Mal Lodha, J. -
(1.)THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal") has referred the following question for our decision :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 187(2) of the Income-tax Act, 1961 (No. XLIII of 1961) (for short "the Act"), was not applicable in this case, and further that two separate assessments be made on the firm for the assessment year 1969-70?"
(2.)THE assessee-firm, M/s. Emery Stone Mfg. Co., Kuchaman Road, derived income from manufacture and sale of chakkies. THE assessment year in question is 1969-70. THE assessee-firm consisted of six partners as is evidenced from the partnership deed dated April 12, 1965 :
1. Kanhaiyalal Saboo ;
2. Durgaprasad Saboo ;
3. Ramprasad Saboo ;
4. Madanlal Saboo;
5. Mohanlal Saboo;
6. Radheyshyam (minor).
Kanhaiyalal Saboo expired on March 12, 1968. A deed of dissolution of the partnership was executed on March 12, 1968. After that, a new partnership deed dated March 27, 1968, was executed by Durgaprasad Saboo, Ramprasad Saboo, Madanlal Saboo and Mohanlal Saboo. Radheyshyam, minor, was also admitted to the benefits of the partnership. This partnership deed was to be operative from March 13, 1968. The assessee-firm filed two returns : (i) for the period ending on March 12, 1968, and (ii) for the period from March 13, 1968, to October 21, 1968. The Income-tax Officer, vide his order dated December 18, 1969, determined the income of assessee-firm for the two periods in question at one piece. An appeal was taken and the Appellate Assistant Commissioner in appeal held that the ITO should have treated the firm as dissolved on the death of Kanhaiyalal and, therefore, the old firm ceased to exist and a new firm was formed under a new deed of partnership dated March 27, 1968, which was a different and independent entity. He, therefore, allowed the appeal in part and granted the following reliefs :
"1. Income of the first period, viz., Rs. 41,618, vide para. 4 to be deleted.
2. The addition on account of alleged excess price of Rs. 2,650 added by the ITO is directed to be deleted, vide para. No. 6.
3. A reduction in the travelling expenses of Rs. 300 is allowed, vide para. 7. "
Aggrieved, the Department filed an appeal before the Tribunal and the Tribunal, vide its order dated November 18, 1972, found that with the death of Kanhaiyalal, the firm automatically stood dissolved by operation of law and any change in the constitution of the firm or the shares of the partners could not be attributed to the old firm as it was non-existent. As a necessary consequence of that, the Tribunal opined that an altogether new firm came into being and to such a firm, the provisions of Section 187 of the Act did not apply. The Tribunal, therefore, while agreeing with the AAC, held that there being two firms, separate assessments had to be effected. An application under Section 256(1) of the Act was moved by the Additional Commissioner of Income-tax, Rajasthan, Jaipur. In these circumstances, the Tribunal has referred the aforesaid question for our decision.
We have heard Mr. J. P. Joshi, learned counsel for the Revenue, and Mr. Sudesh Gupta for Mr. N. P. Gupta, learned counsel for the asses-see-firm.
The partnership deed dated April 12, 1965, inter alia, provides that the partnership shall be "at will". Clause (15) of the partnership deed dated April 12, 1965, is as follows :
"(15). The provisions of the Indian Partnership Act, 1932, and the statutory modification thereof shall govern the relationship between the partners on the matters not provided for in these presents."
(3.)SECTION 42 of the Partnership Act deals with dissolution on the happening of certain contingencies. The relevant part of SECTION 42 is as follows :
"SECTION 42. Dissolution on the happening of certain contingencies.-
Subject to the contract between the partners, a firm is dissolved,--...
(c) by the death of a partner ; and ...",
Dissolution under Section 42 of the Partnership Act is subject to the contract between the partners. If the partnership deed provides for the continuance of the partnership after the death of a partner, then the firm will not be dissolved. From the partnership deed dated April 12, 1965, no such contract for the continuance of the partnership after the death of a partner can be inferred. In the case on hand, after the death of Kanhaiyalal (partner) a deed of dissolution of the partnership was executed by the remaining partners. The dissolution deed dated March 12, 1968, provides that as Kanhaiyalal (partner of the assessee-firm) suddenly expired on March 12, 1968, Durgaprasad Saboo, Ramprasad Saboo, Madanlal Saboo and Mohanlal Saboo amicably agreed to dissolve the partnership with effect from March 12, 1968, on the terms mentioned therein. Clause (3) thereof is as follows :
"(3) That a new partnership firm has been constituted from today and this new firm has agreed to take over all assets and liabilities of the old firm."
Thereafter, on March 27, 1968, a new partnership deed was executed by the four partners. Radheyshyam (minor) was also admitted to the benefits of the partnership.