9911796707
TMI Blog1987 (9) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. On appeal, before the AAC, the assessee referred to a number of decisions to the contrary, the latest being the decision of the Rajasthan High Court in CIT v. Hind Agencies [1984] 148 ITR 94 and argued that parting away of one partner from the firm would amount to dissolution although there was only a retirement of one partner, the partners had prepared a dissolution deed and the books of account had been closed. The original partnership deed did not provide for the continuance of the firm after the retirement of any partner. Therefore section 42(c) of the partnership act would apply. He, therefore, directed the ITO to make two assessments. The revenue has come up in second appeal before us. 3. We have heard the representatives of the length in this appeal. That there was a controversy between various High Courts on the subject, cannot be seriously disputed. It also is clear that the view of the Rajasthan High Court was in accordance with the majority view of the High Courts which is to the effect that two assessment should be made in case where the new firm came into existence because one of the old partners had died. The contrary view was based on the language of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of going trough the order passed by my learned brother. I am unable to agree with the views expressed by him. According to him, in view of the explanation introduced in section 187(2) of the IT Act, which is effective from 1-4-1975, a firm shall be deemed to be dissolved only when one of the partners dies. He is further of the view that even in case where there is a dissolution by means of a deed and some of the old partners who have taken over the firm and after admitting some new partners results only in a change in the constitution and not dissolution of the firm. He is further of the view that section 188 would apply to only such seceding firm where none of the old partners are constituting in the succeeding firm. 2. The facts in the instant case are that there were three partners, S/Shri Munshilal, Ashok Kumar and Vijaykumar. On 15-4-1980, Shri Ashok Kumar retired and a dissolution deed was executed between the partners. On the basis on this dissolution deed, the two partners namely Shri Munshilal and Shri Vijaykumar carried on the firm. There were two returns that were filed, one up to 15-4-1980, the date on which the firm consisting of three partners has been dissolved an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 2(23), which deals with the expressions "firm", "partner" and "partnership" have the same meaning as they have under the Partnership Act. Therefore, it could only be concluded that any question arising under the Income-tax Act, the concepts of the partnership law have full application unless a specific provision has been introduced which compels contrary view. Section 188 deals with those situations which would not fall under section 187(2). In case, there is a change in the constitution of a firm then, it cannot be treated as a succession. At the same time, when there is a dissolution of the firm and another firm succeeds with some of the partners continuing with or without addition of any partner, then in that situation, section 187(2) will have no application. When the case does not fall under section 187(2), then it would automatically fall under section 188. Their Lordships of the Delhi High Court in the case of CIT v. Sant Lal Arvind Kumar [1982]136 ITR 379 have extensively dealt with the provisions contained in sections 187 and 188 and with specific application of the Indian Partnership Act. Their Lordships have held that sections 187 and 188 are in consonance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, formed another partnership, constituted by another deed of partnership and by taking over this business of the earlier partnership continued it. Evidencing the retirement of Shri Ashok Kumar, a deed of dissolution was also executed on 15-4-1980. For the assessment year under appeal two returns were filed-one return of income for the first period before the retirement of Ashok Kumar and another return of income for the period subsequent to retirement. It was claimed before the ITO that with the retirement of Shri Ashok Kumar the earlier partnership was dissolved and that partnership was different from the subsequent partnership of two partners and therefore two assessments have to be made one on the firm of three partners and another on the firm of two partners. The books of account were also closed on the date of dissolution. The accounts between the partners were settled. The ITO was, however, of the opinion that this was only a case of change in the constitution of the firm within the meaning of section 187(2) of the IT Act and could not be said to be a case falling under the provisions of section 188. He, therefore, made one assessment by clubbing the income of these tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of Sant Lal Arvind Kumar and the special Bench decision of the ITAT in the case of Pelican paper & Stationery Mart held that if on the retirement of a partner a dissolution followed that would amount to succession of firm and not a change of constitution. He, therefore, held that the view taken by the AAC is correct and decided the matter in favour of the assessee and dismissed the departmental appeal. It was as a consequence of the difference of opinion that the above point was referred to me as a Third Member. 3. It has now been ascertained that the undisputed facts are that out of the three partners of the firm, one partner Shri Ashok Kumar retired on 15-4-1980. The retirement was evidenced by a deed of dissolution. The deed of dissolution clearly provided that the partnership that subsisted between those three partners came to close by 15-4-1980 with the retirement of Ashok Kumar. The account of the partners were drawn up on the date and were settled. Therefore, the relationship that existed between those three person as partners had been put an end to. Now subsequently the other two partners have by a separate agreement again agreed to become part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the partnership deed under the effect of section 42 of the Partnership Act. In the case before me it is an admitted fact that there is no provision that on the retirement of a partner the firm will continue. In the absence of such an agreement it means that the firm on the retirement of a partner will be dissolved. In the case of CIT v. G. N. Textile [1987] the Rajasthan High Court held that when an assessee-firm consisted of four partners out of 167 ITR 181 whom three retired from the partnership and a new firm was constituted on the very next day, it could not be said that there is only a change in the constitution of the firm and that it will be a case of succession within the meaning of sec. 188 of the IT Act. The Rajasthan High Court held in this case that- "In the present case, there was no mere change in the constitution of the firm governed by section 187 of the Act. There was a clear finding that two firms were distinct and there was a definite gap between the dissolution of the first firm, as a result of which three out of four partners retired from the firm, and constitution of a new firm at a later date in which one of the earlier partners had been included. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reconstituted. In ITO v. Jaina Textile (sic), I, as a Third Member, had to deal with similar situation and in that case it was held- "From a number of decisions of different High Courts, it is clear, that the judicial opinion, though divided, the majority view is in favour of the view that in the case of dissolution of a firm either by the death of a partner or by the act of parties, that firm comes to an end and if another firm is constituted even though by taking some of the old partners, the new firm would be a separate and distinct firm from the old firm and it would be a case of succession of one firm by another firm and not a change in the constitution of the firm. In the present case, it was proved beyond any shadow of doubt that there was a dissolution on the old firm consisting of five partners evidenced by the execution of a dissolution deed followed up by the entries in the account books and the execution of a new deed of partnership governing the relationship of new partners who agreed to become partners. Therefore, the mere commonness of the partners could not convert that dissolution into a change in the constitution of the firm because the old firm ceased to exist ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
