COMMISSIONER OF INCOME-TAX VS GORAKHPUR SHAMIANA HOUSE
1999 P T D 899
[225 I T R 721]
[Allahabad High Court (India)]
Before Paritosh K. Mukherjee and O. P. Jain, JJ
COMMISSIONER OF INCOME-TAX
Versus
GORAKHPUR SHAMIANA HOUSE
I.T.R. No. 148 of 1980, decided on 22/07/1996.
Income-tax---
---Firm---Assessment---Change in constitution or succession---Partnership deed providing that firm not to be dissolved on death of partner---Death of partner---Surviving partners continuing firm and drawing up new partnership deed---Business continued and same books of account maintained prior to and after death of partner---New firm taking over all assets of old firm---No formal deed of dissolution executed nor intimation sent to Registrar of Firms with regard to change in constitution of firm---Old bank account continuing to be operated by new Firm---There is only change in constitution of firm-- One assessment for entire period before and after death of partner to be made---Indian Income Tax Act, 1961, Ss.187(2) & 188.
In its accounting year relevant to the assessment year 1975-76, ended on March 31, 1975, the assessee-firm consisted of four partners. On October 22, 1974, one of the partners died and, on her death, the surviving three partners continued the partnership firm and they drew up a new deed of partnership to evidence the said partnership. The business of the firm was continued as usual and the same books of account as were being maintained prior to October 22, 1974, were continued after that date. The new firm took over all the assets of the old firm. No formal deed of dissolution was executed nor any intimation sent with regard to the change in the constitution of the firm to the Registrar of Firms. The bank was informed that instead of four partners earlier, there were now three partners in the firm. The old bank account was, however, not closed and it continued to be operated as earlier by the new firm also. The Income-tax Officer found that what resulted was only a change in the constitution of the firm and only one assessment was to be made for the entire period---April 1, 1974 to March 31, 1975. The Appellate Assistant Commissioner found that the partnership deed clearly provided that the death of a partner would not result in the dissolution of the firm and hence, the general provisions of the Partnership Act, 1932, would not apply and so it would not be a case of dissolution of the firm and, therefore, sustained the order of the Income-tax Officer. The Tribunal held that two separate assessments were to be made. On a reference:
Held, that due to the death of the partner, the firm was not dissolved, rather it continued to be in existence. There was no break in the continuity of the business and no dissolution took place as a result of the common consent of the partners. Therefore, there was only a change in the constitution of the firm and only one assessment for the entire period, April 1, 1974 to March 31, 1975, had to be made.
Vishwanath Seth v. CIT (1984) 146 ITR 249 (All.) and CIT v. Basant Behari Gopal Behari & Co. (1988) 172 ITR 662 (All.) fol. ,
R.K. Agarwal for the Commissioner.
JUDGMENT
In the instant reference made under section 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following question:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing that there should be two separate assessments for the period April 1, 1974, to October 22, 1974, and the other for the period October 23, 1974, to March 31, 1975, and not one for the entire period from April 1, 1974, to March 31, 1975?
The facts of the case, in brief, are as under:
Gorakhpur Sihamiana House consisting of the respondent is a firm. In its accounting year for the assessment year 1975-76 ended on March 31, 1975, at the commencement of the accounting period the following persons were shown as members:
(1) Smt. Shani Rai,
(2) S.P. Madan,
(3) S.K. Madan, and
(4) R.K. Madan.
On October 22, 1974, Smt. Shani Rai, respondent No. l expired. On her death, the surviving three partners continued the partnership firm and they drew up a new partnership deed to evidence the said partnership. The Business continued as usual and the same books of account, as were being maintained, prior to October 22, 1974, were continued even after that date. The new firm took over all the assets and liabilities of the old firm. No formal dissolution deed was executed nor any intimation was sent with regard to the change in the constitution of the firm to the Registrar of Firms. The bank was, of course, informed that instead of four partners earlier, there were now three partners in the firm. The old bank account was, however, not closed and it continued to be operated as earlier by the new firm also.
On appeal, the appellate authority, Commissioner, did not accept the assessee's contention that two assessments should be framed. According to him, clause 9 of the partnership deed clearly provided that "the death of the partner will not dissolve the firm". In view of this provision in the partnership deed, the general provisions of the Indian Partnership Act would not apply and so it would not be a case of dissolution of the firm. He, therefore, sustained the order of the Income-tax Officer.
The assessee felt aggrieved by the order of -the Assistant Commissioner and submitted that two assessments rather than one should have been made.
The Tribunal, after examining the rival submissions and the facts of the case, expressed the opinion that so far as the finding of the authorities below, namely, that it is a case of change in the constitution of the firm in terms of section 187(2) and that, therefore, the assessment should be made in terms of subsection (2) of section 187 and section 188 had no application to it is concerned, it is correct (sic).
Taking into account the provisions of clause of the aforesaid partnership deed, it has to be held that, due to the death of a partner, Smt. Shani Rai, the firm did not dissolve, rather it continued to be in existence. Even otherwise, the facts indicate that there was no break in the continuity of the business nor any dissolution took place as a result of the common consent of the partners.
On the basis of the aforesaid facts and the findings of the Tribunal, the question, indicated hereinabove, was formulated. '
Sri R.K. Agarwal, appearing for the Revenue, submitted that the question should be answered in the negative as the matter had been set at rest in view of the Full Bench decision given in the case of Vishwanath Seth v. CIT (1984) 146 ITR 249 (All) wherein, by a majority judgment, it has been held (at page 253): "that under the Partnership Act the same firm continued to exist in spite of change in its Constitution. It ceases to exist on its dissolution. In the instant case the finding was that there was no dissolution.
There was only reconstitution. This finding was unchallenged. Hence, the same partnership-firm will be deemed to continue in spite of its reconstitution in 1964. The Income-tax Act clothes the firm with a distinct assessable entity apart from its partners and under this Act, on reconstitution of a firm the personality of the firm does not change." This Full Bench decision has been followed by this Court in the case of CIT v. Basant Behari Gopal Behari and Co. (1988) 172 ITR 662, wherein answering the question in the negative and in favour of the Revenue, it was, inter alia, held that there being a change in the constitution of the firm on the death of one of the partners only one assessment for the entire assessment year could be made.
That being the legal position, the question referred to us by the Tribunal is answered in the negative.
The reference is disposed of finally. There is no order as to costs.
C.M.A./1761/FC Reference answered.