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 justified in holding that the case of the assessee fell within the exception provided in Section 188 of the Income-tax Act, 1961, and was, therefore, covered by the provisions of Section 187(1) lead with Section 187(2) of the Income-tax Act, 1961, and that, therefore, only one assessment should have been framed on the firm for the entire accounting period corresponding to the assessment year 1970-71."
(2.) THE petitioner-assessee is a firm. Its accounting year for the assessment year 1969-70 ended on Diwali 1968 and the following persons were the partners of the firm on that date : 1. Fatehlal 2. Niranjan Kumar Nirmal Kumar 3. One of the partners, namely, Shri Fatehlal, died on July 14, 1969, and on his death, his widow, Smt. Asha Kumari, was taken in as a partner and she was allotted the (same) share of profit as was being held by her deceas-edhusband. This is evidenced by the partnership deed dated July 24, 1969. After the death of Fatehlal, the account books of the assessee were not closed. The balance-sheet as on the date of death of Fatehlal was not separately drawn. The books of account were closed at the end of the accounting period corresponding to the assessment year 1970-73, i.e., on Diwali 1969. Profits in the various trading accounts were also worked out up to Diwali day and no attempt was made to bifurcate the profits in two parts, i.e., one preceding the death of Fatehlal and the other succeeding his death. Before the Income-tax Officer (ITO), it was submitted that two different assessments should be framed on the firm, one for the period up to the date of death of the partner (Fatehlal) and the other after the date of death of the partner to the end of the accounting period in accordance with Section 188 read with Section 170 of the I.T. Act, 1961 (No. XLIII of 1961) (" the Act" herein). The ITO did not accept the above contention of the assessee. He, by his order dated December 7, 1972, opined that it was a case of a change in the constitution of the firm as all the surviving partners had continued to do business as usual without any break and the widow of the deceased partner had joined the partnership with the existing capital and rights of the deceased. He, therefore, assessed the assessee-firm on the total income for the entire accounting period. Aggrieved against the order dated December 7, 1972, of the ITO, the assessee preferred an appeal and the AAC, vide his order dated June 10, 1975, dismissed the appeal. While doing so, the AAC relied on a decision of the Punjab and Haryana High Court in Dharm Pal Sat Dev v. CIT [1974] 97 ITR 302 (P & H). Dissatisfied, the assessee-firm appealed to the Tribunal. Before the Tribunal, on behalf of the assessee, Addl. CIT v. Harjivandas Hathibhai [1977] 108 ITR 517 (Guj) and Dahi Lalxmi Dal Factory v. ITO [1976] 103 ITR 517 (All) [FB] were cited. The Department relied on CIT v. Kelukutty [1972] 85 ITR 102 (Ker) and CIT v. Veeraraghavulu Chetty & Sons Co. [1975] 100 ITR 723 (AP). The Tribunal upheld the view taken by the ITO as well as by the AAC. An application under Section 256(1) of the Act was moved before the Tribunal and that has led to this reference. We have heard Mr. D. S. Shishodia, learned counsel for the assessee-firrn, as well as Mr. J. P. Joshi, learned counsel for the Revenue. Clause (11) of the partnership deed dated October 22, 1968, which was executed between Fatehlal, Niranjan Kumar and. Nirmal Kumar is as follows : "(11) That the partnership is one at will," In the partnership deed dated October 22, 1968, there is no clause that after the death of one of the partners of the firm, it may be continued with the mutual consent of the surviving partners by themselves or after taking a new partner or partners. As stated above, Fatehlal died on July 14, 1969, and after his death, afresh partnership deed dated July 24, 1969, was executed by the two surviving (remaining) partners and the widow of the deceased partner. The recital in the partnership deed dated July 24, 1969, is to the effect that as Fatehlal has died on July 14, 1969, the remaining partners have decided to take Smt. Asha Kumari, wife of Fatehlal; in the partnership on the terms and conditions mentioned therein. This newly constituted partnership was made operative from July 15, 1969, i.e., the day following the death of Fatehlal who died on July 14, 1969. After the death of Fatehlal, account books were not closed. Nor the balance-sheet as on the date of death of Fatehlal was drawn. The same books of account were availed of by the newly constituted firm. Profits in the various trading accounts were worked out up to Diwali and they were not bifurcated into two parts : one preceding the death of Fatehlal and the other succeeding his death. On these facts, the question before the taxing authorities was whether the firm which was constituted by means of the partnership deed dated October 22, 1968, stood dissolved and a new partnership had come into existence, or despite the fact that a new firm was constituted by the partnership deed dated July 24, 1969, which was made operative from July 15, 1969, there was merely a change in the constitution of the firm within the meaning of Section 187(2) of the Act.
(3.) SECTION 42 of the Partnership Act deals with dissolution on the happening of certain contingencies. The relevant part of SECTION 42 of the Partnership Act is as follows : "SECTION 42. Dissolution on the happening oj 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 October 22, 1968, no such contract for the continuance of the partnership after the death of a partner can be inferred. Mr. D. S. Shishodia, learned counsel for the asses see-firm, has relied on Venkateswara Stone Co. v. CIT [1978] 115 ITR 236 (AP), Ganesh Dal Mills v. CIT [1982] 136 ITR 762 (MP), Addl. CIT v. Moosa Bhoy Amin [1984] 1 48 ITR 89 (Raj), CIT v. Hind Agencies [1984] 148 ITR 94 (Raj) and Addl. CIT v. Emery Stone Manufacturing Co. (D.B.I.T. Ref. No. 4 of 1974 decided on December 5, 1984--[1985] 153 ITR 150). The latter three decisions are the decisions of the Division Benches of this court. On the other hand, Mr. J. P. Joshi, learned counsel for the Revenue, has cited Ghella Dayal v. CIT [1945] 13 ITR 133 (Bom), Jessa Ram Fateh Chand v. CIT [1971] 81 ITR 409 (All), Dharam Pal Sat Dev's case [1974] 97 ITR 302 (P & H), Kaithari Lungi Stores v. CIT [1976] 104 ITR 160 (Mad), Jupiter Foundry and Machines v. CIT [1977] 109 ITR 92 (P & H), Nandlal Sohanlal v. CIT [1977] 110 ITR 170 (P & H) [FB] and Vimal & Amar Talkies v. CIT [1982] 138 ITR 660 (MP). ;