TMI Blog1944 (9) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... November, 1937. Mr. Devidas died on 8th July, 1940, with the result that on that day the firm was dissolved. A notice dated 11th September, 1940, was published in the government Gazette and other newspapers notifying the dissolution of the firm on 8th July, 1940. A fresh partnership agreement was entered into on 12th September, 1940, between Mr. Motichand and Mr. Tanubhai, sharing profits and loss equally with effect from 8th July, 1940. The partnership carried on business at different places. On 8th July, 1940, it was carrying on business in a building in Nanabhay Lane. That was originally owned by the partnership but was sold to Mr. Devidas. On 8th July, 1940, the partnership was paying rent to Mr. Devidas for the premises occupied by it. The partnership maintained books of account and in the previous years the partners were assessed on the footing of the amounts withdrawn by them individually. That was taken as their income or profits from the business of the firm. For the assessment year 1940 a question arose about the liability of the firm for its income for the accounting year 1939. On behalf of the assessees it was contended that on the death of Mr. Devidas on 8th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the previous years on the footing of their withdrawals in each year, cannot make it a method of accounting regularly employed by the assessee as it was not a method of accounting at all. In practice, this should not work any injustice on the assessees because if they have not withdrawn the amounts in one year towards profits, they would withdraw it in another year. On the other hand, it must be concealed that withdrawals are not the test of profits. Under the Act the question is what is the total income of the assessees ? The answer that ₹ 80 so many were withdrawn by the partners is not an answer in accordance with the Act. The profits or income of a Solicitors firm, speaking broadly are the profit costs of the firm, after defraying their expenses of keeping their office. For instance if in a particular year the firm had completed 200 transactions of conveyancing and received in that year and earned in that year. If for any reason the partners did not consider it necessary to withdraw money from the firm during the year., it will be wrong to contend that the profits of the year were not the profit costs received by the firm during that year. It seems therefore that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. That discussion would be relevant if relief was claimed under Section 25(4) read with Section 26(2). For the purpose of the present discussion the only question is whether the business of the old firm had been discontinued. I have already summarised at the commencement, the facts which are noticed in the judgment of the Appellate Commissioner. The further relevant facts to which our attention has been drawn are these. The new firm did not take over the business as a going concern. No outstandings or liabilities of the old firm were taken over by the new firm. The new firm had started with new books and because the partners in the new firm were two out of the old firm they also worked to wind up the affairs of the old firm. The business carried on after 8th July, 1940, was carried on in the name of Messrs. Motichand and Devidas which was the name used by the old firm, and was carried on in the same premises in which the old firm had carried on business. In their judgment the Tribunal have stated as follows :- There is no disposal by assignment or otherwise in the present case. All that has occurred is that two partners of the old firm have reconstituted themselves into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision as to the use of the firm name, each of the partners is entitled to carry on business in that name, provided that he does not by so doing expose his former partners to any risk or liability, which must depend upon the circumstances of the case. It is therefore clear that in the absence of any agreement between the parties, on the dissolution of the firm each partner is entitled to carry on business in the name of the old firm. The only limitation to that right is that he should not by his action expose the outgoing partner or his estate to liability for the fresh business. Therefore, the fact that two partners continued to use the name of Messrs. Motichand and Devidas after 8th July does not prevent the business of the old firm being discontinued. The question of the business being carried on in the same premises, in my opinion, is equally immaterial. Ordinarily, that fact has to be taken into account in considering the goodwill of a business. Apart from that, I do not know of any case in which the fact that the business was conducted in the same place as before was considered relevant. In any event, the premises here were rented premises, and the evidence does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lient in consideration of the client paying the charges. The client is entitled to the benefit of the knowledge and experience of the partners, and if that is incapable of being given after a particular date, it seems to me that here must be discontinuance of the business. It was argued on behalf of the Commissioner that his conclusion would mean that in every case when there is a change in the partnership there is a discontinuance of the business. I do not think that conclusion naturally follows. As an illustration, in this very case, when Mr. Tanubhai was admitted in partnership, in my opinion, it cannot be contended that the business of the old firm has discontinued. That firm continued, as a going concern, the business of the old firm. The clients became entitled to the knowledge and experience of the new partner, in addition to the knowledge and the experience of the so far existing partners. There is thus a clear distinction between discontinuance of a business and a change in business. Section 25(3) does not deal with a change in the business. It deals with the contingency of discontinuance of the business. Applying another test to the facts here, it is clear that when M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and as has been pointed our in the judgment of the Tribunal retainers of the clients of the old firm came to an end. The only importance which I attach to his fact, viz., that the retainers of the clients of the came to an end is that the new firm did not take over the clients of the old firm and it was open to the clients of the old firm to engage the services of the new firm or not as they pleased. Therefore on the fact it is clear to my mind that there was no nexus whatever between the old and the new firms. The only two facts on which Mr. Setalvad relies or that the new firm carried on business in the same name and at the place as the old firm. As the name of Messrs. Motichand and Devidas carried with it no goodwill and was no an asset of the old firm the mere fact of the two surviving partners using that name is not material. As regards the place it was a rented premises and that by itself does not in any way help the contention of Mr. Setalvad. Mr. Setalvad has really contended that under Section 25(3) the discontinuance of a profession means and must amount to the giving up of a profession, i.e., the changing over of one profession for another. Therefore acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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