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TMI Blog2002 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... er to answer the above questions of law, we need to narrate the relevant facts to the extent those are found necessary for the purpose. The present reference relates to the assessment year 1989-90. Some time in 1939, the late S. Raghuram Prabhu started the business of manufacturing beedies. Subsequently, his brother-in-law, Sri Madhav Shenoy also joined him in the business as a partner. Thus, M/s. Mangalore Ganesh Beedi Works (hereinafter in short, "the firm"), came into existence with effect from March 28, 1940. Thereafter, it was reconstituted from time to time. The last reconstitution of the firm is evidenced by a partnership deed dated June 30, 1982. According to the averments made in the deed, the last reconstitution of the firm became effective from June 6, 1982. According to the deed of partnership, the firm comprised of the following 13 partners: Sl.No. Name of the Partners Percentage of share 1. B. Raghurama Prabhu &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 2.50% 10. Jaganath Shenoy 2.50% 11. Vatsala Shenoy 7.55% 12. M. Gopinath Shenoy 2.50% 13. Arat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aid him/her or them for the registration of his/her name or their names of all the said trade marks and do all such deeds, acts and transactions as are incidental or necessary to the said transferee or assignee partner or partners." It is a matter of record that despite dissolution of the firm, because of differences between the erstwhile partners, the affairs of the firm could not be wound up. So two of the partners of the firm filed a petition before this court under the provisions of Part X of the Companies Act, 1956, for winding up of the affairs of the firm in terms of section 583(4)(a) thereof. This petition was numbered as C.P. No.1 of 1988. By order dated November 3/5, 1988, this court permitted the group of partners (7) having controlling interest to continue the business as an interim arrangement till the completion of winding up proceedings. Subsequently, under order dated June 14, 1991, this court framed the scheme for winding up of the affairs of the firm by selling its assets as a going concern. Paragraph 29 of the order contains the scheme. Clauses (i), (iii) and (v) of this scheme are material for the present purposes and accordingly are being reproduced hereunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court vide its order dated September 21, 1994. The said order was to the following effect: "The highest bid amount of rupees ninety two crores is accepted and the group of persons offering the said amount are directed to deposit within 60 days from today with the official liquidator the entire amount of rupees ninety two crores together with actual profits earned from December 6, 1987, till March 31, 1994, and proportionate profit from April 1, 1994, till the date of deposit in terms of the orders of this court earlier issued in C.A. No. 313 of 1994." At the instance of the three partners offering the highest bid, clause (1) of the order dated September 21, 1994, was amended by a subsequent order dated September 29, 1994. The modified clause (1) of the order dated September 21, 1994: "The highest bid amount of rupees ninety two aores is accepted and the group of partners offering the said amount are directed to deposit that part of the bid amount of rupees ninety two crores which is proportionate to the shares held by the out-going partners together with profits on the same basis from December 6, 1987, till the date of deposit, within a period of 60 days from September 29, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew the sequence of the events as noticed above, it is quite clear that after the dissolution of the firm, its business was continued by an association of persons comprised of all the erstwhile 13 partners by using the assets as well as the name of the dissolved firm. Therefore, till the date of dissolution, the name "Mangalore Ganesh Beedi Works" was of the partnership firm. Whereas, after the dissolution, it became the name of the association of persons comprised of all the erstwhile partners of the dissolved firm. Under the aforesaid circumstances, two returns were filed in the same name but under different status. The first return was filed for the period July 1, 1987, to December 18, 1987, in the status of "registered firm". The income declared was Rs. 7,50,49,560. The second return was filed for the period December 19, 1987, to March 31, 1989, in the status of "AOP" declaring an income of Rs. 25,31,64,310. The Assessing Officer accepted the returned income under his order dated May 29, 1991, and February 28, 1992. The Commissioner of Income-tax, being of the opinion that the order dated May 29, 1991, passed by the Assessing Officer in respect of the registered firm was prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now the questions that arise are: (i) whether the partnership can own properties ? and if so, then (ii) whether on its dissolution it ceases to hold the said properties and the partners become owners thereof in specie to the extent of their shares, and (iii) whether despite its dissolution the firm by fiction of law continues to be the owner of the properties till the affairs of the firm are finally dissolved? So far as the right of the firm to own properties is concerned, section 14 of the Partnership Act clearly admits this proposition. This section reads as under: "14. The property of the firm.--Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm." Further, there cannot be any dispute on the proposition that every d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleting pending transactions, winding up the business, and adjusting the rights of the partners; and for these purposes, and these only, the authority, rights, and obligations of the partners continue". The Division Bench of the Kerala High Court in the case of Paulson Constructions v. CIT [1990] 181 ITR 476, while dealing with the assessment of the dissolved firm has held that: "Section 47 of the Partnership Act says that on the dissolution of a firm, the authority of each partner to bind the firm and the other mutual rights and obligation of the partners continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution. Therefore, for realisation of the assets, discharging the liability of the firm and settling the accounts of the partners, etc., the firm will continue to exist despite the dissolution." Similar view has been taken by the Kerala High Court in the case of Joint Receivers of United Film Exhibitors v. CIT [1989] 177 ITR 518. In view of the above statutory provisions and the law laid down by the Supreme Court it appears reasonable to hold that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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