TMI Blog1973 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case, the provisions of section 187(2) apply to the facts of the case ? " These two questions were referred because, according to the Tribunal, these were the two questions necessary to bring out the real controversy between the parties. The facts leading to this reference are as follows. The relevant assessment year is 1964-65. The assessee is a partnership firm and the firm was granted registration in the immediately preceding year 1963-64. Originally, the partnership firm consisted of five partners and one of the partners was Sarabhai Chimanlal. Sarabhai died on March 9, 1963. The business of the partnership firm was of executing contracts entered into with the railways for handling of goods at various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, one for the period ending March 9, 1963, and the other for the rest of the accounting period. A declaration under section 184(7) was enclosed along with the return for the first period. The basis on which these two returns were filed was that according to the assessee there was dissolution of the firm on the death of Sarabhai Chimanlal and, therefore, the subsequent continuance of business was only for the purpose of winding up the firm. The Income-tax Officer refused to accept these contentions of the assessee and his main ground was that there was a change in the constitution of the firm within the meaning of section 187(2) and, therefore, the assessee should have applied for registration and mere filing of a declaration under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business will be carried on with the remaining partners with the terms they decide with the heirs of the deceased partner." The circumstances which appealed to the Tribunal are that the books of account in Set No. I which was in respect of the major business were closed, profits were determined and credited to the respective accounts. The balances were completely struck and carried on to new set of books and according to the Tribunal this was a very important circumstance and evidence to find out that the parties did want to bring about dissolution. We may point out that the approach of the Tribunal in its order was that though under the deed of partnership by virtue of clause 8 the death of a partner would not bring about a dissolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have continued under clause 8 of the partnership deed, then, surely, they would have undertaken new contracts or entered into other new activities because a firm like the assessee-firm before us would surely come to a dead halt if there was no new business activity or if there were no new business contracts and thus the Tribunal found considerable substance in the contention of the assessee that, after the death of Sarabhai, the partners wanted to close the business and whatever activity they continued was in the course of dissolution only and not with a view to carry on or continue the business. A further circumstance which appealed to the Tribunal was that the profit earned subsequent to the death of Sarabhai was also credited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To our mind the most important circumstance pointing to the intention of the partners and to show that an agreement to dissolve the firm was reached by them, though that agreement is not reduced to writing in the form of a document, is that no new contract was entered into or no new contract was undertaken after the death of Sarabhai Chimanlal. The main business of the firm was of undertaking contracts and carrying on the business of execution of these contracts with one or the other party and that main business activity seems to have been given up completely by the partnership firm. After March 9, 1963, since no new contracts were entered into and the existing contracts were worked out only till the end of the period of each respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned in accordance with the provisions of section 184. Under sub-section (2) of section 187, for the purposes of section 187, there is a change in the constitution of the firm if one or more of the partners ceases to be a partner or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change, or where all the partners continue with a change in their respective shares or in the shares of some of them. Now, here, since there was a dissolution of the firm with effect from March 9, 1963, there is no question of the same firm being continued with a change in the constitution of the firm and the requirements of clause ..... X X X X Extracts X X X X X X X X Extracts X X X X
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