B.J.DIVAN, J. - (1.) IN this case at the instance of the revenue the following two question have been referred to us by the Tribunal for our opinion : '(1) Whether, in the facts and circumstances of the case, there was dissolution of the partnership on the date of death of Shri Sarabhai Chimanlal and, therefore, there should be separate assessment till the date of his death ? (2) Whether, in the facts and circumstances of the case, the provisions of section 187(2) apply to the facts of the case ?'
(2.) THESE two questions were referred because, according to the Tribunal, these were the two question necessary to bring out the real controversy between the parties. The facts leading to this reference are as follows. The relevant assessment year is 164 -65. The assessee is a partnership firm and the firm was granted registration in the immediately proceeding year 1963 -64. Originally, the partnership firm consisted of five partners and one of the partners was Sarabhai Chimanlal. Sarabhai died on March 9, 1963. The business of the partnership firm was of executing contracts entered into with the railways for handling of goods at various stations and also some business in respect of dealing in coal on commission, etc. The major part of the work was that of handling contract entered into with the railways for handling goods at Sabarmati Railway Station. On the death of Sarabhai Chimanlal, the books of the partnership firm dealing with the contracts with the railways were closed. It appears that the firm was maintaining its accounts in three separate sets of books. Set No, I dealt with the contracts with the railways. In accounts maintained in Set II and Set III books the accounts were continued but in accounts in Set No. I balances were struck after preparing profit and loss account as on March 9, 1963, and the profit was credited to the respective partners' accounts including the receipts. Thereafter, the account of the deceased was carried forward in different books. In respect of the other businesses, the books were not closed but at the end of the year of account profits were determined and bifurcated between two periods, the first period till the date of death of the deceased partner and the second period being after his death. It may be mentioned that the year of account was Samvat year 2019. Samvat year 2019 commenced on October 28, 1962, and ended on October 27, 1963. The profits were credited in the account of Sarabhai along with the accounts of other partners in respect of both the periods so far as Set II and set III were concerned. The assessee -firm filed two returns for the assessment year in question, one for the period ending March 9, 1963, and the other for the rest of the accounting period. A declaration under section 184(7) was enclosed along with the return for the first period. The basis on which the see two returns were filed was that according to the assessee there was dissolution of the firm on the death of Sarabhai Chimanlal and, therefore, the subsequent continuance of business was only for the purpose of winding up the firm. The Income -tax Officer refused to accept these contentions of the assessee and his main ground was that there was a change in the constitution of the firm within the meaning of section 187(2) and, therefore, the assessee should have applied for registration and mere filing of a declaration under section 184(7) could not help the assessee -firm. Against the decision of the Income -tax Officer the assessee appealed and the Appellate Assistant Commissioner agreed with the conclusion of the Income -tax Officer and dismissed the appeal. Thereafter, the assessee carried the matter in further appeal to the Appellate Tribunal and in the light of various circumstances including the clauses of the partnership deed, the Tribunal came to the conclusion that there was a dissolution of the partnership on March 9, 1963, and this conclusion was drawn from the various circumstances which the Tribunal took into consideration from the materials on record. Then at the instance of the revenue the reference has been made to this court. The Tribunal had negatived the contention of the revenue that section 187(2) applies to the facts of this case.
(3.) BEFORE we go to the circumstances on which the Tribunal relied for the purpose of coming to its conclusions that the firm was dissolved on March 9, 1963, that is, on the death of Sarabhai, two clauses of the partnership deed must be borne in mind. Under clause 6 of the deed of partnership dated December 11, 1961, it was stated that the partnership was a partnership at will. If any partner desired to resign form the partnership firm, he was required to give three clear months' notice prior to his so doing. Clause 8 was in these terms : 'The partnership firm will not be discontinued or closed on account of retirement and/or death of the partner; and the business will be carried on with the remaining partners with the terms they decide with the heirs of the deceased partner.' ;