TMI Blog1981 (8) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme of dissolution, the business is parted with as a going concern for consideration. The business then will continue uninterrupted, but under changed hands. This would be so, whether the purchaser of the business is a third party or one among the partners themselves. In such a case, the firm disappears, but the business continues. Under the pure and unsullied theory of partnerships, every change in the personnel of the firm involves, technically, the end of one firm and the beginning of a new jural relationship. This is on the principle that when persons come together as partners they do not thereby create a legal entity, separate from themselves, although they may carry on business under a collective name. But modern partnership law, even in England, is no longer so dogmatic. It recognizes, for instance, the retirement of partner, and the introduction of a new partner, during the subsistence of a partnership. The Indian Partnership Act, 1932, contains provisions for such situations as well as a few others, which can make sense only if we credit the firm with a limited personality of its own, and not dismiss it as convenient linguistic device intended to refer to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed by the constitution of a new firm. Referring to this change, Jagadisan J. observed that it was meaningless to talk of a firm being reconstituted after dissolution. firm can change its constitution only if there is no dissolution. Dissolution of a firm and change in its constitution cannot co-exist. If it is the one, it cannot be the other. Kaithari Lungi Stores v. CIT [1976] 104 ITR 160 (Mad), was a case where a partner died, but the partnership articles permitted the surviving partners to continue the partnership without dissolution. The court held that there was a mere change in the constitution of the firm and s. 187 would apply. In Mavukkarai (N.) Estate Tea Factory v. Addl. CIT [1978] 112 ITR 715 (Mad), there was a firm of four partners. Three of them purported to retire leaving the fourth partner to continue the business. He did so by taking in fresh partners. It was held in the circumstances that there was a dissolution of the firm and s. 187 of the Act would not apply to that case. In Addl. CIT v. Thyagasundara Mudaliar [1981] 127 ITR 520 (Mad), this court has to decide whether s. 187 applied to that case. There were only two partners in the assessee-firm. One ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj was a notice of his own retirement from the partnership and it did not purport to be a notice of dissolution of the firm, nor was there any consequential dissolution following the receipt of notice by the other three partners. When the matter came before the Tribunal, the Tribunal had to decide the question whether there was a dissolution as claimed by the assessee or whether there was some change in the constitution of the firm as claimed by the Department. The Tribunal observed that there was no clear, unambiguous or properly drawn out deed of dissolution. They, accordingly, proceeded, as they observed, to decide the issue on the basis of the cumulative effect of the other documentary evidence, attendant circumstances and previous and subsequent conduct of the partners of the assessee-firm. They also proceeded to observe that if they were to confine themselves to the materials which had been considered by the ITO, they should have come to the same finding as was reached by him. It may be observed that the ITO took into consideration the notice of retirement issued by Krishnaraj and the recitals in the retirement deed and the subsequent partition deed. What the Tribunal regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was clearly recited that Krishnaraj had only retired from the firm and after his retirement, the remaining partners continued to carry on the firm's business. A reference to the notice issued by the Krishnaraj shows that the contentions of the Departmental standing counsel are not entirely unfounded. In a piece of writing called " Partnership partition document " subscribed to by Krishnaraj and addressed to his three other partners, Krishnaraj definitely says that owing to differences between him and the other partners in the firm, he had retired from the partnership with effect from December 14, 1964. The Tamil equivalent of the expression 'retirement' and its cognate expression were expressly mentioned in more than one place in this document. In the notice dated October 15, 1964, which is apparently written even in the original in English language, Krishnaraj had declared that he has decided " to discontinue the partnership " ; but he explains what he meant by retiring, the other partners to determine his share of profits and settle his accounts within a month from the date of that letter. The subsequent deed of partnership is between the three individuals, Kupparangan Chett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of the firm by serving on his other partners a notice in writing declaring his intention to dissolve the firm. Section 39 of the Partnership Act says that the dissolution of the partnership as between all the partners of a firm is that which is regarded by law as the dissolution of the firm. In the present case, therefore, it is very essential to finding out as to whether the notice, which Krishnaraj had served on his other three partners, was a notice as expressive of his intention to retire or on the contrary as expressive of his intention to bring about a wholesale dissolution of the firm as between all the partners of the firm. It is clear that there is an element of difficulty presented by the language of the document. We have earlier referred to the notice issued by Krishnaraj on October 15, 1964, which did not mention anything about retirement. By way of contrast, this deed of retirement dated December 14, 1964, expressly refers to his retirement from partnership. Similar is the recital in the subsequent partnership deed. The Tribunal, therefore, cannot be regarded as having gone far wrong in saying that there is an element of ambiguity in the documents. Nevertheless, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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