TMI Blog1971 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ssardas Bhavnani, Bhagwan H. Mansukhani and Mrs. Lili Mansukhani having a share of 6 annas, 4 annas, 4 annas and 2 annas, respectively. On the 29th of July, 1952, a fresh deed of partnership was executed between Tuljaram Issardas Bhavnani, Hiranand Issardas Bhavnani, Sunder Singh and Mrs. Ramibai having a share of 6 annas, 4 annas, 4 annas and 2 annas, respectively. Bhagwan H. Mansukhani and Mrs. Lili Mansukhani, who were partners under the first deed of partnership, went out of the partnership and their places were taken by Sunder Singh and Ramibai. Clause 2 of the preamble of this deed recites that the partnership of the 8th of October, 1949, had come to an end "by a flux of time" obviously meaning "by efflux of time". On the 14th of May, 1955, a third deed of partnership was executed under which the firm consisted of two partners only, namely, Tuljaram Issardas Bhavnani and Hiranand Issardas Bhavnani, each having an equal share. It is recited in this deed that the second partnership was dissolved with effect from the 1st of May, 1955. In the assessment year 1957-58, the previous accounting year being the one ended the 30th of April, 1956, the assessee sold four buses for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were these four buses taken over by the second partnership and similarly by the third partnership after the respective immediately preceding partnership ceased to exist". This was necessary because it was not clear from the judgment of the Tribunal as to which particular facts showed that the same firm was carrying on the business all throughout. In its supplementary statement of the case dated the 7th of August, 1970, the Tribunal has stated that "when the second firm and the third firm took over the four buses from the first firm and the second firm respectively, the vehicles were taken over at the book values, i. e., at cost less depreciation provided in the accounts of the predecessor firm, in each case". This information was obtained by the Tribunal from the relevant balance-sheets of the firm which form part of the supplementary statement. The question for consideration is whether the sum of Rs. 29,800 which was realised by the assessee by sale of the four buses is taxable under section 10(2)(vii) of the Act. That section provides, to the extent material, that in computing business profits allowance shall be made for the amount by which the written down value of the buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership was to be a partnership at will. Under clause 9, Tuljaram Bhavnani was to be in charge of the bus service and was entitled to appoint and dismiss the employees at his discretion. Under clause 10, Bhagwan Mansukhani was to maintain account books and to attend to the correspondence. Under clause 11, Hiranand Bhavnani was to attend to the management of the bus service at Sion. Under clause 12, Mrs. Lili Mansukhani was to be a sleeping partner. Under clause 16, the goodwill and the name of the business of the partnership was to be the absolute property of Tuljaram Bhavnani. Under clause 21, on the dissolution of the partnership, full account was required to be taken of the assets and the liabilities of the partnership. The profits and losses were to be shared by the partners according to their respective shares. Turning to the second deed of partnership dated the 29th of July, 1952, it consisted of Tuljaram Bhavnani, Hiranand Bhavnani, their mother, Ramibai, and a retired railway engineer called S. Sundersingh. Their shares respectively were 6 annas, 4 annas, 2 annas and 4 annas. Paragraph 2 of the preamble of the second partnership deed says that the first partnership h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime on the 17th of June, 1952, that the second firm was in terms dissolved with effect from the 1st of May, 1955, and therefore the third firm must be held to be a new and distinct entity. As the benefit of depreciation allowed in the past years was not obtained by this firm, section 10(2)(vii) of the Act cannot, according to the learned counsel, apply to the facts of the case. It seems to us impossible to accede to this contention. It is undoubtedly true that the second deed of partnership dated the 29th of July, 1952, says that the first partnership had come to an end by efflux of time and the third deed of partnership dated the 14th of May, 1955, contains a recital that the second partnership was dissolved with effect from the 1st of May, 1955. In our opinion, however, the three deeds of partnership shall have to be construed as a whole and the mere circumstance that the two last deeds contain recitals that the first and second partners were dissolved or had come to an end by efflux of time cannot conclude the question whether the third partnership is a mere reconstitution of the old firm or is a new and distinct firm. Reliance is placed by the learned counsel on a judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res' case, where reference has also been made to a judgment of Viscount Simon in Inland Revenue Commissioners v. Wesleyan General Assurance Society, which takes the view that "the name given to a transaction by the parties concerned does not necessarily decide the nature of the transaction. To call a payment a loan if it is really an annuity does not assist the taxpayer any more than to call an item a capital payment would prevent it from being regarded as an income payment if that is its true nature. The question always is what is the real character of the payment, not what the parties call it." The mere circumstance therefore that the parties have chosen to construe certain facts as amounting to a dissolution of the partnership, properly so called, will not be conclusive on the question whether the partnerships were in fact dissolved. For that purpose one has to turn to various facts and circumstances and we must now proceed to consider them. The Tribunal has held that Tuljaram Issardas Bhavnani and Hiranand Issardas Bhavnani were the real owners of the business and they took in different persons from time to time either to assist them in the conduct of business or in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a share of 6 annas and 4 annas in the profits, and if there was any loss, it was to be borne by them exclusively. The third paragraph of the preamble of the third partnership deed dated the 14th of May, 1955, shows that the two Bhavnani brothers had retained with them the vehicles and the other assets of the firm. Clause 6 of this deed shows that the capital of the partnership which was to be brought in by the two brothers was to consist of "vehicles, tools and plants". It is clear from this provision that the assets of business which was carried on by the two earlier partnerships and which really vested in the two brothers were retained by them all throughout and those assets constituted their contribution to the capital of the third partnership. Along with the supplementary statement of the case the Tribunal has forwarded a copy of the balance-sheet of Messrs. Bhavnani Bus Service Company for the assessment year 1957-58 corresponding to the accounting year ended the 30th of April, 1956. It may be recalled that the third deed of partnership was executed on the 14th of May, 1955, and the partnership is said to have commenced its business from the 1st of May, 1955. The first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same business with the same assets and under the same permit all throughout. The integrity of the business which was commenced on the 17th of June, 1949, was never broken. In other words, there was a structural alteration in the constitution of the firm from time to time by some partners retiring and others coming in, resulting in a consequent re-distribution of the shares of the partners. As observed by the Supreme Court in Commissioner of Income-tax v. A. W. Figgies and Company "a mere change in the constitution of the partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity . . . ." We must, therefore, confirm the finding of the Tribunal that though the two subsequent deeds of partnership mentioned that the earlier firms were dissolved, there was in fact no dissolution. The same firm continued to exist all along and all that happened was that there was a change in the constitution of the firm from time to time. This finding, however, will not justify an affirmative answer to the question referred to us by the Tribunal, in regard to the entire amount. The question requires us to consider whether the sum of Rs. 29,800 is tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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