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TMI Blog1992 (3) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... d from 21-10-1987. According to clause (2) of this Deed, all the assets and the liabilities of the firm of the dissolved partnership as at the close of business on 21-10-1987 were taken over by two of the erstwhile partners, namely, Babulal Chandak and Kishorilal Chandak, who were entitled to carry on the business under the same trade name and style either by themselves or by entering into partnership with others. Thus, the other two partners, Dhanraj Bhutra and Pannalal Bhutra left the partnership firm. Notice of dissolution of this partnership was also given to the Registrar of Firms on 18-1-1988. 3. Thereafter, the two erstwhile partners, Babulal Chandak and Kishorilal Chandak along with Dharam Chand Chandak, son of Kishorilal Chandak, formed a new partnership to carry on business in cloth under the same old firm name of M/s. Babulal Chandak with effect from 22-10-1987 at 16, Pageyapatty Street, Calcutta. This partnership was evidenced by a Deed of Partnership dated 12th November, 1987. The Profit sharing ratio of the three partners of this partnership firm was the following :-- Babulal Chandak 40% Kishorilal Chandak 40% Dharamchand Chandak 20% The Partnership Deed shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and called upon the assessee to show cause against the cancellation of the assessments. The assessee appeared through its authorised representative and argued that on its dissolution, a Deed of Dissolution was executed and the same was intimated to the Registrar of Firms. It was also argued that there was no prohibition in law against the formation of a new partnership by the remaining two partners with a new partner. It was, therefore, submitted that the two assessments made separately on the two different firms on the basis of the two returns filed by the two assessee-firms were correct and that they did not call for any action under section 263 of the Act. 6. The Commissioner did not agree with these contentions of the assessee. He held that for the purpose of the Income-tax Act, the two firms, old and new, were doing the same nature of business at the same place in the same name and style as in the case of the erstwhile business of the existing partners and that the only change was that a new partner was introduced and two partners of the erstwhile firm had retired and this would not dissolve the said partnership firm. He, therefore, cancelled both the assessments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Joshi & Co. v. CIT [1986] 162 ITR 268. 9. To my mind, the assessee's case is squarely covered by the following observations of the Supreme Court in the case of Wazid Ali Abid Ali v. CIT [1988] 169 ITR 761 at pages 778 & 779, wherein their Lordships of the Supreme Court have quoted with approval the decision of the Delhi High Court in CIT v. Sant Lal Arvind Kumar [1982] 136 ITR 379 : " The Delhi High Court, however, held in the case of CIT v. Sant Lal Arvind Kumar [1982] 136 ITR 379, that section 187 of the Income-tax Act came into operation and applied only when there was in the eye of law a firm with continued existence and not to a case where under the law, one firm had ceased to exist and another came into existence. The High Court observed that the purpose of sub-section (2) of section 187 was not one of expansion of the normal concept of a change in the constitution of a firm but was really one of limitation ; the purpose was not lo say that a firm would continue in spite of dissolution but rather to say that, even in a case where there was only a change in the constitution, sub-section (1) would not apply if the partners before or after the change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the four partners of the old firm had agreed to dissolve the partnership by mutual agreement as evidenced by the Deed of Dissolution dated 7-11-1987. The said partnership was dissolved on 21-10-1987 and notice of dissolution of this partnership was also given to the Registrar of Firms as required by section 63(1) of the Indian Partnership Act, 1932 on 18-1-1988 as could be seen from page 2 of the assessee's paper book. The new partnership firm which came into existence on 22-10-1987 was also registered with the Registrar of Firms, as could be seen from the receipt at page 2 of the assessee's paper book as well as the intimation given by the said new partnership to Indian Overseas Bank about the dissolution of the old firm and the formation of the new firm, which had taken over the liabilities and assets of the old partnership firm. The licence granted by the Directorate of Textiles of Government of West Bengal on 29-7-1987 also shows that this new partnership firm with the three partners was recognised as a separate entity and a new firm, by the Directorate of Textiles. All these facts clearly establish that it is not a case of mere change in the constitution of the firm, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners of the respective firms in accordance with their profit sharing ratios as disclosed in the respective partnership deeds. There is also no dispute about the genuineness of the two partnership firms as well as the genuineness of the dissolution of partnership on 21-10-1987 and that the Deed of Dissolution executed on 7-11-1987 and the other documents that have been produced before the departmental authorities. In the light of the above materials, I respectfully follow the decisions of the Supreme Court and of Madras & A.P. High Courts referred to above and hold that it is a case of succession of the old firm of four partners by the new firm of three partners and that the provisions of section 188 alone would be applicable to the facts of the present case and that the Income-tax Officers had rightly accepted the two separate returns of income filed by the two firms and made separate assessments in respect of the same. Consequently, I hold that the Commissioner was not justified in his conclusion that the said assessments were erroneous and prejudicial to the interests of the revenue. I, therefore, cancel the order passed by the Commissioner under section 263 of the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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