Decided on September 30,1980



Shukla, J. - (1.)AT the instance of the assessee, the Income-tax Appellate Tribunal, Indore Bench, Indore, has stated the case and referred the same to us for opinion on the following question :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that it was a case of change in the constitution of the firm as contemplated by Section 187(2)(a) of the Income-tax Act, 1961, and was not a case of succession of one firm by another as provided for in Section 188 of the Act and that one assessment of the income of the assessee for the whole period was liable to be made ?"

(2.)UNDISPUTED facts of the case are as follows : Firm, M/s. Ganesh Dall Mill, Indore, was originally constituted by four persons : (1) Shri Tejram, (2) Shri Omprakash, (3) Shri Bhukhraj, and (4) Shri Chandmal, having equal shares. There was no clause in the partnership deed to the effect that on the death or retirement of any of the partners, the firm will continue. On 11th February, 1971, one of the partners, namely, Tejram, died and another partner, Omprakash, retired. A fresh deed of partnership was executed on 4th March, 1971, which was operative with effect from 12th February, 1971. This partnership deed was executed between the two surviving partners, Shri Bukhraj and Shri Chandmal, and one Shri Surjamal, who was taken as anew partner. The firm also admitted four minors to the benefits of the partnership. The share of Shri Chandmal in the original firm was reduced from 0.25 paise to 0.13 paise in the rupee in the newly constituted firm. The business of the original firm was continued by the newly constituted firm. The same accounting years and the same books of account continued after the new partnership came into existence. The newly constituted firm took over the assets and liabilities of the old firm though this fact was not specifically stated in the new partnership deed.
For the assessment year 1972-73, the assessee filed two returns for the two periods, i.e., for the period from Diwali, 1970, to February 11, 1971, and for the period from February 12, 1971, to Diwali, 1971. It was claimed that after the death of one partner and the retirement of another on February 11, 1971, the original firm stood dissolved and the newly constituted firm was its successor-firm.

The ITO held that it was a case of change in the constitution of the firm within the meaning of Section 187 of the I.T. Act and he made a single assessment in respect of the entire accounting period. The AAC upheld the order of the ITO.

(3.)THE assessee came up in second appeal before the Appellate Tribunal. It was contended that as there was no clause in the partnership deed showing a contract to the contrary, the death of one of the partners and the retirement of another resulted in the dissolution of the firm on February 11, 1971, according to Section 42 of the Partnership Act. THE new firm constituted thereafter was a successor-firm within the meaning of Section 188 of the I.T. Act and, therefore, two separate assessments should have been made for the two different periods. THE Appellate Tribunal did not accept this contention and upheld the finding of the ITO and the AAC. At the instance of the assessee, therefore, the question has been referred to us for opinion.
Chapter XVI of the I.T. Act makes special provisions applicable to firms. Section 2(23) of the Act defines "firm", "partner" and "partnership" as having the meanings respectively assigned to them in the Indian Partnership Act. Part C of Chap. XVI refers to changes in the constitution,. succession and dissolution. Before we consider the language of Sections 187 and 188 of the Act, we may refer to the provisions in the Partnership Act on the incidents of partnership.

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