COMMISSIONER OF INCOME-TAX VS NARESH TEA STORES
2001 P T D 3005
[240 I T R 33]
[Gujarat High Court (India)]
Before R. Balia and A.R. Dave, JJ
COMMISSIONER OF INCOME‑TAX
Versus
NARESH TEA STORES
Income‑tax Reference No. 138 of 1984, decided on 19/11/1998.
Income‑tax‑‑‑
‑‑‑‑Firm‑‑‑Assessment‑‑‑Reconstitution or succession‑‑‑Firm consisting of seven partners‑‑‑Death of a partner on 16‑5‑1977‑‑‑New partnership deed executed on 17‑ 1977. between remaining partners and son of deceased partner‑‑‑No provision in partnership deed that death of partner would not result in dissolution of partnership‑‑‑Provisions of Partnership Act prevailed in absence of contract to contrary‑‑‑Firm stood dissolved on death of partner‑‑‑Resulted in succession of one firm by another firm‑‑‑Two assessments to be made one for period before death of partner and another for period after death of partner‑‑‑Indian Income Tax Act, 1961, Ss.187(2) & 188.
The assessee‑firm consisted of seven partners. One of the partners died on May 16, 1977, during the previous year relevant to the assessment year 1978‑79, and a new partnership deed was executed on May 17, 1977, between the remaining partners and the son of the deceased partner. The assessee‑firm claimed before the Income‑tax Officer that the firm stood dissolved on the death of the partner and by the deed, dated May 17, 1977, a new partnership came into existence, that the old firm should be assessed only for the period up to May 15, 19i`L namely, up to the date of death of the partner and a separate assessment had to be made for the newly constituted partnership under the deed, dated May 17, 1977, for the remainder of the previous year. The Income‑tax Officer held that it was not a case of dissolution of the firm but it was merely a reconstitution of the firm and section 187 of the Income Tax Act, 1961, applied to the case and only one assessment for the entire year had to be made. The Tribunal found that there was no specific provision in the partnership deed, dated October 2, 1970, for the continuation of the partnership, in the event of death of any partner, nor had any material been brought to notice that such a condition existed and further that the partnership deed in terms provided that the provisions of the Partnership Act would be applicable to the partnership in respect of all matters not spelt out in the deed itself; and that, therefore, the partnership came to an end on the death of the partner as provided in section 42 of the Partnership Act, 1932. On a reference:
Held, affirming the decision of the Tribunal, that two separate assessments had to be made, one for the period before the death of the partner and another for the period after the death of the partner.
CIT v. Dalabhai & Co. (G.). (1997) 226 ITR 922 (Guj.) ref.
Manish R. Bhatt for the Commissioner.
K.C. Patel for the Assessee.
JUDGMENT
Heard learned counsel for the parties. On the application of the Commissioner of Income‑tax, the following questions of law have been referred to this Court for its opinion along with the statement of case arising out of the Tribunal's appellate order, dated April 18, 1983, relating to the assessment year 1978‑79:
"(1)Whether, on the facts and in the circumstances of the case, the Tribunal was right to law in coming to the conclusion that the death of the partner, Shri Jayantilal Mohanlal, had not brought the change in the constitution of the firm as contemplated by section 187(2) of the Act?
(2)Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that two separate assessments were required to be made for the two periods on account of the death of the partner of the assessee firm?"
The facts of the case are that the assessee. Naresh Tea Stores, Bhavnagar, is a firm constituted vide partnership deed, dated October, 2, 1970. It consisted of seven partners, one of whom, Shri Kayantilal Mohanlal, died on May 16, 1977, during the previous year relevant to the assessment year 1978‑79 in question. Another partnership deed was executed on Mar 17, 1977, between the remaining partners and Shri Arvind 3ayantilal, son of Jayantilal, and business was carried on in the same name and style. The assessee claimed that on the death of partner Jayantilal, the firm stood dissolved and by the deed of May 17, 1977, a new firm has come into existence hence the old firm, Naresh Tea Stores, with Jayantilal as one of its partners, should be assessed only for the period up to May 15, 1977 namely, up to the date of death of Shri Jayantilal and a separate assessment has to be framed for the newly‑constituted partnership under deed, dated May 17, 1977, for the remainder of the said previous year. The Income‑tax Officer was of the opinion that in the facts and circumstances of the case, it was not a dissolution of the firm but it was merely a reconstitution of the firm and section 187 was applicable to the case and only one assessment for the year in question was framed.
that there was no such specific provision in the partnership deed, dated October 2, 1970, for the continuation of the partnership, in the event of death of any partner, nor for that matter, any material has been brought to notice that such a condition exists and further noticed that para. 14 of the partnership deed in terms provided that the provisions of the Partnership Act would be applicable to the partnership in respect of all matters not spelt out in the deed itself.
On this premise, the Tribunal found that the provisions of the Partnership Act would prevail in the absence of a contract to the contrary and the partnership came to an end on the death of Jayantilal, as provided in section 42 of the Partnership Act.
In our opinion, no exception can be taken to the decision of the Tribunal on the question about the coming to an end of the existing partnership on the death of the partner under the Partnership Act when there was no contract to the contrary. If that be so the consequence would follow that the existing partnership firm of which the deceased was a partner would be assessed only up to the date up to which it existed and for the period thereafter the new firm which has come into existence by dint of a new partnership deed will be assessed for the remainder of the previous year, relating to the said assessment year.
This also is the view taken by this Court in CIT v. G. Dalabhai & Co. (1997) 226 ITR 922.
As a result of the aforesaid discussion, we answer the questions referred to us in the affirmative, that is to say, in favour of the assessee and against the Revenue.
There shall be no order as to costs.
M.B.A./291/FCReference answered.