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TMI Blog1986 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... firm came into existence and, therefore, two reparate assessment are to be made for the periods mentioned above-one on the old firm and the another on the new firm. Reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT vs. Harjivandas Hathibhai 1975 CTR (Guj) 119 : (1977) 108 ITR 517 (Guj) where in it was held that on expiry of one partner the firm is dissolved and new firm comes into existence. 3. The ITO did not accept the aforesaid contention of the assessee on the ground that the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT vs. Harjivandas Hathibhai's 1975 CTR (Guj) 119 : (1977) 108 ITR 517 (Guj) has not been accepted by the Revenue. Further the facts of the case of the assessee are distinguishable from the facts of Addl. CIT vs. Harjivandas Hathibhai's 1975 CTR (Guj) 119 : (1977) 108 ITR 517 (Guj) that in the case of the assessee there is cl. 11 in the partnership deed dt. 5th Nov., 1971 which inter-alia says as under: "(ii) That the death say partners here to shall not dissolve the partnership firm. Anyone legal heir or legal representative at his option will be entitled to admittance to the partners in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT vs. M/s. Mangaldas Mohanlal Godhra IT Ref. No. 95 of 1974 dt. 9th Dec., 1975. he further contends that their Lordships of the Gujarat High Court in this case has held that there was no dissolution, but only a change in the constitution of the firm and, therefore, only one assessment is to be made for the entire previous year under s. 187, that this view was taken by their Lordship in view of the cl. 4 of the partnership deed, provided that the heir of the deceased shall be taken in the partnership and if that be not possible, then the accounts of the deceased should be settled after taking accounts and what ever amount has to be paid should be paid or seen according to the convenience of persons concerned. Relying on cl. 4 mentioned above, the decision in the case of Addl. CIT vs. Harjivandas Hathibhai 1975 CTR (Guj) 119 : (1977) 108 ITR 517 (Guj) was considered, and while following it held as we have mentioned above. Thus in view of it, the ld. Departmental Representative further contended that there liance placed by the CIT(A) on Harjivandas Hathibhai 1975 CTR (Guj) 119 : (1977) 108 ITR 517 (Guj) is misconceived and, therefore, the order the ITO is to be restored. He furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 517 (Guj) in case of CIT vs. M/s. Mangaldas Mohanlal IT Ref. No. 95 of 1974 dt. 9th Dec., 1975 relied upon by the Departmental Representative mentioned above. Their Lordship came to the conclusion that the meaning and ratio of the decision in the case of M/s. Harjivandas Hathibhai (1977) 108 ITR 513 (SC) is not applicable as understood and pleaded by Shri Kaji before them since according to this decision when the deciding factor is the terms and conditions of the original partnership of the original partnership categorically says that the firm will continue on the death of a partner, his legal heir comes in place of him, then there is no question of dissolution of the firm on the death of a partner or retirement of a partner. In this case, before us the cl. 11 of the partnership deeds says that the death of any parties shall not dissolve the partnership as the legal heirs of the deceased or legal representative would be entitled to admission to the partnership in the place of the deceased partner. Thus the facts of this case are identical with that of CIT vs. M/s. Mangaldas Mohanlal (Godhra) IT Ref. 95 of 1974 dt. 9th Dec., 1975. Accordingly, we hold that the contention of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retirement of a partner. Since as partnership deed amendment is helpful in the cases where the partnership deed does not categorically states that the firm will continue in a particular manner as there on the death of a partner or retirement, no other inference can be drawn except that the firm is dissolved and it cannot be held otherwise on the ground that there is no categorical clause in the partnership deed and, therefore, the firm cannot be held as dissolved and it can be held as non-dissolved if it is so stated in the partnership deed specifically or clearly. Reliance can also be placed on the case of CIT vs. Shambulal Nathalal Co. (1984) 39 CTR (Kar) 195 : (1984) 145 ITR 329 (Kar). The case of CIT vs. Ganesar Industries (1984) 39 CTR (Mad) 33 : (1984) 149 ITR 48 (Mad) also support the aforesaid views. The meaning of the proviso as contended by Shri J. P. Shah does not get support from any section of the Partnership Act, nor from any decision relied upon by him. In the case of Sivram Poddar vs. ITO Anr. (1964) 51 ITR 823 (SC), their Lordship held that s. 44 provides an added incident all persons who were partners at the time of discontinuance are jointly and severally lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Lal Arvind Kumar (1981) 25 CTR (Del) 207 : (1981) 136 ITR 379 (Del) followed N. 3. Section 187 has been amended with retrospective effect from 1st April, 1975 by TLA Act 1984, by adding a proviso to sub-s. (2) to the effect that the provisions of cl. (a) of the sub-section will not apply to a case where the firm is dissolved on the death of any of the partners., Ed. Accordingly, in view of our discussions and reasons thereto. we hold that the CIT(A) has committed an error in law and on facts in holding that the firm its dissolved on the death and retirement, therefore, partners mentioned above and, therefor, two assessments are to be made for the two periods mentioned above. Hence, we set aside the order of the CIT(A) and restore that of the ITO on the totality of the facts and circumstances of the case. 12. In the result, the appeal is allowed. 15th Dec., 1984 P. J. GORADIA, A. M.: I disagree with the decision taken by my learned Brother. In my opinion, considering the facts and evidence and in view of the insertion of proviso to s. 187 (2) of the Act by Taxation Laws (Amendment) Act, 1984 retrospective w.e.f. 1st April, 1975 as mentioned on p. 11 i.e. at end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether, on facts and in the circumstances of the case, there is change on the condition of the firm so as to warrant only one assessment under s. 187 of the IT Act, 1961, and not two assessments for the periods as claimed by the assessee?" 3. The facts in brief are: the assessee is a firm. The asst. yr. 1979-80 and the relevant previous year is S.Y. 2034 (10th Nov., 1977 to 30th Oct., 1978). Originally under a deed of partnership dt 5th Nov., 1971, Shri Kundanmal Kasturmal, Suresh Kumar Kundanmal, Nathumal Motilal and Bhagchand Chiranjilal carried on business in the name and style of M/s. Kundanmal Suresh Kumar. The registration/continuation of registration was allowed to the said firm under s. 185 of the Act. During the relevant accounting year, Shri Nathumal Motilal expired on 25th May 1978 and Shri Bhagchand Chiranjilal retired from the said firm w.e.f. 26th Feb., 1978. In this view of the matter, the books of accounts were closed on 24th May 1978 and the legal heirs of late Shri Nathumal Motilal and Shri Bhagchand Chiranjilal were given their share of profit as well as other amounts standing to their credits as on 24th May, 1978. Thereafter, Shri Kundanmal Kasturmal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership is discontinued w.e.f. 25th May, 1978. There is not entry made in the register after that. New register has been started and new partnership deed has been executed. This conduct of the partners are relevant to consider whether the earlier partnership was dissolved. In showing the income of the second period, the statement of income has been given, as under: Statement of income from 25th May, 1978 to Asoj Vad Amavas New Partnership constituted on death and retirement of partners: Profit as per Profit and Loss A/c. Rs. 60,910 Add. Partnership deed Rs. 1,100 Stamp and fees Rs. 62,010 Less : Firm Tax Rs. 4,947 . Rs. 57,063 Say Rs. 57,060 Income Divisible . Shri Kundanmal Kasturmal 40% Rs. 22,824 Shri Suresh Kundanmal 60% Rs. 34,236 . Rs. 57.060 There, they have mentioned that 'new, partnerships has been constituted on the death and retirement of partners. The ratio of the judgement in the case of M/s Harjivandas Hathibhai is also applicable to this case. the intention of the surviving partners and their conduct after the death of a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rospective amendment in s. 187 (2) of the Act, with a view to reduce litigation. 7. The ld. Representative for the Department strongly relied on the order of the ld. Judicial Member and submitted that the CIT (A) was not justified in accepting the stand taken on behalf of the assessee. According to him, since the business was not closed by the remaining partners, there was no dissolution of the business carried on by the four partners prior to the death/retirement of the partners. He further submitted that even though the partnership may have come to close on the death/retirement of parterns the business continued by the surviving partners. Referring to the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT vs. United Commercial Co. (1977) 108 ITR 264, (Guj) the ld. Representative for the Department submitted that in the said case, the Hon'ble High Court has explained the meaning of "dissolution". If we were to apply the tests laid down in the said decision, there was no dissolution of the business in the instant case. He also referred to the aforesaid decision in the case of Harjivandas Hathibhai (1977) 108 ITR 513 (SC) more particularly, the observations appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He, therefore, urged that I should uphold the order of the CIT(A). 8. I have carefully considered the rival submissions of the parties as well as gone through the orders of the learned brothers who originally heard this appeal and the material placed before me and I am inclined to agree with the view taken by the ld. Accountant Member. The assessee's stand can be supported both on facts as well as on the interpretation of the relevant provisions of the Act. As regards of the facts, it is not in dispute that on the death/retirement of the partners, the accounts of the firm consisting of four partners were closed. The remaining two partners executed a fresh deed of partnership and new sets of accounts were maintained from 25th May, 1978. Again, it is not disputed that in the original deed of partnership itself 5th Nov., 1971 the retiring partner as well as S/Shri Kundanmal Kasturmal and Sureshkumar Kundanmal have made endorsement to the effect that on the death of Shri Nathulal Motilal and the retirement of Shri Bagchand Chiranjilal, the firm came to an end. Therefore, factually the firm consisting of four partners came to an end on 24th May, 1978. 8.8 Now we have to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th occurs, a firm will be automatically dissolved under the IT Act, 1961, irrespective of any contract entered into between the partners in this regard. This position becomes very clear if we refer to the notes and clauses on the Taxation Laws (Amendment) Act, 1984, in this regard. At page 56 of the statute portion of 149 ITR, it is observed that "the proposed amendment seeks to insert a proviso to sub-s. (2) of s. 187 to the effect that the provisions in cl. (a) above shall not apply to a case where the firm is dissolved on the death of any of its partners". Paragraph 24.2 of the aforesaid Circular No. 394 dt. 14th Sept., 1984 is still more specific and reads as under: "24.2 The question whether the provisions of s. 187(2) of the Act would also apply in cases where a firm stands dissolved by operation of law or by virtue of an agreement among the partners, has given rise to considerable litigation and conflict of judicial decisions. With a view to ending uncertainty and litigation on this issue, the Amending Act has inserted a proviso to sub-s. (2) of s. 187 to provide that nothing contained in cl. (a) of the said sub-section shall apply to a case where the firm is dissolved on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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