Pratt Co. v. Secretary of State AIR 1925 Cal 34, 41 [FB], a Full Bench of the Calcutta High Court considered the principles of interpretation applicable to the interpretation of the Income-tax Act, 1918. Mukerji J. observed at page 41 of the report: "A perusal of the several enactments makes it clear that the Income-tax Act of 1918 (Act VII of 1918) effected a radical change in the scheme and scope of operation of this branch of law. The Act of 1918 professes to be a consolidating and amending statute; on any point specifically dealt with in the Act the law is to be ascertained by interpreting the language used in the statute in its natural meaning, uninfluenced by considerations derived from the previous state of the law : Administrator-General of Bengal v. Premlal Mullick [1895] ILR 22 Cal 788 (PC), Narendra Nath Sarkar v. Kamalbasini Dasi [1896] ILR 23 Cal 563 (PC) and Ramdas v. Amarchand & Co. [1916] ILR 40 Bom 630(PC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended to express either the whole of general laws of a state, or of some great subdivision of such laws, may be adopted by one act under a general title without violating a constitutional provision prohibiting the enactment of any bill containing more than one subject and requiring that subject to be expressed in the title. In this respect, it has been declared that any construction of these constitutional provisions that would interfere with the very commendable policy of incorporating the entire body of statutory law on one general subject in a single act, instead of dividing it into a number of separate acts, would not only be contrary to its spirit but also seriously embarrassing to honest legislation." (Craies on Statute Law, 7th edition): "Consolidation is the reduction into a systematic form of the whole of the statute law relating to a given subject, as illustrated or explained by judicial decisions. 'The very object of consolidation is to collect the statutory law bearing upon a particular subject, and to bring it down to date, in order that it may form a useful code applicable to the circumstances existing when the consolidating Act was passed.' Referring to section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t charging sections. They are only machinery provisions. Lord Normand, speaking for the judicial Committee of the Privy Council, while interpreting section 34 of the Indian Income-tax Act, 1922, in Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC), at page 448, observed: " 'The section, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable, ut res valeat potius quam pereat." Justice Sarkar (as he then was) laid down the following rule of construction for machinery provisions in a taxing statute in Gursahai Saigal v. Commissioner of Income-tax [1963] 48 ITR 1 (SC) at page 5: "Now it is well recognised that the rule of construction on which the assessee relies applies only to a taxing provision and has no application to all provisions in a taxing statute. It does not, for example, apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrued in their ordinary meaning, due regard must be had to their subject-matter and object, and to the occasion on which and the circumstances with reference to which they are used, and they should be construed in the light of their context rather than in what may be either their strict etymological sense or their popular meaning apart from that context." Referential legislation incorporating the provisions of Partnership Act into Income-tax Act---imits and extent: Unless the context otherwise requires, the Income-tax Act, 1961, provides in the definition clause by section 2(23) that "firm", "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932 ; but the expression "partner" shall also include "any person who, being a minor, has been admitted to the benefits of partnership" . The clue to the proper appreciation of the impact of the Partnership Act on the Income-tax Act, particularly on section 187 thereof, is to be found only in a correct appraisal of what is called the theory of "Referential Legislation". The earliest case recognising this principle was R. v. Merionetheshire Inhabitants [1844] 6 QB 343. There, statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ed 1181, 1221 ; In re Heath 144 US 92, 94; 36 L Ed 358, 359: 12 Sup Ct Rep 615 ; Inter State Concol. Street R. Co. v. Massachusetts 207 US 79, 85 ; 52 L Ed 111,114 ; 28 Sup Ct Rep 26 ; 12 Ann Cas 555. It brings into the later Act 'all that is fairly covered by the reference' (Panama R. Co.'s case 264 US 392 ; 68 L Ed 755 44 Sup Ct Rep 391) ; that is to say all the provisions of the former Act which, from the nature of the subject-matter, are applicable to the later Act." "The adoption of an earlier statute by reference makes it as much a part of the later Act as though it had been incorporated at full length." (American Jurisprudence, volume 5 0, at page 58). "Where a statute incorporates by reference the whole or any part of an earlier statute, the provisions so incorporated are in general to be construed as they would be if set out in full in the later statute." (Halsbury's Laws of England edition, vol. 36, at page 404). "The effect of incorporating one Act with another is presumably to make them parts of the same code." (Craies on Statute Law, seventh edition, at page 360). Legal personality of a firm--Text Books Speaking about the legal conception of personality Sir John ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson--who, by definition, is the subject of legal duties and legal rights--answers the need of imagining a bearer of the rights and duties. Juristic thinking is not satisfied with the insight that a certain human action or omission forms the contents of a duty or a right. There must exist something, that 'has' the duty or the right. In this idea, a general trend of human thought is manifested. Empirically observable qualities, too, are interpreted as qualities of an object or a substance, and grammatically they are represented as predicates of a subject. This substance is not an additional entity. The grammatical subject denoting it is only a symbol of the fact that the qualities form a unity ........" This duplication of the object of knowledge is characteristic of the primitive mythological thinking which is called animism. According to the animistic interpretation of nature, every object of the preceptual world is believed to be the abode of an invisible spirit who is the master of the object, who 'has' the object in the same way as the substance has its qualities, the grammatical subject its predicates. Thus the legal person, as ordinarily understood, also 'has' its legal dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the partners can now sue or be sued in the firm's name." Case Law: Bonsor v. Musicians' Union [1956] AC 104 (HL) is a case decided by House of Lords where Lord Keith of Avonholm referring with approval to the decision of Farwell J. in Taff Vale Railway Co. v. Amalgamated Society of Railway Servants [1901] AC 426 (HL) observed at page 150 about the conception of legal entity thus : "The view which I have endeavoured to formulate is, I think, entirely consistent with the decisions and dicta in earlier trade union cases which have come before this House. In the Taff Vale Railway Co.'s case [1901] AC 426(HL) )Farwell J., whose judgment was upheld by this House, does not describe a registered trade union as a legal entity, though he does so in another case to which I refer later. He uses language, however, from which I think the conception of such a union as a legal entity arose. For instance, he says: 'Now although a corporation and an individual or individuals may be the only entity known to the common law who can sue or be sued, it is competent to the legislature to give to an association of individuals which is neither a corporation nor a partnership nor an individual a capac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Judicial Committee in In the matter of Stuart Samuel [1913] AC 514 (PC)." Our Supreme Court, speaking through Justice Mahajan (as he then was) in Commissioner of Income-tax v. A. W. Figgies and Company [1953] 24 ITR 405 (SC), held at pages 408 and 409 thus: It is true that under the law of partnership a firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners but it is also equally true that under that law there is no dissolution of the firm by the mere incoming or outgoing of partners. A partner can retire with the consent of the other partners and a person can be introduced in the partnership by the consent of the other partners. The reconstituted firm can carry on its business in the same firm's name till dissolution. The law with respect to retiring partners as enacted in the Partnership Act is to a certain extent a compromise between the strict doctrine of English common law which refuses to see anything in the firm but a collective name for individuals carrying on business in partnership and the mercantile usage which recognises the firm as a distinct person or quasi-corporation. But under the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of consolidating a statute is to present the whole body of the statutory law on a subject in a complete form repealing the former statutes. There is a strong presumption that the consolidating Act does not alter the law contained in the statutes it replaces. We must construe the Provisions of a consolidating Act as forming a code complete in itself and exhaustive of the matters dealt with therein and ascertain what their true scope is, as otherwise its utility as a consolidating Act will be almost entirely destroyed and the very object with which it was enacted will be frustrated. Unless the context otherwise requires, the Act provides in the definition clause by section 2(23) that "firm", "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932 ; but the expression "partner" shall also include "any person who being a minor, has been admitted to the benefits of partnership". The Partnership Act defines by section 4 the aforesaid expressions, "partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all and persons who have entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a firm with a personality which survives its reconstitution. Section 187 occurs in Chapter XVI of the Act which deals with special provisions applicable to firms. The Income-tax Act, 1961, is based on the recommendations contained in the Law Commission's Twelfth Report, 1958. As per that report, the provisions pertaining to firms, wherever they are contained in the Act or the Rules made thereunder, were all collected together in that Chapter. As there was some difficulty in determining when there is a change in the constitution of a firm and when there is succession, specific circumstances which result in a change in the constitution of a firm have been defined in section 187(2) of the Act. This repealing Act does not thus purport to alter the effect of the provisions of the repealed Act. It is, as it should be, having regard to the consolidating and amendatory nature of the Act. Chapter XVI of the Act containing sections 187 to 189 relate to assessment of firms. They are not charging sections. They are only machinery provisions. The principles and presumptions of interpretation of charging provisions are not applicable to machinery provisions though contained in the taxing stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed under the Income-tax Act, 1918, which paid double tax in the year 1939, with the unit to whose business the private limited company succeeded in the year 1947. We have no doubt that the Tribunal and the High Court were right in holding that in spite of the mere changes in the constitution of the firm, the business of the firm as originally constituted continued as tea brokers right from its inception till the time it was succeeded by the limited company and that it was the same unit all through, carrying on the same business, at the same place and there was no cesser of that business or any change in the unit ...... To all intents and purposes the firm as reconstituted was not a different unit but it remained the same unit in spite of the change in its constitution." It is pertinent to note that the definition of "partnership" in section 4 of the Partnership Act lays particular stress upon the "business being carried on by all the partners or any of them acting for all", with which aspect alone the Income-tax Act is primarily concerned and that aspect of the definition was not allowed to undergo any transformation in the Act though such transformation took place in the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge in constitution of a firm" is the marginal heading, same in both the sections. The assessment shall have to be made in both the sections" on the firm as constituted at the time of making the assessment". Whereas the expression "as constituted" under section 187 refers to a case where "a change has occurred in the constitution of the firm", that expression in section 26(1) refers to that and another case also where "a firm has been newly constituted". The expressions "a change in the constitution of a firm" as well as a firm has been newly constituted" under section 26(1) exhaust between themselves all the cases provided for under the rubric of "a change in the constitution of a firm" as defined for the purpose of section 187 under clauses (a) and (b) of sub-section (2) thereof as not to suggest any materiality of change between the old and the corresponding new section. The Consolidating Act of 1961 does not purport to bring about any material change in the law relating to the assessment of firms. The only change sought to be brought about in the 1961 Act as per the Law Commission's report is to collect all the provisions of law contained in the Act and the Rules made thereu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act such as winding up of the affairs of the firm after dis solution are not envisaged in a case of dissolution followed by reconstitution under section 187 though such a case may fall under section 189. Nor the tests of succession as laid down by Justice Subba Rao (as he then was) in Commissioner of Income-tax v. K. H. Chambers [1965] 55 ITR 674 (SC), as referred to by my Lord the Chief Justice, are satisfied in the cases under reference. For the reasons given above, I agree with the conclusion reached by Kondaiah J., speaking for the Fall Bench in Additional Income-tax Commissioner v. Visakha Flour Mills [1977] 108 ITR 466 (AP) [FB] that where a firm is dissolved on account of the death of a partner and the business is continued by the remaining partners and another in the place of the deceased partner, there is only a change in the constitution of the firm within the meaning of section 187(2) of the Act. I agree with the conclusion of my Lord the Chief Justice and Kondaiah J. in the above case that when a case falls under section 187, there must be a single assessment. I agree with the conclusions of my learned brother, Raghuvir J. RAGHUVIR J.-In the Full Bench judgment of V ..... X X X X Extracts X X X X X X X X Extracts X X X X
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