TMI Blog1977 (8) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-73 (previous year ending with March 31, 1972), Kanakaraju died on August 4, 1971. Clause 10 of the partnership deed provided : "The partnership shall continue until such time as the partners determine. The firm shall not be dissolved by the death or retirement of a partner but may be continued by the surviving or remaining partners on such terms and conditions as may be agreed upon." As a fact, however, the partners dissolved the firm, settled the accounts and drew up a new partnership with effect from August 5, 1971, with the remaining six partners. For the assessment year in question, two returns were filed by the assessee, one for the period from April 1, 1971, to August 4, 1971, and the other from August 5, 1971, to March 31, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of the two periods separately. Before the Tribunal, the assessee reiterated its stand. The Tribunal held : "........... The facts of the case are quite simple and, as found by the Appellate Assistant Commissioner, the assessee, in both cases, being a firm, on the death of a partner, the firm was reconstituted and continued to carry on the same business with the same assets and liabilities and under the same name. In both cases the partnership deed provided that the firm shall not be dissolved by the death or retirement of a partner. The firm as reconstituted has been assessed. But the only dispute is whether the assessment should be made on the total income of the entire previous year or whether the income for the period before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : Provided that-- (i) the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same ; and (ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment. (2) For the purposes of this section there, is a change in the constitution of the firm-- (a) if one or more of the, partners cease to be partners or one or more new partners are admitted, in such circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f one or two of the partners cease to be partners or one or more new partners are admitted, the circumstances being that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change or where all the partners continue with a change in their respective shares or in the shares of some of them, a change in the constitution of the firm is said to take place. The essential feature is that one or more of the old partners is or are retained as partner or partners while the others may change ; or all the partners may remain the same but their respective profit-sharing ratio may undergo a change. In a case coming within this range and the change taking place in the midst of a year, sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the inference that there has been only a change in the constitution. In the present case, clause 10 had an enabling provision that the surviving or remaining partners could continue the business on such terms and conditions as may be agreed upon. On the death of one of the partners, however, as a fact, the partners brought their business to a close, settled the on the following drew up new partnership deed with the remaining six partners. The being them facts, we are of the view that the first firm came to an end and the second firm succeeded to the business. The process would not be covered by a change in the constitution of the firm as defined in section 187(2) of the Act and, therefore, section 188 of the Act would apply to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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