COMMISSIONER OF INCOME-TAX VS DR. PREM SINGH X-RAY CLINIC
1998 P T D 2472
[222 I T R 187]
[Allahabad High Court (India)]
Before M. Katju and Dr. B. S. Chauhan, JJ
COMMISSIONER OF INCOME-TAX
versus
Dr. PREM SINGH X-RAY CLINIC
Income-tax Reference No.226 of 1980, decided on 04/04/1996.
Income-tax--
----Firm---Change in constitution or succession---Firm consisting of two partners---One of the partners retiring---Firm reconstituted with remaining partner and three new partners under new partnership deed----Results in change in constitution of firm and not succession---Single assessment to be made for entire period---Indian Income Tax Act, 1961, S. 187.
The assessee-firm consisted of two partners, namely, D and K one of the partners, D, retired from the firm and the firm was reconstituted under a new partnership deed consisting of K and three new partners. The assessee- firm filed two returns one for the period prior to the retirement of the partner and another after his retirement and claimed that there should be two separate assessments. The Income-tax Officer held that there was no dissolution of the firm but only reconstitution and he made only one assessment clubbing the income for both the periods. The Appellate Assistant Commissioner, on appeal, confirmed the order of the Income-tax Officer but, on further appeal, the Tribunal held that there was a dissolution of the firm when one of the partners, D, retired. On a reference:
Held, that the Tribunal was not justified in holding that the firm stood dissolved when one of the two partners of the firm retired and that there were two distinct and separate firms in the accounting period relevant to the assessment year 1976-77 requiring two separate assessments for both the periods.
CIT v. Jagjiwan Patel Co. (1991) 188 ITR 563 (All.) fol.
Erach F.D. Mehta v. Minoo F.D. Mehta AIR 1971 SC 1653 ref.
Rajesh Kumar Agarwal for the Commissioner.
Nemo for the Assessee.
JUDGMENT
This is an income-tax reference in which the following question has been referred for our opinion:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the firm stood dissolved on September 30, 1974, when one of the two partners of the firm retired and that there were two distinct and separate firms id the accounting period relevant to the assessment year 1976-77 requiring two separate assessments for the period from July 1, 1974, to September 30, 1974, and from October 1, 1974, to June 30, 1975?"
We have heard Sri Rajesh Kumar Agarwal, for the Department. None has appeared for the assessee although service has been effected on him and he has sent a telegram praying for adjournment in August, 1980, which is one the record.
The facts of the case are that there was a firm constituted by a partnership deed, . dated July 1, 1971, consisting of two partners, Sri Dukh Bhanjan Singh and Sint. Kham Kaur. Sri Dukh Bhanjan Singh Singh retired and left the firm on September 30, 1974. New deed of partnership was executed on October 1, 1974 between the remaining partner, Sint. Khan, Kaur, and three new partners to carry on the business of the firm. The assessee filed two returns, one for the period from July 1, 1974, to September 30, 1974, and other for the period from October 1, 1974, to June 30, 1975, and claimed that there should be two separate assessments. However, the Income-tax Officer held that there was no dissolution of the firm but only reconstitution. Hence, he made only one assessment clubbing the income for both the periods. In appeal, the Appellate Assistant Commissioner confirmed the Income-tax Officer's Order but, in further appeal, the Tribunal held that there was a dissolution of 'he firm on September 30, 1974, when one of the partners retired, hence this reference on behalf of the Department.
Learned counsel for the Department had relied upon a decision of this Court in the case of CIT v. Jahjiwan Patel Co. (1991) 188 ITR 563. In that case, the original firm had three partners, two of whom retired, but the firm was reconstituted with the remaining partner and another new partner. This court, relying on section 187(2)(a), held that it was a case of reconstitution and not dissolution. We respectfully agree with the said decision.
As regards the decision of the Supreme Court in the case of Erach F.D. Mehta v. Minoo F.D. Mehta, AIR 1971 SC 1653, that was not a case under the Income Tax Act but under the Partnership Act. The Income Tax Act is a special law and the provisions therein will hence prevail over the general.law contained in the Partnership Act.
Following the decision of this Court in the case of CIT v. Jagjiwan Patel Co. (1991) 188 ITR 563, we answer the question in the negative, i.e., in favour of the Department and against the assessee.
M.B.A./1529/FC Reference answered.