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TMI Blog1984 (12) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... d Saboo; 4. Madanlal Saboo; 5. Mohanlal Saboo; 6. Radheyshyam (minor). Kanhaiyalal Saboo expired on March 12, 1968. A deed of dissolution of the partnership was executed on March 12, 1968. After that, a new partnership deed dated March 27, 1968, was executed by Durgaprasad Saboo, Ramprasad Saboo, Madanlal Saboo and Mohanlal Saboo. Radheyshyam, minor, was also admitted to the benefits of the partnership. This partnership deed was to be operative from March 13, 1968. The assessee-firm filed two returns: (i) for the period ending on March 12, 1968, and (ii) for the period from March 13, 1968, to October 21, 1968. The Income-tax Officer, vide his order dated December 18, 1969, determined the income of assessee-firm for the two periods in question at one piece. An appeal was taken and the Appellate Assistant Commissioner in appeal held that the ITO should have treated the firm as dissolved on the death of Kanhaiyalal and therefore, the old firm ceased to exist and a new firm was formed under a new deed of partnership dated March 27, 1968, which was a different and independent entity. He, therefore, allowed the appeal in part and granted the following reliefs : "1. Income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case on hand, after the death of Kanhaiyalal (partner) a deed of dissolution of the partnership was executed by the remaining partners. The dissolution deed dated March 12, 1968, provides that as Kanhaiyalal (partner of the assessee-firm) suddenly expired on March 12, 1968, Durgaprasad Saboo, Ramprasad Saboo, Madanlal Saboo and Mohanlal Saboo amicably agreed to dissolve the partnership with effect from March 12, 1968, on the terms mentioned therein. Clause (3) thereof is as follows : " (3) That a new partnership firm has been constituted from today and this new firm has agreed to take over all assets and liabilities of the old firm. " Thereafter, on March 27, 1968, a new partnership deed was executed by the four partners. Radheyshyam (minor) was also admitted to the benefits of the partnership. The question before the Tribunal was whether there was any change in the constitution of the firm within the meaning of s. 187(2) of the Act. Section 187 of the Act deals with change in the constitution of firm. The material portion of s. 187 of the Act is as follows : " Section 187(1). Where at the time of making an assessment under section 143 or section 144, it is found that a ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership consists of the, remaining partners, it cannot be a case of change in the, constitution of the firm as envisaged by s. 187(2) of the Act. The new firm had come into existence after the death of Kanhaiyalal. After execution of the dissolution deed dated March 12, 1968, though the partners are common between the old and new firms, the new firm will be considered to succeed to the old firm attracting the application of s.188 of the Act. The expression change in constitution of the firm " used in s. 187 of the Act supposes that the firm continues to subsist but when a firm has been dissolved, it cannot be said that it is still continuing. Sections 25(4) and 26(2) of the Indian I.T. Act, 1922 (" the old Act ") were examined in Jittanram Nirmalram v. CIT [1953] 23 ITR 288; 23 ITR 288 (Pat). In that case, a firm carrying on a business consisted of four partners. The deed of partnership empowered each of the partners to exercise the right of dissolving the partnership at will. One of the partners gave notice and severed his connection with the firm and commenced a new business of his own. His share in the profits and assets was paid to him partly in cash and partly by allotting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is dissolved either by agreement of the partners or by operation of law and another firm takes over the business, that will be a case of succession governed by section 188 of the Act even though some of the partners of the two firms are common." R. B. Jessa Rain Fateh Chand v. CIT [1971] 81 ITR 409 (All) was dissented from. Seth J., however, did not subscribe to the view taken by the other two learned judges of the Allahabad High Court. Dalhi Laxmi Dal Factory's case [1976] 103 ITR 517 (All) [FB] was followed by C. S. P. Singh and K. C. Agarwal JJ. in Addl. CIT. v. Dilsukh Rai Madho Prasad [1977] 108 ITR 299 (All). Sections 187 and 188 of the I.T. Act, 1961, and s. 42(c) of the Partnership Act were considered by a Full Bench of the Andhra Pradesh High Court in Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466. Even according to this ruling, when there is only a change in the constitution but not dissolution and succession by another firm, the assessment must be made as a single unit for the entire period. The Full Bench did not subscribe to the view taken in Dahi Laxmi Dal Factory's case [1976] 103 ITR 517 (All) [FB]. Sections 187 and 188 of the I.T. Act, 1961, were examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 517 (All) [FB]. In I Ramakrishnaiah and Sons v. CIT [1978] 111 ITR 296 (Orissa), it was observed that (headnote): " Where a partner dies and there is no clause in the original deed or other implied agreement to continue the firm despite such death, there is a dissolution of the partnership under s. 42(c) of the Partnership Act and the mere fact that the business has been continued would not lead to the inference that there has been only a change in the constitution of the firm." In Mathurdas Govardhandas v. CIT [1980] 125 ITR 470 (Cal), difference between dissolution and change in the constitution of the firm was pointed out. In that case, the partnership deed did not provide for the continuation of the partnership in the event of the death of any of the partners. One of the partners died and the remaining partners entered into a fresh partnership with a change in the division of profits. The same business was carried on with the same sets of books. The new firm applied for registration of the firm. In these facts, it was held that two assessments are to be made, one till the death of the partner and the other for the specific period. Dahi Laxmi Dal Factory's case [1976] 103 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable. Under s. 42(c) of the Partnership Act, the firm stood dissolved on the death of Kanhaiyalal and had become non-existent. A deed of dissolution was executed on the same day, i.e., March 12, 1968. After the dissolution, the old firm could not continue. Thus, the firm stood dissolved by operation of law as per the provisions of s. 42(c) of Partnership Act. The books of account were closed and a separate profit and loss a/c and balance-sheet for the period ending on March 12, 1968, were drawn up. Subsequently, on March 27, 1968, a new partnership deed was executed. This firm was constituted by the five old partners and the minor, Radheyshyam, having benefits of the partnership. We respectfully differ from the view taken in Addl. CIT v. Visakha Floor Mills [1977] 108 ITR 466 by the Full Bench of the Andhra Pradesh High Court. Keeping in view the language used in s. 187(2) of the Act and the principles laid down in Dahi Laxmi Dal Factory's case [1976] 103 ITR 517 (All) [FB], CIT v. Dilsukh Rail Madho Prasad [1977] 108 ITR 299 (All), Addl. CIT v. Ramakrishnaiah & Sons [1978] 111 ITR 296 (Orissa), Mathurdas Govardhandas's case [1980] 125 ITR 470 (Cal) and Addl. CIT v. Harjivan ..... 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