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TMI Blog1985 (8) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... in the name of Shri Sital Parshad Jain, one of the partners. The building Nishat Talkies was the joint property of all the three partners named above having 1/3 rd share each. Shri Sital Parshad Jain, however, transferred his 1/3rd share in the building of Nishat Talkies to his son Shri Lachhman Dass Jain in 1953 in partial partition of the family. The machinery, furniture and fixture installed in the cinema premises also belonged to S/Shri Sital Parshad Jain, Girnari Lal Jain and Mahabir Parshad Jain. This arrangement continued upto 4th March, 1965 when Shri Mahabir Parshad Jain, one of the partners, died. The firm was reconstituted w.e.f. 5th March, 1965 with the following partners: (i) Shri Sital Parshad Jain, (ii) Shri Girnari Lal Jain, (iii) S/Sh Anant Parshad Jain and Kuldip Chand Jain, sons of late Shri Mahabir Parshad Jain, representing their HUF. The three partners had 1/3rd share each. The 1/3rd share of Shri Mahabir Parshad Jain in the building Nishat Talkies, machinery, furniture and fixture when became the property of the HUF of M/s Anant Parshad Jain and Kuldip Chand Jain. The ownership of the property of the firm for the remaining two partners, namely, Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and counter complaints, civil suits, injunctions, stays from both the sides. The cinema also remained closed for some period. However, after all this somehow good sense prevailed and the firm was constituted again w.e.f. 24th Oct., 1977 vide partnership deed dt. 3rd Nov., 1977 with the following partners: (i) Shri Lachhman Das Jain; (ii) Shri Girnari Lal Jain; (iii) S/Sh Anant Parshad Jain Kuldip Chand Jain (HUF) Before constituting the firm by deed of partnership dt. 3rd Nov., 1977 w.e.f. 24th Oct., 1977 the approval of the District Magistrate as required under the Punjab Cinemas (Regulations) Act, 1952, the Punjab Cinemas (Regulations) Rules, 1952, as made applicable to the State of Haryana, was obtained. The firm again started exhibiting films. However, the things did not go smoothly. Disputes amongst the partners again arose. Shri Lachhman Dass Jain was on one side and the remaining two partners i.e. Sh. Girnari Lal Jain and Anant Parshad Jain and Kuldip Chand Jain (HUF) were on the other. For the sake of convenience, we shall refer to them as first party and the second party respectively. For the purposes of IT Act, two returns were filed one for the period 1st A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Nishat Talkies. This return was filed on 9th Feb., 1979. On this date, the other two partners were very much alive and there was no jurisdiction for Shri Lachhman Dass Jain for signing the return for the firm M/s Nishat Talkies as legal heir of one of the partners who had expired. In this connection she relied upon the provisions contained in s. 140(cc) of the IT Act, 1961. After hearing the claims and counter claims of both the parties, the IAC framed the following four issues: (i) Now the period on 3rd Sept., 1977 to 23rd Oct., 1977 should be treated; (ii) Where it is a change in the constitution of the firm; (iii) Whether the firm is entitled to registration; (iv) Whether Shri Lachhman Dass Jain should produce the books of account before the ITO or not? Or whether he had already produced these books of account or not? On the first issue she held that Lachhman Dass Jain could not be said to be the sole proprietor of the cinema from 3rd Sept., 1977 to 23rd Oct., 1977. Then she observed that it was a change in the constitution of the firm. She also observed that registration could not be granted even for the first period because the return filed was invalid. No acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st March, 1978 for which separate returns were filed. 4. The second party i.e., Shri Girdnari Lal Jain and S/Sh Anant Parshad Jain and Kuldipchand Jain (HUF) also filed a common appeal against the order of the ITO. The ground of appeal by the second party was that the ITO wrongly refused registration to the firm for the period 3rd Sept., 1977 to 23rd Oct., 1977 on the ground that profit and loss for this period had not been divided amongst all the partners in the ratio as per the partnership deed. 5. The AAC after taking into consideration the appeals by the first and the second parties framed the following issues: (i) Whether one combine assessment is to be framed on the firm or the period 1st April, 1977 to 31st March, 1978 or two separate assessments were to be made for the periods 1st April, 1977 to 2nd Sept., 1977 and 24th Oct., 1977 to 31st March, 1978. (ii) What should be the status of the firm if one assessment is made for the full year from 1st April 1977 to 31st March, 1978 or if two assessments were made for two different periods. Written submissions were filed by both the parties before the AAC. The submissions of the first party were to the following ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 3rd Nov., 1977 effective from 24th Oct., 1977. It was, therefore, submitted that in view of the new partnership deed executed on 3rd Nov., 1977, an altogether new partnership was commenced w.e.f. 24th Oct., 1977 for running the business at Nishat Talkies. In cl. 22 of this partnership deed, it was also provided that all the three previous partners shall settle their accounts upto 2nd Sept., 1977 and all the assets and liabilities of Shri Sital Parshad Jain, Shri Girnari Lal Jain and S/Sh Anant Parshad Jain and Kuldip Chand Jain (HUF) shall be the assets and liabilities of Shri Lachhman Dass Jain, Shri Girnari Lal Jain and Anant Parshad Jain and Kuldip Chand Jain (HUF) respectively. It was also stated that for the grant of registration to the new firm all formalities under the IT Act were fulfilled i.e. a partnership deed duly signed by all the partners along with application in the prescribed form No. 11/11A was submitted to the ITO on 31st March, 1978. It was, therefore, urged that the registration should have been granted to the firm for the second period from 24th Oct., 1977 to 31st March, 1978 as constituted by the partnership deed dt. 3rd Nov., 1977. (c) It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This partnership deed was not at will and the firm could not be dissolved by unilateral notice of a partner. No dissolution deed was written or signed. The partnership could come to end only after all the affairs were wound up, accounts were settled and capital goodwill were paid to the partners as provided under s. 47 of the Indian Partnership Act. Another submission made was that the old partnership continued during the alleged period of interregnum inasmuch as Shri Sital Parshad Jain, partner of the old firm signed numerous documents/cheques acting as partner of the firm and during this period the picture as procured by the old partnership was run with old staff. It was also stated that the second party was in control of the business upto 15th Sept., 1977 and the cinema remained closed under lock and key of the second party from 15th Sept., 1977 of 23rd Oct., 1977 because of the disputes and counter disputes, civil suits and counter suits, injunctions and counter injunctions from the Courts. Shri Sital Parshad Jain could not withdraw from the firm unilaterally because of cl. 14 of the old partnership deed dt. 5th March, 1965 which provided that the remaining partners had a pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AAC in para 23 of his order observed that "looking to the legal and factual position under these conditions, the arguments of the first party for creation of interregnum during the second period find more favour under the Indian Partnership Act and the Cinematographic Act". He then observed that as far as the IT Act was concerned, the position was different. He then relied on the judgment of the Punjab and Haryana High Court in the case of Nand Lal Sohan Lal (1977) 110 ITR 170 (P H) and held that it was a change in the constitution of the firm and, therefore, the ITO was justified in making one assessment for the entire period from 1st April, 1977 to 31st March, 1978. In regard to the issue of registration to the firm the AAC held that the assessee firm was entitled to registration for the period 1st April, 1977to 31st March, 1978, for the reasons recorded in para 25 of his order as under: "25. The next point in issue is whether the firm is entitled for registration or not. The assessee firm has filed form No. 12 for first period as has been admitted by the ld. ITO in his order under s. 185(1)(b) dt. 30th March, 1982. Similarly, for the 3rd period all the formalities for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the order of the AAC for grant of registration to the firm for all the three periods. 10. It may be pointed out here that the second party viz. Shri Girnari Lal and M/s Anant Parshad Jain and Kuldip Chand Jain (HUF) have not filed any appeal against the order of the AAC. However, during the course of hearing of the appeals by the assessee, Shri Lachhman Dass Jain. Partner and the Revenue, the second party joined as interveners and pleaded that there was no break during the period 3rd Sept., 1977 to 23rd Oct., 1977. They supported the order of the AAC in treating the period from 1st April, 1977 to 23rd Oct., 1977 as one period. In support of its appeal, the Revenue has supported the orders of the ITO and the IAC passed under s. 144A of the Act, for refusing the claim of registration. The assessee through Shri Lachhman Dass Jain, on the other hand, has reiterated the submissions against the order of the AAC for treating the entire period from 1st April, 1977 to 31st March, 1978 as one unit for purposes of assessment and not accepting the claim that there was interregnum from 3rd Sept., 1977 to 23rd Oct., 1977 during which it was the proprietary business of Sh. Lachhman Dass Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dec., 1977 from Shri Lachhman Dass Jain signed on behalf of Nishat Talkies, Ambala Cantt addressed to Northern India Motion Pictures, Jullunder City wherein it was stated that the old partnership firm account could not be finalised and, therefore, the dissolution deed of the old firm could not be written and had asked for more time. Shri Lachhman Dass Jain's letter as licensee addressed to Northern India Motion Pictures at page 29 was also referred to under which more time was asked for to deposit the dissolution deed. Another document referred to is at page 31 of the paper book. This is the cheque dt. 3rd Sept., 1977 for Rs. 25,000. This cheque was issued for Nishat Talkies and was signed by Shri Sital Parshad Jain, partner, in favour of Lala Sital Parshad Jain. The submission was that even after the alleged dissolution of the firm on 2nd Sept., 1977, Shri Sital Parshad Jain was acting as the partner of the firm. Other documents have also been filed regarding litigation in the Courts. 11. After hearing the rival parties, the issues before us are: (1) whether the licence to run Nishat Talkies was in the name of Shri Sital Parshad Jain which was subsequently transferred in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the representative of the first party that mention of the names of Shri Kuldip Chand Jain and Shri Anant Parshad Jain as licence on the notices issued by the District Magistrate, Ambala, which are at pages 16 and 17 is on account of inadvertent mistake by the office of the District Magistrate. Ambala on the face of the fact that the licence was in the name of Shri Sital Parshad Jain. It appears that the names were mentioned as licensees as they were partners in the firm Nishat Talkies. Similarly we have also looked into the other documents which have been filed in the paper book. S/Shri Sital Parshad Jain Girnari Lal Jain and Mahabir Parshad Jain or (Shri Anant Parshad Jain and Shri Kuldip Chand Jain), in these documents have signed as partners of Nishat Talkies and not as licensees. In view of the above discussions, we hold that the licence was in the name of Shri Sital Parshad Jain and not in the names of other partners and this licence has subsequently been transferred in the name of Shri Lachhman Dass Jain from 1st Sept., 1977, the communication of which was made to the assessee by the District Magistrate, Ambala vide endorsement dt. 2nd Sept., 1977. 13. The next point to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically provides that the partnership constituted thereby will commence from 24th Oct., 1977. The preamble of this partnership deed further states that the first party was the licensee of Nishat Talkies, Ambala Cantt. under a license granted to him by the order of the District Magistrate, Ambala dt. 1st Sept., 1977 and he had been carrying on exhibition of pictures as such licensee since 3rd Sept., 1977 in the licensed premises under the name and style M/s Nishat Talkies, Ambala Cantt. This preamble also clearly suggests that Shri Lachhman Dass Jain was carrying on the business of exhibition of pictures at Nishat Talkies, Ambala Cantt. during the period 3rd Sept., 1977 to 23rd Oct., 1977. The submissions by the second party was that this agreement is reached at a compromise to end litigation in the family. We are afraid. This argument cannot be given much weight inasmuch as when an agreement was reached, every contracting party keeps his interest in view. This agreement is not written all of a sudden but is the result of prolonged litigation, complaints, counter complaints, injunctions, stays etc. In view of the above discussions, we are of the opinion that there could be no p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments of the first party for creation of interregnum during the second period find more favour under the Indian Partnership Act and the Cinematographic Act." Then he hastened to add that the position under the IT Act will be different. We are not inclined to agree with him on this finding inasmuch as once it is held that there could be no legal partnership during the period of interregnum from 3rd Sept., 1977 to 23rd Oct., 1977, it is difficult to conceive that the old partnership was continued during this period. Again we are in agreement with the first party that once the firm is dissolved under s. 43 of the Indian Partnership Act, the subsequent acts will govern the winding up operations thereof and not that the firm was not dissolved. We have already held that under the Punjab Cinemas (Regulation) Act, 1952 there could be no valid partnership firm during the period 3rd Sept., 1977 to 23rd Oct., 1977. Therefore, there was an interregnum in between the first and the second period. 16. In view of the above discussions, we hold that there were three distinct periods as under: (i) 1st April, 1877 to 2nd Sept., 1977 when the old firm was in existence which stood dissolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that such a declaration was on the file when the claim for registration was being considered by the ITO and the IAC. This being the position and we having held that there was dissolution of the firm after 2nd Sept., 1977, the assessee was entitled to the benefit of continuance of registration for the first period ending 2nd Sept., 1977. We order accordingly. 18. We have already held that there was interregnum during the period 3rd Sept., 1977 to 23rd Oct., 1977 by operation of law and, therefore, it cannot be said that there was continuance of the firm constituted by the deed of partnership dt. 5th March, 1965 upto 23rd Oct., 1977 not it can be said that there was change in the constitution of the firm on 24th Oct., 1977. We are of the opinion that an altogether a new firm was constituted w.e.f. 24th Oct., 1977 and the case was not covered under the provisions of s. 187. We, therefore, hold that the judgment of their Lordships of the Punjab and Haryana High Court in the case of Nand Lal Sohan Lal 1978 CTR (P H) 5 (FB) : (1977) 110 ITR 170 (P H) is not applicable to the facts of the case as there was interregnum between the two periods and the ratio of the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0th March, 1982 for the year. These books were also produced before me. It has been verified that the profits has been divided amongst the partners in the profits shareing ratio as mentioned in the partnership deed dt. 3rd Nov., 1977." The AAC has, therefore, also after verification of the books of account recorded as finding that the profits had been dividend amongst the partners in the profit sharing ratio as mentioned in the partnership deed Nothing has been brought before us by the revenue or the second party except saying that the profits have not been actually distributed amongst the partners which we have said is a matter of settlement of accounts by the parties concerned. 20. Another points urged by the second party is that the expenses debited were inflated resulting in suppression of profits and such suppressed profits were not distributed amongst the partners and, therefore, registration could not be allowed for the undistributed suppressed profits. In this connection, the AAC has again observed in para 25 of his order that there was no rigidity in the stand of the second party before the IAC during the proceedings under s. 144A whether the registration should be g ..... 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