TMI Blog1983 (10) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... April 29, 1959, and on his death, Mukat Behari Lal was taken as partner with the consent of the other partners. There was no clause in the deed of partnership dated July 10, 1959, providing that in the event of the death of one of the partners, the firm was not to be dissolved. Clause 8 of the partnership deed only provided that in the event of parties one (Mukat Behari Lal) and two (Amba Prasad) wishing to separate, the accounts would he settled and the leasehold rights of the premises would also be divided among the partners but the firm would not dissolve in the case of retirement of third and fourth parties. On March 3, 1965, Mukat Behari Lal died. The firm neither closed its accounts nor interrupted the carrying on of the business which was continued up to June 30, 1965, namely, the date of closing of the accounts of the firm previously. With the consent of the three surviving partners, Smt. Chand Kiran, mother of Mukat Behari Lal, was taken as a partner with effect from March 4, 1965. However, no dissolution deed was drawn and no fresh written partnership deed was executed. For the assessment year 1966-67, the firm, Sunder Lal Banwari Lal, filed on June 28, 1966, only one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, when the firm came, to an end, that in respect of that period there was a proper application in Form No. 12 and that should have been accepted by the Income-tax Officer under section 184(7) of the Act and effect given to the registration of the firm for the assessment year 1966-67. The main argument of Shri K.K. Wadhera, the learned counsel for the Department, is that there was only a change in the constitution of the firm on March 3, 1965, and, accordingly, the Income-tax Officer was right in clubbing the income of the two periods for a single assessment and this is clear from the provisions contained in section 187(2) of the Act. According to the counsel, the assessee itself proceeded on the footing that there had been only a change in the constitution of the firm as it filed only one return on, June 28, 1966, showing the income for the period July 1, 1964, to .Tune 30, 1965. This fact is further borne out from the record that no dissolution deed had been drawn up on the death of Mukat Behari Lal on March 3, 1965, that no new instrument of partnership was executed and that, on the other hand, the mother of Mukat Behari Lal was taken in as a partner and the firm continued to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled individually " partners " and collectively a " firm " and the name under which their business is carried on is called the firm name. Under the general law, firm is not a legal person or juridical entity, but for the purposes of the Act, a firm is treated as an entity, distinct from the persons who constitute the firm. By virtue of the definition of the expression " person ", it is obvious that a firm is included in it and is an assessable entity. Chapter XVI of the Act contains special provisions applicable to firms. Sections 182 and 183 of the Act deal with the assessment of firms, registered and unregistered, respectively. Section 184 prescribes several requirements for the grant of registration. We are not concerned in this case with the conditions which are essential to the registration of the firm. The firm was granted registration for the earlier assessment years. The question of registration is of vital importance to a firm. An unregistered firm is charged as a unit of assessment while in the case of firm which is registered by the authorities under the Act, although tax at special rates prescribed is levied on the firm, the substantive levy is on each individual par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as partner or partners after the change. Section 188 provides for the succession of one firm by another firm and says that where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with section 170 of the Act. At this stage, it will be apposite to notice some other provisions of the Partnership Act. The effect of the death of Mukat Behari Lal on March 3, 1965, in our opinion, is that there was a dissolution of the firm as constituted under the instrument of partnership dated July 10, 1959, on his death. Chapter VI of the Partnership Act deals with the dissolution of the firm and contains in sections 39 to 44 of the Partnership Act, the circumstances in which the dissolution of a firm takes place. The dissolution of a partnership between all the partners of a firm is called the " dissolution of the firm ". A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. There may be a compulsory dissolution in law on the happening of the events provided in section 41. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue to carry on the business of the firm except to complete transactions begun but unfinished at the time of the dissolution, but not otherwise. It bears repetition that there was no clause in the partnership deed dated July 10, 1959, providing that the death of a partner would not dissolve the firm and, thus, on the death of Mukat Behari Lal, the firm stood dissolved under section 42(c) of the Partnership Act. Chapter V of the Partnership Act deals with the rights and liabilities of incoming and outgoing partners in sections 31 to 38. Section 31 provides that subject to contract between the partners and to the provisions of section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners. The reason for this is that the persons entering into a contract do so with the intention of forming a partnership between themselves and themselves alone. The foundation of the partnership is mutual confidence and for this reason the introduction is by agreement. Section 35 deals with the liability of the estate of a deceased partner and provides that the estate of a deceased partner is not liable for any act of the firm done after his death e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership and dissolution of a firm. Their Lordships approved the decision of the Privy Council to make it clear that even under the Act, the concept of a firm will be the same as under the partnership law and that in the absence of contract to the contrary, L firm on its dissolution ceases to exist. We have noticed that section 187 deals with a change in the constitution of a firm. The very concept Of a change in the constitution of a firm and its carrying oil the business is that the same identical firm continues as before, subject however, to either a change in the composition of the firm by incoming or/and outgoing partners or as sections 184(7) and 187(2)(b) point out, there may be an alteration in the shares, inter se, of the partners of the firm. This is consistent with only a change in the constitution of a firm in the sense of continuity being maintained and the identity of the firm being maintained as contemplated by the provisions of sections 31 to 35 of the Partnership Act. There may be induction of new partner or there may be a retirement of a partner or there may be expulsion of a partner or where there is a contract to the contrary that the partnership does not ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution of a firm with the three surviving partners and the legal heirs of the deceased partner. We may now consider the cases relied upon by the counsel. The case of Kejriwal Traders [1969] 71 ITR 463 (Cal) was one of retirement of one partner in pursuance of another deed. The assessee-firm was originally constituted by a partnership deed dated April 18, 1957. On September 30, 1957, one of the partners retired and a new partnership deed was executed on January 31, 1958, in which it was recited that the partnership constituted under the deed of April 18, 1957, was " dissolved ". For the assessment year 1958-59, for which the previous year was from February 1, 1957, to December 31, 1957, the firm applied on September 5, 1957, for registration under section 26A of the Indian Income-tax Act, 1922. The Income-tax Officer refused to allow registration on the ground that there is no instrument of partnership governing the firm after September 30, 1957, nor are the sharing of profits and losses specifically laid down. The Appellate Assistant Commissioner held that it was not a case of dissolution but only a change in the constitution of the firm on January 31, 1958, and allowed registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the dissolution of the firm ". Form No. 12 under the Act now specifically provides for an application for continuance of registration to the date of dissolution of the firm. K. C. Trunk Bucket Factory's case [1977] 106 ITR 348 (Gauhati) does not give any additional reasons but merely follows the ratio of the Calcutta High Court in Kejriwal Trader's case [1969] 71 ITR 463. With great respect to the learned judges, we are unable to subscribe to the view that although section 26A fell for consideration in the aforesaid decision, the relevant law is unchanged in the 1961 Act. We have pointed out the significant changes made by the Legislature in Form No. 12 appended to the rules. In Jawaharlal Khandelwal's case [1977] 110 ITR 884, the Orissa High Court was influenced solely by the fact that the assessee had filed one return for both the periods which showed that there was no claim for making two separate assessments. On the facts, it was held that the business continued till the end of the year in the same manner. In that case, during the previous year ended October 31, 1968, one of the partners died on August 31, 1968. The assessee-firm's claim to be treated as registered fir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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