TMI Blog1985 (2) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to us in the light of correct facts. We recall our judgment dated October 22, 1984, accordingly. We have heard the submissions of learned standing counsel, Sri. M. Suryanarayana Murthy, and also learned counsel for the respondent, Sri A. Satyanarayana. The following question of law is referred by the Income-tax Appellate Tribunal for our consideration : " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in concluding that two assessments should be made for the two periods, viz., from April 1, 1976, to December 31, 1976, and from January 1, 1977, to March 31, 1977 ? " We may notice a few facts. A partnership consisting of four partners came into existence under a deed of partnership dated October 20, 1969. The terms of the partnership would indicate that the partnership was" at will " that is to say, the partnership will continue subject to the mutual consent of all the partners. The assessment year concerned is 1977-78 and the corresponding accounting period was April 1, 1976, to March 31, 1977. On December 31, 1976, one of the partners retired from the partnership. Pursuant to the retirement of one of the partners, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the assessee-partnership as constituted at the time of making the assessment. The assessee questioned the correctness of the Income-tax Officer's assessment of the entire income in one single assessment. The Commissioner of Income-tax (Appeals), the first appellate authority, affirmed the correctness of the assessment made by the Income-tax Officer. The assessee went in further appeal to the Tribunal. The Tribunal accepted the assessee's contention and held that two assessments have to be made as claimed by the assessee. In other words, the Tribunal accepted the assessee's contention that the partnership constituted under the deed dated March 19, 1977, is a successor to the earlier partnership firm constituted under the deed dated October 20, 1969 and, therefore, the provisions of section 188 of the Act were applicable and two separate assessments have to be made, one on the predecessor firm in respect of its income up to December 31, 1976, and another in respect of the successor-firm for the period January 1, 1977, to March 31, 1977. The Commissioner of Income-tax was aggrieved by the above decision of the Tribunal and, therefore, required the Tribunal to state a case to thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77, by the partnership consisting of the three continuing partners. These accounts were closed on March 31, 1977, profits ascertained and credited to the accounts of the partners in accordance with the deed of partnership dated March 19, 1977. The two firms filed two separate returns before the Income-tax Officer and asked for separate assessments on the ground that the partnership evidenced by the deed dated October 20, 1969, was dissolved and a new firm succeeded to it within the meaning of section 188 of the Act with effect from January 1, 1977, and evidenced by the deed of partnership dated March 19, 1977. On these facts, we do not see how the Revenue can canvass the plea that there was no dissolution of the earlier partnership on December 31, 1976. We have earlier referred to the ingredients of section 40 and section 43 of the Partnership Act. Learned standing counsel does not fairly dispute that the partnership evidenced by the deed dated October 20, 1969, could be considered to have been dissolved within the meaning of both section 40 and section 43 of the Partnership Act. Even so, contends learned standing counsel, such a dissolution under section 40 or section 43 of the Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution not referable to the death of a partner, the Income-tax Officer will be justified in treating the resulting change as only a change in the constitution of the firm and making an assessment accordingly under section 187(1) of the Act. We are unable to accept this submission. A partnership firm is essentially governed by the provisions of the Partnership Act and the dissolution of the partnership could be brought about statutorily under the Partnership Act by any of the modes referred to in sections 40 to 44 of the Partnership Act. Dissolution by death of any of the partners is governed by section 42(c) of the Partnership Act. The contention that by introducing the proviso after sub-section (2) to section 187 of the Act by the Amendment Act of 1984, the Income-tax Act sought to recognise only dissolution brought about by death of any of the partners within the meaning of section 42(c) of the Partnership Act and derecognise all other forms of dissolution envisaged by sections 40 to 44 of the Partnership Act is wholly unsupportable. The dissolution of a partnership firm by any of the modes set out in sections 40 to 44 of the Partnership Act brings about the legal death of a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. In that case also, on the retirement of some partners, the partnership was dissolved by mutual consent, a dissolution deed was executed and a new partnership was formed between the continuing partners taking over all the assets and liabilities of the dissolved firm. This court held that the factum of dissolution by mutual consent of the parties evidenced by a deed of dissolution executed between them renders the provisions of section 187 of the Act inapplicable. This court held that the newly constituted firm after the retirement of some of the partners cannot be considered to be the same firm as was in existence prior to retirement and the consequent dissolution. In that view, this court held that two separate assessments to income-tax have to be made under section 188 of the Act, one on the predecessor firm on the income earned by it up to the date of dissolution and another on the successor-firm for the subsequent period. We are, therefore, fortified in our view by the above judgment of this court. The undisputed fact in the present case is that there was mutual agreement between the parties to dissolve the firm and, therefore, the dissolution is governed by section 40 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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