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Surana and Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 5 of 1977
Judge
Reported in(1985)48CTR(Raj)193; [1985]153ITR190(Raj); 1985(2)WLN24
ActsIncome Tax Act, 1961 - Sections 187, 187(2) and 188; Indian Partnership Act, 1932 - Sections 42
AppellantSurana and Co.
RespondentCommissioner of Income-tax
Appellant Advocate D.S. Shishodia, Adv.
Respondent Advocate J.P. Joshi, Adv.
Cases ReferredMavukkarai (N.) Estate Tea Factory v. Addl.
Excerpt:
.....made.;the firm constituted by the partnership deed dated october 22, 1968 stood dissolved on the death of fatehlal who died on july 14, 1969 and after that, a new firm by means of the partnership deed dated july 24, 1969 came into existence which was to be operative from july 15, 1969. the new firm constituted by means of the partnership deed dated july 24, 1969 is a successor firm and two assessments will have to be made under section 188 of the act.;reference answered against revenue - section 2(k), 2(1), 7 & 40 & juvenile justice (care and protection of children) rules, 2007, rule 12 & 98 & juvenile justice act, 1986, section 2(h): [altamas kabir & cyriac joseph, jj] determination as to juvenile - appellant was found to have completed the age of 16 years and 13 days on the date..........by her deceas-edhusband. this is evidenced by the partnership deed dated july 24, 1969. after the death of fatehlal, the account books of the assessee were not closed. the balance-sheet as on the date of death of fatehlal was not separately drawn. the books of account were closed at the end of the accounting period corresponding to the assessment year 1970-73, i.e., on diwali 1969. profits in the various trading accounts were also worked out up to diwali day and no attempt was made to bifurcate the profits in two parts, i.e., one preceding the death of fatehlal and the other succeeding his death. before the income-tax officer (ito), it was submitted that two different assessments should be framed on the firm, one for the period up to the date of death of the partner (fatehlal) and the.....
Judgment:

Mal Lodha, J.

1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as 'the Tribunal', has referred the following question for our decision :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the case of the assessee fell within the exception provided in Section 188 of the Income-tax Act, 1961, and was, therefore, covered by the provisions of Section 187(1) lead with Section 187(2) of the Income-tax Act, 1961, and that, therefore, only one assessment should have been framed on the firm for the entire accounting period corresponding to the assessment year 1970-71.'

2. The petitioner-assessee is a firm. Its accounting year for the assessment year 1969-70 ended on Diwali 1968 and the following persons were the partners of the firm on that date :

1. Fatehlal

2. Niranjan Kumar

3. Nirmal Kumar

3. One of the partners, namely, Shri Fatehlal, died on July 14, 1969, and on his death, his widow, Smt. Asha Kumari, was taken in as a partner and she was allotted the (same) share of profit as was being held by her deceas-edhusband. This is evidenced by the partnership deed dated July 24, 1969. After the death of Fatehlal, the account books of the assessee were not closed. The balance-sheet as on the date of death of Fatehlal was not separately drawn. The books of account were closed at the end of the accounting period corresponding to the assessment year 1970-73, i.e., on Diwali 1969. Profits in the various trading accounts were also worked out up to Diwali day and no attempt was made to bifurcate the profits in two parts, i.e., one preceding the death of Fatehlal and the other succeeding his death. Before the Income-tax Officer (ITO), it was submitted that two different assessments should be framed on the firm, one for the period up to the date of death of the partner (Fatehlal) and the other after the date of death of the partner to the end of the accounting period in accordance with Section 188 read with Section 170 of the I.T. Act, 1961 (No. XLIII of 1961) (' the Act' herein). The ITO did not accept the above contention of the assessee. He, by his order dated December 7, 1972, opined that it was a case of a change in the constitution of the firm as all the surviving partners had continued to do business as usual without any break and the widow of the deceased partner had joined the partnership with the existing capital and rights of the deceased. He, therefore, assessed the assessee-firm on the totalincome for the entire accounting period. Aggrieved against the order dated December 7, 1972, of the ITO, the assessee preferred an appeal and the AAC, vide his order dated June 10, 1975, dismissed the appeal. While doing so, the AAC relied on a decision of the Punjab and Haryana High Court in Dharm Pal Sat Dev v. CIT . Dissatisfied, the assessee-firm appealed to the Tribunal. Before the Tribunal, on behalf of the assessee, Addl. CIT v. Harjivandas Hathibhai : [1977]108ITR517(Guj) and Dahi Lalxmi Dal Factory v. ITO : [1976]103ITR517(All) [were cited. The Department relied on CIT v. Kelukutty : [1972]85ITR102(Ker) and CIT v. Veeraraghavulu Chetty & Sons Co. : [1975]100ITR723(AP) . The Tribunal upheld the view taken by the ITO as well as by the AAC. An application under Section 256(1) of the Act was moved before the Tribunal and that has led to this reference.

4. We have heard Mr. D. S. Shishodia, learned counsel for the assessee-firrn, as well as Mr. J. P. Joshi, learned counsel for the Revenue.

5. Clause (11) of the partnership deed dated October 22, 1968, which was executed between Fatehlal, Niranjan Kumar and. Nirmal Kumar is as follows :

'(11) That the partnership is one at will,'

6. In the partnership deed dated October 22, 1968, there is no clause that after the death of one of the partners of the firm, it may be continued with the mutual consent of the surviving partners by themselves or after taking a new partner or partners. As stated above, Fatehlal died on July 14, 1969, and after his death, afresh partnership deed dated July 24, 1969, was executed by the two surviving (remaining) partners and the widow of the deceased partner. The recital in the partnership deed dated July 24, 1969, is to the effect that as Fatehlal has died on July 14, 1969, the remaining partners have decided to take Smt. Asha Kumari, wife of Fatehlal; in the partnership on the terms and conditions mentioned therein. This newly constituted partnership was made operative from July 15, 1969, i.e., the day following the death of Fatehlal who died on July 14, 1969. After the death of Fatehlal, account books were not closed. Nor the balance-sheet as on the date of death of Fatehlal was drawn. The same books of account were availed of by the newly constituted firm. Profits in the various trading accounts were worked out up to Diwali and they were not bifurcated into two parts : one preceding the death of Fatehlal and the other succeeding his death. On these facts, the question before the taxing authorities was whether the firm which was constituted by means of the partnership deed dated October 22, 1968, stood dissolved and a new partnership had come into existence, or despite the fact that a new firm was constituted bythe partnership deed dated July 24, 1969, which was made operative from July 15, 1969, there was merely a change in the constitution of the firm within the meaning of Section 187(2) of the Act.

7. Section 42 of the Partnership Act deals with dissolution on the happening of certain contingencies. The relevant part of Section 42 of the Partnership Act is as follows :

'Section 42. Dissolution on the happening oj certain contingencies.--Subject to the contract between the partners, a firm is dissolved,--...

(c) by the death of a partner ; and...'

8. Dissolution under Section 42 of the Partnership Act is subject to the contract between the partners. If the partnership deed provides for the continuance of the partnership after the death of a partner, then the firm will not be dissolved. From the partnership deed dated October 22, 1968, no such contract for the continuance of the partnership after the death of a partner can be inferred.

9. Mr. D. S. Shishodia, learned counsel for the asses see-firm, has relied on Venkateswara Stone Co. v. CIT : [1978]115ITR236(AP) , Ganesh Dal Mills v. CIT : [1982]136ITR762(MP) , Addl. CIT v. Moosa Bhoy Amin , CIT v. Hind Agencies and Addl. CIT v. Emery Stone Manufacturing Co. (D.B.I.T. Ref. No. 4 of 1974 decided on December 5, 1984 ). The latter three decisions are the decisions of the Division Benches of this court. On the other hand, Mr. J. P. Joshi, learned counsel for the Revenue, has cited Ghella Dayal v. CIT : [1945]13ITR133(Bom) , Jessa Ram Fateh Chand v. CIT : [1971]81ITR409(All) , Dharam Pal Sat Dev's case , Kaithari Lungi Stores v. CIT : [1976]104ITR160(Mad) , Jupiter Foundry and Machines v. CIT , Nandlal Sohanlal v. CIT and Vimal & Amar Talkies v. CIT : [1982]138ITR660(MP) .

10. In Moosa Bhoy Amin's case ; on behalf of the Revenue, reliance was placed on Nandlal Sohanlal's case , wherein it was held by a majority relying on the Supreme Court's judgments in Abraham v. ITO : [1961]41ITR425(SC) and CIT v. Angidi Chettiar : [1962]44ITR739(SC) as under (p. 92 of 148 ITR):

'...that where a special provision was made in a taxing statute in derogation of the provisions of the Partnership Act, effect should be given to it and where no such provision had been made, liability for payment of tax could be determined by taking into consideration the general provisions of the Partnership Act. Therefore, where the provisions of the I.T. Act are clear, resort cannot be had to the provisions of another statute like the Partnership Act. Therefore, Section 187 of the I.T. Act overrides theprovisions of Section 42 of the Partnership Act and, therefore, the Tribunal was wrong in holding that there should be two assessments.'

11. The Punjab High Court followed its earlier view in Hoshiarpur Electric Supply Co. v. CIT and also relied on Karupukula Suryanarayana Shetty and Sons v. CIT : [1973]92ITR141(KAR) and Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466 and dissented from the Allahabad High Court decisions in CIT v. Shiv Shanker Lal Ram Nath : [1977]106ITR342(All) and Dahi Laxmi Dal Factory v. 1TO : [1976]103ITR517(All) . In Moosa Bhoy Amin's case , on behalf of the. assessee, reliance was. placed on CIT v. Sanilal Arvind Kumar : [1982]136ITR379(Delhi) , which has taken a contrary view and in which earlier decisions reported as Dahi Laxmi Dal Factory : [1976]103ITR517(All) , CIT v. Kunj Behari Shyam Lal : [1977]109ITR154(All) , Addl. CIT v. Dilsukh Rai Madho Pd. : [1977]108ITR299(All) , Kaithari Lungi Stores v. CIT : [1976]104ITR160(Mad) , Mavukkarai (N.) Estate Tea Factory v. Addl., CIT : [1978]112ITR715(Mad) , Addl. CIT v. Thyagasundara Mudaliar : [1981]127ITR520(Mad) , Addl. CIT v. Vinayaka Cinema : [1977]110ITR468(AP) and Mathurdas Govardhandas v. CIT : [1980]125ITR470(Cal) were relied on and dissent has been expressed from the earlier view of the Punjab High Court in Dharam Pal Sat Dev's case , Jupiter Foundry and Machines (Knives) case , Visakha Flour Mills' case [1977] 108 ITR 466 and Nandlal Sohanlal v. CIT .

12. In CIT v. Satya Deo Omprakash : [1982]136ITR720(All) , it was held that where a firm is dissolved either by agreement of partners or by operation of law on ,the death of a partner and another firm takes over the business, Section 187(2) will not come into operation and two separate assessments will have to be made. The same view has been taken by the Madhya Pradesh High Court in Ganesh Dal Mills' case : [1982]136ITR762(MP) in which they have dissented from the view of the Punjab High Court in Nandlal Sohanlal's 'case and relied on the, decisions of the Andhra Pradesh, Allahabad and Madras High Courts. The Orissa High Court in Ramakrishnaiah & Sons v. CIT : [1978]111ITR296(Orissa) , has also taken the same view and has agreed with the view expressed by the Delhi and Allahabad High Courts and taken a contrary view from that of the Punjab High Court. In Moosa Bhoy Amin's case , the view taken by the Punjab High Court in Nandlal Sohanlal's case was dissented.

13. The facts in this case are similar to the facts in Ganesh Dal Mills' case : [1982]136ITR762(MP) and Venkateswara Stone Co.'s case : [1978]115ITR236(AP) . The decisions in Venkateswara Stone Co.'s case, Ganesh Dal Mills' case, Moosa Bhoy Amiris case, Hind Agencies' case and Addl. CIT v. Emery Stone Mfg. Co. , are applicable to the case on hand and after considering them, we are of the opinion that the firm constituted by the partnership deed dated October 22, 1968, stood dissolved on the death of Fatehlal who died on July 14, 1969, and after that, a new firm by means of the partnership deed dated July 24, 1969, came into existence which was to be operative from July 15, 1969. The new firm constituted by means of the partnership deed dated July 24, 1969, is a successor firm and two assessments will have to be made under Section 188 of the Act.

14. On the facts and in the circumstances of the case, the Tribunal was not eight and justified in holding that the case was covered by the provisions of Section 187(1) read with Section 187(2) of the Act and, therefore, only one assessment should have been framed on the firm for the entire accounting period corresponding to the assessment year 1970-71.

15. The aforesaid question is answered in the negative, i.e., in favour of the assessee and against the Revenue.

16. In the circumstances of the case, we leave the parties to bear their own costs of this reference.

17. Let the answer be returned to the Tribunal in accordance with Section 260(1) of the Act.


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