NARASIMHAM C.J. - These two references under section 66(1) of the Indian Income-tax Act deal with the same question and are disposed of in one judgment. The question referred to this court by the Income-tax Appellate Tribunal in S.J.C. No. 37 of 1962 is as follow :
'Whether, in the facts and circumstances of the case, the Tribunal was justified in holding that the assessees application for registration under section 26A of the Income-tax Act for the assessment year 1958-59 was barred by limitation under rule 2(a) of the Income-tax Rules?'
In S.J.C. No. 36 of 1962, the same question has been referred to for the assessement year 1959-60 instead of 1958-59.
The material facts are thes : A partnership firm consisting of (1) Bholanath Saha, (2) Bhagirath Saha and (3) Mohanlal Saha was registered as a firm under the Indian Partnership Act on January 28, 1946, bearing No. 3 of 1946. It was also registered under section 26A of the Indian Income-tax Act in due course and was assessed as a firm for the assessment years 1947-48 to 1957-58. The accounting year for the firm was the dewali year. Hence, for the assessment year 1956-57, the 'previous year' ended on November 2, 1956, being the date of dewali of that year. On November 17, 1956, a new deed was drawn up reconstituting the said firm with retrospective effect from November 3, 1956. Bholanath withdrew from the partnership. The other two partners, Bhagirath and Mohanlal, however, continued to remain, and Bhagiraths grandsons who were minors were admitted to the benefits of the partnerships. Though, as pointed out already, the reconstitution of the firm was effected by a deed dated November 17, 1956, the issue of the notice to the Registrar of Firms under section 63(1) of the Partnership Act was made only on October 14, 1957, nearly 11 months later. Having sent that notice on that date, the assessee filed an application before the income-tax authorities for registration of the reconstituted firm on October 18, 1957. The dewali for that year was on October 23, 1957. The actual order of the Registrar of Firms filing the due intimation of reconstitution of partnership under section 63(1) of that Act was made only on October 21 1959, nearly two years later. But on August 12, 1958, the Income-tax Officer had to decide the question as to whether the application under section 26A of the Indian Income-tax Act filed on October 18, 1957, was time-barred or not. Rule 2 of the Income-tax Rules, 1922, is the relevant rule for this purpose. Clause (a) of that Rule (omitting immaterial portion) says that any firm constituted under an instrument of partnership shall apply for registration under section 26A of the Indian Income-tax Act within a period of six months from the date of the constitution of the firm where the firm is not registered under the Indian Partnership Act, 1932. Clause (b) however says that if the firm is not registered under the Indian Partnership Act, 1932, it may apply for registration under section 26A of the Indian Income-tax Act, 1922, before the end of the previous year of the firm. Thus the two clauses of rule 2 fixed two different periods of limitation for applying under section 26A according as whether the firm is registered under the Indian Partnership Act or not. But both the clauses require that the firm must be constituted under an instrument of partnership. The Income-tax Officer held that the reconstituted firm was an entirely new firm, the old firm having been dissolved and that as the new firm was admittedly not registered till October 21, 1959, by the Registrar of Firms, clause (a) of rule 2 of the Indian Income-tax Rules should apply and the application for registration under section 26A of the Indian Income-tax Act should have been made within six months from the date of the constitution of the firm. According to him the new firm was constituted on November 3, 1956, and six months period from that day expired on May 3, 1957. Hence he rejected the application as time-barred. On appeal, the Appellate Assistant Commissioner also upheld his view observing that the reconstituted firm was a new and distinct firm created after dissolution of the old firm of 1946. The learned Income-tax Appellate Tribunal was inclined to agree with the view of the counsel for the assessee that the old firm was not dissolved, but that there was a mere change of the constitution of the old firm consequent on the retirement of one of the partners and the admission of two minors to the benefits of the partnership and alteration of their shares. To that extent the Tribunal disagreed with the findings of the two lower authorities. But it held that even an old registered firm which is reconstituted must apply for fresh registration under the Indian Partnership Act and that as the order of the Registrar was passed only on October 21, 1959, the reconstituted firm was not a firm registered under the Partnership Act on the date of the application under section 26A of the Indian Income-tax Act. Hence, it agreed with the lower authorities that the period of limitation would be as prescribed in clause (a) of rule 2 of the Indian Income-tax Rules.
We are bound by the finding of fact of the Tribunal that the old firm was not dissolved or a distinct and new firm was brought into existence by the deed dated November 17, 1956, and that it was only a mere reconstitution of the old firm which had been registered under the Partnership Act on January 28, 1946, bearing No. 3 of 1946. It is true that the Tribunal added at the end that the question as to whether the old firm was dissolved or merely reconstituted was of no consequence for the disposal of the appeals. But this observation does not weaken the finding given by them to the effect that there was no dissolution of the old firm, but a mere reconstitution of the same.
The question which arises for consideration now is, where an old firm registered under the Indian Partnership Act was reconstituted and notice of such reconstitution was given to the Registrar of Firms under section 63(1) on October 14, 1957, that firm can be held to be 'a firm registered under the Indian Partnership Act, 1932' on the date of the application under section 26A, namely, October 18, 1957, even though the actual order of the Registrar under section 63(1) of the Partnership Act was passed on October 21, 1959.
Though there is no direct decision on this question, there are a series of decisions under section 69 of the Partnership Act and also some observations of the Supreme Court which support the view that the firm should be deemed to be a firm registered under the Partnership Act. The registration under the Partnership Act is made under section 59, and section 63(1) of that Act says that where there is a change in the constitution of a firm or even when a firm is dissolved, notice should be given to the Registrar of such change or dissolution, and thereupon the Registrar shall file the notice along with the statement relating to the firm filed under section 59. In Pratapchand & Co. v. Jehangirji it was held that such a firm continued to be a registered firm for the purpose of section 69 of the Partnership Act. This view was endorsed in Durga Das Janak Raj v. Preete Shah Sant Ram and also in Kesrimal v. Dalichand. It is true that in all these decisions the simple question was whether a firm continued to be a registered firm for the purpose of section 69 of the Partnership Act, notwithstanding the fact that a change had taken place due to reconstitution of the firm or dissolution brought about by the death of a partner. But if such a firm continues to be a registered firm for the purpose of section 69 of the Partnership Act, there seems no justification for taking the view that for the purpose of rule 2(b) of the Income-tax Rules, 1922, such a firm should not be held to be registered under the Partnership Act, 1932. The present case is slightly on a stronger footing in favour of the assessee. Here there has been no death of any partner or dissolution of the firm, but mere reconstitution brought about by the exit of one of the partners and the admission of some minors to the benefits of partnership. In such a case, it will be difficult to hold that the firm which was originally a firm registered under the Indian Partnership Act ceased to be so registered merely because of delay of nearly two years in the office of the Registrar of Firms in filing the necessary papers under section 63(1) of the Partnership Act. In this connection some observations of their Lordships of the Supreme Court in Commissioner of Income-tax v. A.W. Figgies and Co. may be notice :
'It is true that under the law of partnership a firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners but it is also equally true that under that law there is no dissolution of the firm by the mere incoming or outgoing of partners. A partner can retire with the consent of the other partners and a person can be introduced in the partnership by the consent of the other partners. The reconstituted firm can carry on its business in the same firms name till dissolution.'
In a recent judgment of the Madras High Court in Tyresoles (India), Calcutta v. Commissioner of Income-tax also, the distinction between reconstitution and dissolution of a firm has been brought about in the following words at page 52 :
'The dissolution and reconstitution of a partnership are two different legal concepts. The dissolution puts an end to the partnership, but reconstitution keeps it subsisting, though in another form. A dissolution followed by some of the erstwhile partners taking over the assets and liabilities of the dissolved partnership and forming themselves into a partnership is not reconstitution of the original partnership. The partnership formed after the dissolution is a new partnership and not a continuation of the old partnership, for it would be a contradiction in terms to say that what ceased to exist was continued. A reconstitution of a firm of partnership necessarily implies that the firm never became extinct. What it denotes is a structural alteration of the membership of the firm, by addition or reduction of members, and an incidental redistribution of the shares of the partners.'
Following these decisions, I would, therefore, hold that by mere reconstitution brought about by the deed dated November 17, 1956, the firm did not cease to be a firm registered under the Partnership Act for the purpose of rule 2(b) of the Indian Income-tax Rules, 1922. Hence, an application for registration under section 26A filed before the end of the previous year (that is, October 23, 1957) would be within time and should not have been rejected as time-barred.
The question is answered in the negative. The Tribunal was not justified in holding that the assessees application for registration under section 26A of the Indian Income-tax Act was time-barred. The same answer is given to the question referred to this court in S.J.C. No. 36 of 1962.
Both the references are disposed of accordingly. There will be one set of costs payable to the assessee in both these references. Hearing fee Rs. 200 (two hundred).
R.K. Das J. - I agree.
References disposed of accordingly.