9911796707
TMI Blog1971 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... er-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 and sixty-one and shall continue for a period of three years subject to the provisions hereinafter contained provided that if the business shall continue to be carried on after the expiration of the said period, without any break, either by the parties hereto or by some one or more of them the partnership shall not be deemed to have been dissolved at the expiration of the said period. " Clause 4 is very material and is to the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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 : " If a partner shall die during the currency of the partnership and the surviving partners decide to continue to carry on the business of the firm either alone or in conjunction with an additional partner or partners, the surviving and additional partner or partners (if any) shall purchase the percentage shares of the deceased partner in such proportion as between themselves as they may mutually agree upon and in the event of the survivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 constitution of the petitioner-firm before the close of the business on 31st December, 1963. According to the petitioner, the said partnership deed dated 17th July, 1961, continued to remain in force and governed the rights and obligations of the said surviving partners as well as of the said deceased partners in all matters including their shares of the profits, losses and assets in accordance with the provisions of the partnership deed dated 17th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 petitioner-firm submitted to respondent No. 1, a revised return for the assessment year 1964-65, with regard to the calendar year 1963. In the revised return in view of the provisions of the partnership deed dated 17th July, 1961, all the partners named in the said deed including Heramba Nath Bhattacharjee, deceased, were shown as partners during the year 1963. Thereafter, according to the petitioner, in the course of interview with the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 death of one of the partners--death of Shri Heramba Nath Bhattacharjee in this case. It was stated in the said order that the assessee had not submitted the original instrument of partnership deed during the accounting year. Hence the registration was being refused. Thereafter, the Income-tax Officer issued the notice of demand for payment of taxes of Rs. 2,77,362, as the tax payable for the assessment year 1964-65 by the petitioner-firm. By a let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration 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 dissolved firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased. " Section 185 : " On receipt of an application for the registration of a firm, the Income-tax Officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and- (a) if he is satisfied that there is or was during the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provided that the death or retirement of one of the partners would not necessarily affect the structure and the function of the partnership firm, then according to counsel for the petitioner, it could not be contended unless there was a contrary indication in the Income-tax Act itself simply that by mere physical death a change had occurred in the constitution of the firm. Every alteration in the partnership of the firm was not contemplated by the expression " change in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in appeal. It was, thirdly, contended that in the order there was no discussion on the question as to whether, in the facts and circumstances of the case, there was any change in the constitution of the firm, but the order proceeded on the basis that the original copy of the registration of the partnership deed had not been supplied. It was submitted that a new application with fresh grounds should have been made. On the other hand, counsel for the petitioner, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the partnership deed, viz., clauses 2, 3 and 4. Equally indicative of the same intention is clauses 10, 24 and 26. I, therefore, find nothing in the agreement between the parties to indicate that by the death of a partner there would be no change at all in the constitution of the firm. I also find nothing in the purpose of the Income-tax Act or in the context of section 184 of the Act any indication of the fact that by death or retirement of a partner there would be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction 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 in order. But, in the view I have taken already, it is not necessary for me to consider this aspect any further. I must, therefore, also hold in the instant case that the application was not in conformity with the form, viz., it was not signed by all the partners. The next point that was urged was that the order was under wrong heading. Section 184(4) provides for an application for registration. Sub-section (7) of section 184 provides, however, that registration gran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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