Suhas Chandra Sen, J. - (1.) THE Tribunal has referred to this Court the following question of law under s. 256(1) of the IT Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reconstitution of the firm made as per the deed dt. 15th May, 1977 was a case of succession and not a change in the constitution of the firm as provided by the provisions of s. 187 of the Act and in directing to make two separate assessments for the two periods ?
(2.) THE facts as found by the Tribunal are as follows : "THE assesses is a firm and the reference reference relates to the asst. yr. 1978-79 for which the previous year was G.D. 2039. THE assessee form was enjoying the benefit of registration from sometime back. During the previous year relevant to the assessment year under reference Sri Vrajlal Dayalal Doshi, one of the partners of the firm, expired on 23rd May, 1977 and the firm was reconstituted by the existing partners with inclusion of a new partner, Vijayaban Doshi, widow of late Vrajlal Dayalal Doshi. THE assessee firm maintained separate accounts for the two periods, viz., from the deigning of the previous year upto 23rd April, 1977 and from 24th April, 1977 upto the end of the previous year. THE assessee firm filed two returns of income one in respect of the old firm and the other in respect of the new firm and claimed that there would be two separate assessments in respect of the two firms. THE ITO negatived this claim of the assessee and passed order under s. 185 (sic 187) of the IT Act, in which he clubbed the incomes of the two firms. On appeal, the CIT(A) confirmed the action of the ITO since he found that in the new partnership deed it has been mentioned in the preamble that whereas by virtue of cl. (8) of the deed of partnership dt. 26th Nov.,1972 the surviving partners decided to continue the partnership business together with the heirs of the deceased partner by reconstituting the partnership. According to the CIT(A) a reading of the preamble of the new deed and cl. (8) of the old deed it was clear that the intention of the partnership (was) not to dissolve the old firm." On further appeal, the Tribunal held as follows : "We have heard the submissions of both the parties and considered the facts on records. There is no dispute about the fact that after the death of one of the existing partners of the assessee firm, viz., Vrajlal Dayalal Doshi, the partnership was reconstituted. The assessee firm maintained two separate accounts for two periods, as stated above. The assessee also filed two income-tax returns. These very facts go to suggest that the intention of the partners was that there would be two firms, viz. an old firm upto the date of death of the partner Vrajlal Dayalal Doshi and thereafter there will be a new partnership. It is to be noted that there are conflicting decisions on the point at issue. In the decisions relied on by the learned counsel for the assessee it was held that under similar circumstances there would be two assessments, although there are several decisions to the contrary, as relied by the CIT(A) and the learned departmental representative. We see that the defect pointed out in cl. (8) of the old firm's deed dt. 26th Nov.,1978, on which much reliance was placed by the lower authorities, was not so serious as to totally reject the contention raised on behalf of the assessee. In cl. (8) of the said deed, as we see, it has been mentioned that in case a partner dies the surviving partners may continue the partnership. It follows, therefore, that it was not a binding clause. On a consideration of the entirety of the circumstances as also on a consideration of the conduct of the partners, that is to say, maintenance of separate accounts for two firms and filing of two income-tax returns for both the firms, we are of the opinion that it was a succession and, therefore, after the reconstitution on the death of the partner, Shri Vrajlal Dayalal Doshi, a new firm came into existence which was a distinct assessable entity, different from the firm before its reconstitution. Therefore, in our opinion, two separate assessments should have been passed, one in respect of the income derived by it before reconstitution and the other in respect of the income derived after reconstitution. We direct accordingly." The point that has to be determined is whether there has been reconstitution of the old firm or a new firm has succeeded the old firm in its business. It has been recorded in the order of the AAC that in cl. (8) of the earlier partnership deed it was provided as follows : "In case a partner dies the partnership may be continued between the surviving partners and the heirs and legal representatives of the deceased partner on such terms and conditions as may be agreed upon."
(3.) IF after the death of one of the partners the legal representative was taken in as a new partner and the firm continued on the same terms and conditions then it might have been called the continuance of the partnership in accordance with the wishes of the partners as embodied in the main partnership deed. But it does not appear that any such esquire was made. The partnership deed has not been annexed or produced before us. The Tribunal has come to a conclusion on the basis of certain provisions of the partnership deed, in particular the recitals. We are of the view that this case should be remanded back to the Tribunal and the Tribunal will examine the two partnership deeds and find out whether the identical terms and conditions were there in both the deeds in respect of the rights and liabilities of the partners in the partnership deeds. After referring to all the terms and conditions of the deeds the Tribunal will decide the case in accordance with law afresh. The parties will, however, he at liberty to adduce evidence and place their respective cases. The Reference is disposed of as above.;