TMI Blog1971 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... retired partners and also in case of death of any one of them. During the period 1st January, 1956, to 31st January, 1960, the petitioner-firm consisted of one David Platt (since deceased), Adwaita Nath Sil (since deceased), Heramba Nath Bhattacharjee (since deceased), Framjee Cursetjee Hierjeebhoy Rustomjee, Sudhir Kumar De Mullick and Basil Gill (since deceased). From 1st January, 1956, till 31st December, 1960, the petitioner-firm was constituted and/or evidenced by a partnership deed and was registered as a partnership firm under the Income-tax Act, 1922. On the expiry of the said period the said Basil Gill (since deceased) retired from the said partnership. The petitioner-firm during the period from 1st January, 1961, till 31st January, 1963, consisted of five partners mentioned above as well as one Subodh Kumar Mullick and Dina Nath Mullick. The said partnership firm was evidenced by a deed of partnership executed by the said partners on the 17th July, 1961. It would be necessary to set out certain relevant portions of the said partnership deed. Clause 3 of the said deed provides as follows : " The partnership commenced on the 1st day of January one thousand nine hundred an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtieth day of June in any year) shall be taken into account as hereinafter provided in ascertaining the value of his interest in the firm. " Clause 12 stated that " the partners would be entitled to the goodwill and other assets of the firm and the net profits of the business would be divided among them and they would bear the losses as on and from the first day of January one thousand nine hundred and sixty-one in the manner indicated in the said clause. " The said clause further provided that " such proportion of percentage shares becoming available on retirement of a partner (as hereinafter provided) as the majority of the then continuing partners would decide should be allocated for acquisition among the continuing partners and any additional partner or partners as the majority of the continuing partners might think fit to admit in the partnership and in the event of no additional partner or partners being then admitted into the partnership then the whole of such percentage share would be acquired by the continuing partners proportionately to their then existing shares or as they might otherwise mutually agree. " Clause 24(a) is also relevant and provides as follows : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered as a firm under the provisions of the Income-tax Act, 1961, for the said assessment year and/or the said previous year. Thereafter, according to the petitioner, there was no change in the constitution of the petitioner-firm and it had duly submitted a declaration to that effect in the prescribed form for the assessment year 1963-64 and the registration of the petitioner-firm for the assessment year 1962-63 continued to be effective for the assessment year 1963-64 and/or the previous year 1962. For each of the said assessment years the petitioner-firm was assessed to income-tax as a firm registered under the Income-tax Act, 1961, in the same manner as it had been treated for the previous assessment years under the Income-tax Act, 1961. On the 7th December, 1963, Sri Heramba Nath Bhattacharjee, one of the partners of the petitioner-firm, died. According to the petitioner the surviving partners continued to carry on the business of the petitioner-firm in terms of the said partnership deed for the remaining period of the said partnership agreement, that is to say, 31st December, 1963, without any fresh agreement. The petitioner contends that there was no change in the constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year 1962-63 by an order dated 12th May, 1964, passed by the Income-tax Officer, " A " Ward, District III(1), and that there had been no change in the constitution of the firm or the shares of the partners since the last day of the previous year relevant to the assessment year 1962-63 up to the last date of the previous year relevant to the assessment year 1964-65 or the date of dissolution of the firm. It was further stated that the information given was complete and correct. The said declaration was given in Form No. 12 which was under rule 24 of the Indian Income-tax Rules, 1962. According to the petitioner in September, 1964, the petitioner-firm filed another estimated return for the year 1964-65. Price Waterhouse Peat Co., Chartered Accountants, audited the accounts of the petitioner-firm for the year 1963, and submitted their report dated 9th February, 1965. The summary of the partner's current accounts and distribution of reserves, profits, etc., for the year ending 31st December, 1963, show that the auditors treated the said Heramba Nath Bhattacharjee, deceased, as a partner of the petitioner firm till 31st December, 1963. On the 23rd August, 1968, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1964-65 treating the petitioner-firm as unregistered for the relevant assessment year. The Income-tax Officer issued notices to the partners and to the executors or heirs of the deceased partners under the said deed of partnership dated 17th July, 1961, to take refund of the said advance taxes paid by the partners aforesaid. Along with the said assessment order dated 17th March, 1969, the respondent No. 1 made an order. Inasmuch as the said order is the subject-matter of impugned challenge in this application under article 226 of the Constitution it would be necessary to set out the said order : " Order regarding Regn. U/S. 184(4). During the accounting year following the death of one of the partners on the first week of December, 1963, there was a change in the constitution of the firm. It was found that the assessee has not submitted the original instrument of partnership deed during the accounting year. Hence registration is refused for the year. " In the said order under section 184(4) of the Income-tax Act, 1961, as mentioned hereinbefore, it was stated that there was a change in the constitution of the firm during the first week of December, 1963, by the deat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firm itself shall be determined and the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. If such share of any partner is a loss it shall be set off against any other income or carried forward and set off according to the provisions of sections 70 to 75 of the Act. Section 183 provides for the assessment of an unregistered firm. Section 184 provides for an application for registration of a firm. It would be necessary to set out the provisions of sections 184 and 185. Section 184 : " (1) An application for registration of a firm for the purposes of this Act may be made to the Income-tax Officer on behalf of any firm if-- (i) the partnership is evidenced by an instrument ; and (ii) the individual shares of the partners are specified in that instrument. (2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution. (3) The application shall be made to the Income-tax Officer having jurisdiction to assess the firm, and shall be signed-- (a) by all the partners (not being minors) personally ; or (b) in the case of a dissol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as partner or partners after the change ; or (b) where all the partners continue with a change in their respective shares or in the shares of some of them. " Section 188 deals with succession of one firm by another firm and section 189 deals with the firm dissolved or business discontinued. The expression " constitution of the firm " is not defined in the Income-tax Act, 1961. It was also not defined in the Indian Income-tax Act, 1922. Sub-section (2) of section 187 provides a meaning to the expression " change in the constitution of the firm ", for that section. The expression " constitution of the firm " is also not defined in the Partnership Act though in sections 17, 38 and 47 of the Indian Partnership Act reference is made to the said expression " constitution of the firm ". Counsel for the petitioner contended that every change was not a change of the constitution of the firm for the purpose of the Income-tax Act, 1961, or for the purpose of the provisions of section 184 or section 185 of the Income-tax Act, 1961. According to counsel for the petitioner "constitution of the firm " is dependent upon the agreement between the partners. If the agreement of the parties provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whenever one had to construe a statute or document, one did not construe it according to the mere ordinary general meaning of the words but according to the ordinary meaning of the words as applied to the subject-matter with regard to which they were used, unless there was something which obliged one to read them in a sense which was not their ordinary sense in the English language. Reliance was also placed on the decision in the case of Legal Aid Committee No. 1. Ex parte Rondel. It was contended that the expression "change in the constitution of the firm " should receive a beneficial construction. It was next contended that the ground upon which the order dated 17th March, 1969, had been made was not proper because section 184(4) did not contemplate passing of an order in the manner done. Section 184(4) was in respect of an application for registration. In the instant case there was no application for registration but only a declaration had been given in accordance with the legal requirements for firms which had already been registered. It was contended that the order, having been passed by the Income-tax Officer in the manner, had deprived the petitioner of his right to move i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, to the fact that the parties cannot contract out of the legal obligations. In this context the contract between the parties, viz., the instrument of partnership deed dated 17th July, 1961, has to be referred. Clauses 3 and 4 indicate that on the death of a partner the business would continue and on the death or retirement of a partner, the partnership would not be dissolved as between the other partners. Under section 42 of the Partnership Act subject to the contract between the parties a firm is dissolved on, inter alia, the death of a partner. But, change in the constitution of a firm can occur even without dissolution--dissolution is not the only change in the constitution of a firm. Clauses 3 and 4 of the partnership deed, in my opinion, fall short of providing that on the death of a partner there would be no change in the constitution of the firm. On the other hand these clauses in my opinion indicate that on the death or retirement of a partner there would be change in the constitution of the firm but the effect of such changes of death or retirement is limited to a certain extent in the manner indicated in the different provisions made in the different clauses of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (4) of section 59 it is provided that Rules framed under the Act would become part of the statute. Such Rules, that is, the Rules which become part of the statute, should be construed in the manner which would lead to a harmonious construction and for that purpose it would be relevant to refer to the Rules. But, in the facts and circumstances of this case, as such Rules do not form part of the statute and as such it would not be proper to refer to the Rules for the construction of the statute. In that view of the matter if it was possible for me to hold that there was no " change in the constitution of the firm " then in that case it would have been necessary for me to seriously consider the question as to whether the application in this case was in compliance with the requirement of law or not. Counsel for the respondents contended that registration is a right given to the assessee. In order to exercise that right, the assessee must strictly comply with the provisions of the Act and Rules. If the expression " change in the constitution of the firm " did not cover death in the facts and circumstances of this case, then it might have been possible to hold that the application was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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