M. Katju, J. - (1.) THIS is an income-tax reference in which the following question has been referred for our opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the firm stood dissolved on September 30, 1974, when one of the two partners of the firm retired and that there were two distinct and separate firms in the accounting period relevant to the assessment year 1976-77 requiring two separate assessments for the period from July 1, 1974, to September 30, 1974, and from October 1, 1974, to June 30, 1975 ?"
(2.) WE have heard Sri Rajesh Kumar Agarwal, for the Department. None has appeared for the assessee although service has been effected on him and he has sent a telegram praying for adjournment in August, 1980, which is on the record. The facts of the case are that there was a firm constituted by a partnership deed dated July 1, 1971, consisting of two partners, Sri Dukh Bhanjan Singh and Smt. Kham Kaur. Sri Dukh Bhanjan Singh retired and left the firm on September 30, 1974. A new deed of partnership was executed on October 1, 1974, between the remaining partner, Smt. Kham Kaur, and three new partners to carry on the business of the firm. The assessee filed two returns, one for the period from July 1, 1974, to September 30, 1974, and other for the period from October 1, 1974, to June 30, 1975, and claimed that there should be two separate assessments. However, the Income-tax Officer held that there was no dissolution of the firm but only reconstitution. Hence, he made only one assessment clubbing the income for both the periods. In appeal, the Appellate Assistant Commissioner confirmed the Income-tax Officer's order but, in further appeal, the Tribunal held that there was a dissolution of the firm on September 30, 1974, when one of the partners retired, hence this reference on behalf of the Department. Learned counsel for the Department has relied upon a decision of this court in the case of CIT v. Jagjiwan Patel Co. [1991] 188 ITR 563. In that case, the original firm had three partners, two of whom retired, but the firm was reconstituted with the remaining partner and another new partner. This court, relying on Section 187(2)(a), held that it was a case of reconstitution and not dissolution. We respectfully agree with the said decision.
(3.) AS regards the decision of the Supreme Court in the case of Brack F.D. Mehta v. Minoo F.D. Mehta, AIR 1971 SC 1653, that was not a case under the Income-tax Act but under the Partnership Act. The Income-tax Act is a special law and the provisions therein will hence prevail over the general law contained in the Partnership Act. Following the decision of this court in the case of CIT v. Jagjiwan Patel Co. [1991] 183 ITR 563, we answer the question in the negative, i.e., in favour of the Department and against the assessee.;