TMI Blog1983 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... our references came up before us for deciding the common question involved therein. Before proceeding to set out the facts of each of the four references and the specific questions referred therein by the Income-tax Appellate Tribunal under s. 256(1) of the I.T. Act, 1961, for the opinion of this court, we shall mention the real point for determination and our answer to the same. The point involved is whether the expression " change in constitution of a firm " occurring in s. 187 of the I.T. Act, 1961, includes within its ambit even cases of dissolution where the firm is reconstituted with at least one of the old partners together with the incoming partners and the business is continued. In other words, the question really is whether on true construction of s. 187 of the I.T. Act, 1961, the change contemplated by such a situation falls within the ambit of this provision in spite of the fact that under the general law a case of " dissolution " of a firm is distinct from a case of " change in its constitution ", which envisages continuance of the firm without its dissolution. It has, therefore, to be seen whether the principles of general law relating to partnership regulate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as may be, to such assessment." It is clear that in ss. 187, 188 and 189, the Legislature has made special provisions applicable to firms relating to changes in their constitution, succession and dissolution. This exercise was unnecessary, if these expressions were to be construed only according to the existing general law. It cannot be doubted that any matter for which a specific provision is made in the I.T. Act is to be governed by it, notwithstanding anything different or contrary contained in the general law relating to that matter. It would be useful at this stage to refer to the guidance provided for this purpose by the Supreme Court while considering the nature of the law of income-tax. It was pointed out in Rao Bahadur Ravulu Subba Rao v. CIT (1956] 30 ITR 163 (SC), as under (pp. 169, 173): " The Act is, as stated in the preamble, one to consolidate and amend the law relating to income-tax. The rule of construction to be applied to such a statute is thus stated by Lord Herschell in Bank of England v. Vagliano [1891] AC 107 (HL): I think the proper course is, in the first instance, to examine the language of the statute, and to ask what is its natural meaning, uninf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of making an assessment that " change has occurred in the constitution of a firm " the assessment shall be made on the firm as constituted at the time of making the assessment. Sub-s. (2) then proceeds to define the expression " change in the constitution of a firm " for the purpose of this section. Clause (b) of sub-s. (2) is clear and refers to a situation where all the partners of the firm continue and the change is only in their respective shares. It is significant that under the general law this would not be a change in the constitution of the firm. We then come to cl. (a), the meaning of which has given rise to the controversy. In cl. (a) also, the difficulty is really about the meaning of the words " in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change ". Clause (a) means that if one or more of the partners cease to be partners, or one or more partners are admitted in the circumstances enumerated therein, there is a change in the constitution of the firm. A person may cease to be a partner for any of several reasons, i.e., death, retirement, etc. There is no difficulty about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o occasion to use the words " and the case is not one covered by section 187 " in s. 188. This is another reason to support the construction we have made of s. 187(2)(a). In our opinion, these are some of the strong reasons to support the construction made by us of the expression " change in the constitution of a firm " occurring in section 187. In view of the above conclusion reached by us and our concurrence with the construction made by a Division Bench of this court in Vimal and Amar Talkies v. CIT [1982] 138 ITR 660, it is sufficient to quote, a portion of that decision. It was held therein, as under (p. 664): " The difficulty arises when a dissolved firm is succeeded by another firm, in which some of the partners of the old firm are members. Such case would also be prima facie covered by the expression a change in the constitution of the firm as defined in cl. (a) of sub-s. (2) of s. 187. It is, however, argued by the learned counsel for the assessee that ss. 187, 188 and 189 must be construed harmoniously with the Indian Partnership Act, 1932, and sub-s. (2)(a) of s. 187 of the I.T. Act should not be construed to include the case of succession of one firm after it is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m as defined in sub-s. (2) thereof. If a firm is dissolved and is succeeded by another firm and none of the Partners of the old firm is a partner in the new firm, the case would be covered by s. 188. The omission of the words 'or that a firm has been newly constituted' as they occurred in s. 26(1) of the 1922 Act from s. 187 is not indicative of any contrary intention because of the comprehensive definition enacted in the latter of the expression 'a change in the constitution of the firm' and also because of the presence of the words 'and the case is not one covered by section 187' as they occur in s. 188. As the scheme of ss. 187 ' 188 and 189 is clear and there is no ambiguity in them, recourse to the provisions of the Partnership Act cannot be taken for construing them ". (Underlining by us) We are in entire agreement with the above reasoning and the conclusion reached on that basis. The above conclusion is reinforced by a decision of the Supreme Court in Shivram Poddar v. ITO [1964] 51 ITR 823, in which the relevant corresponding provisions of the Indian I.T. Act, I 922, were construed. The question before the Supreme Court was about the applicability of s. 44 of the 1922 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (MP) and it was pointed out that this difference does not affect the conclusion reached about the meaning of s. 187. In our opinion, what was merely implicit in s. 26(1) of the 1922 Act has been made explicit by the definition of the expression " change in the constitution of a firm " in sub-s. (2) of s. 187 of the 1961 Act. There is no other significant difference between these corresponding provisions in the old and new Act. We are conscious of the fact that Shivram Poddar's case [1964] 51 ITR 823 (SC), has been referred in the decisions taking the contrary view and an attempt to distinguish it has been made. However, for the reason already given, we find it difficult to accept that Shivram Poddar's case [1964] 51 ITR 823 (SC), is at all distinguishable. This alone, in our opinion, is sufficient to fortify our conclusion. We shall now refer to the other decisions of this court as well as of other High Courts on the point, which have taken conflicting views. The first decision in point of time of this court is Dangarsidas Kaluram v. Addl. CIT [1981] 132 ITR 526, decided on November 28, 1979, by Division Bench consisting of Sohani and Vijayvargiya JJ. Sohani, J. speaking for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indore cases. Bhachawat J. emphasised that sub-s. (1) of s. 187 as well as the definition in sub-s. (2) thereof, clearly contemplate continuance of the firm without dissolution to attract s. 187 and where a firm had been dissolved according to the provisions of the Partnership Act, the case was outside the ambit of s. 187. Prior to this decision at the Gwalior Bench on April 23, 1982, the first decision at the Indore Bench in Dungarsidas Kaluram's case was reported in [1981] 132 ITR 526, and the decision at the main seat in Vimal and Amar Talkies v. CIT, had also been reported in the January Part of 1982 M.P.L.J. (Since reported in [1982] 138 ITR 660 (MP)), so that the two conflicting views taken by the earlier Division Benches of this court had already been reported. It is unfortunate that none of them was brought to the notice of the Division Bench which decided the case at Gwalior, on account of which Bhachawat J. decided the point under the impression that it had arisen for decision for the first time before him. These decisions in the cases decided at Indore and Gwalior are based on the ground that a case of dissolution is not covered by s. 187(2) of the I.T. Act as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge in the constitution of the " firm" used in s. 184(7) of the I.T. Act, 1961. Sabyasachi Mukharji J. (as he then was) referred also to s. 187(2)of the Act and came to the conclusion that death, retirement, etc. of partners is included in " change in the constitution of the firm ". The Karnataka High Court also in Sangam Silks v. CIT [1980] 122 ITR 479, has construed s. 187 as we have done. A decision of the Orissa High Court in I Ramakrishnaiah and Sons v. CIT [1978] 111 ITR 296, appears to support the contrary view taken by the majority of the High Courts. However, on facts, that case is distinguishable, inasmuch as the partners, as a fact, had dissolved the firm and discontinued its business and thereafter only a new partnership was made so that it was not a case of the same business being continued by the newly constituted firm, in order to attract s. 187. In these circumstances, it was held to be a case governed by s. 188. It is not necessary to deal with any of the above cases, taking the contrary view because the basis for taking the contrary view has already been indicated by us earlier and particularly while dealing with the three Division Bench decisions of this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it by us, such a result cannot alter its true meaning. Anomalous results are also not unknown under the income-tax law. We shall now briefly state the facts giving rise to the aforesaid four references, the questions referred therein for opinion of this court and our answers to the same for the reasons already given. Misc. Civil Case No. 517 of 1979. The assessee was a registered firm. For the assessment year 1973-74 it filed two returns, i.e., one for the period from October 19, 1971, to October 3, 1972, and the other for the period from October 4, 1972, to November 5,1972. This was on account of the death of one of the partners, Nannelal, on October 3, 1972, as a result of which the firm was reconstituted by admitting Bansilal, as a new partner therein, which continued the business of the earlier firm. The ITO made one assessment for the entire accounting year. On appeal by the assessee, the AAC took a contrary view. On further appeal, the Income-tax Appellate Tribunal took the view that even after dissolution of the firm as a result of death of one of the partners, the business had been continued by the newly constituted firm consisting of one of the partners of the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the entire accounting period ? " Answer: The Tribunal was justified in law in holding that there was a change in the constitution of the firm within the meaning of section 187(2) of the Income-tax Act, 1961, and thereby directing making of one assessment for the entire accounting period. Misc. Civil Case No. 40 of 1981. The assessee was a partner ship firm. It had five partners of whom Ramkishan died on May 11, 1972. In his place, Smt. Kamlabai was taken as a partner. The accounting period was from diwali to diwali. For the assessment year 1973-74 the firm filed two returns, i.e., one for the period from October 18, 1971, to May 11, 1972, and the other for the period from May l2, 1972, to November 5,1972. The ITO held that there was a change in the constitution of the firm within the meaning of s. 187 of the I.T. Act, 1961. He, therefore, made a single assessment for the entire period. The assessee's appeal was dismissed by the AAC. A further appeal to the Tribunal succeeded. The Tribunal held that s. 187(2)of the I.T. Act, 1961, was not attracted. On an application by the Revenue, the Tribunal made a reference under s. 256(1) of the Act for answering the following q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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