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Commissioner of Income-tax, Coimbatore Vs. Meenakshi Bankers - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 644 and 645 of 1978, (Reference Nos. 389 and 390 of 1978)
Judge
Reported in(1984)41CTR(Mad)219; [1985]152ITR132(Mad)
ActsIncome-tax Act, 1961 - Sections 187 and 188
AppellantCommissioner of Income-tax, Coimbatore
RespondentMeenakshi Bankers
Appellant AdvocateA.N. Rangaswamy and ;Nalini Chidambaram, Advs.
Respondent AdvocateR. Janakiraman, Adv.
Cases ReferredMavukkarai(N.) Estate Tea Factory v. Addl.
Excerpt:
direct taxation - construction - income tax act, 1961 - assessee was firm - firm dissolved - new firm reconstituted with some of old partners - whether change in constitution of firm should be taken as succession or reconstitution - held, firm which reconstituted with some of partners of old firm should be taken as succession rather that reconstitution of firm. - - 6. as already stated, the acc as well as the tribunal have proceeded on the basis that there has been a dissolution of the firm of four partners on november 7, 1973, before the constitution of the firm of five partners. but the fact of dissolution has been referred to in the return filed for the dissolved firm and there is a reference to the factum of dissolution even in the partnership deed constituted by the five..........the case, the appellate tribunal was right in holding that there was a dissolution of the assessee-firm on november 7,1973, and that the income for the period from april 1, 1973, to november 7, 1973, had to be assessed in the hands of the assessee-firm and the income from november 8, 1973, to march 31, 1974, in the hands of the successor-firm ?' 2. the assessee in this case for the assessment year 1974-75 filed a return of income on september 7, 1974, for the accounting period april 1, 1973, to november 7, 1973, showing an income of rs. 14,811 and the said return was filed in the status of a registered firm consisting of four partners, viz., meenakshi achi, ramayee achi, rajeswari achi and sundari achi. the first two partners had a 3/10ths share each and the last two had a 2/10ths share.....
Judgment:

Ramanujam, J.

1. At the instance of the revenue, the following question has been referred to this court for its opinion by the Income-tax Appellate Tribunal :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there was a dissolution of the assessee-firm on November 7,1973, and that the income for the period from April 1, 1973, to November 7, 1973, had to be assessed in the hands of the assessee-firm and the income from November 8, 1973, to March 31, 1974, in the hands of the successor-firm ?'

2. The assessee in this case for the assessment year 1974-75 filed a return of income on September 7, 1974, for the accounting period April 1, 1973, to November 7, 1973, showing an income of Rs. 14,811 and the said return was filed in the status of a registered firm consisting of four partners, viz., Meenakshi Achi, Ramayee Achi, Rajeswari Achi and Sundari Achi. The first two partners had a 3/10ths share each and the last two had a 2/10ths share each. According to this return, the said firm, which was constituted under an instrument of partnership dated November 12, 1970, had been dissolved with effect from November 7, 1973. Along with return, the profit and loss account and the trail balance of the dissolved firm for the period up to November 7, 1973, when the firm is said to have been dissolved, had also been filed. On September 10, 1974, another return was filed by the same firm showing an income of Rs. 3,585 for the period November 8, 1973, to March 31, 1974. This return also was filed in the status of a registered firm consisting of five partners, viz., the old four partners and one Subbiah Chetty, as the 5th partner. Out of the five partners, Meenakshi Achi and Ramayee Achi had a 25% share each, Rajeswari Achi and Sundari Achi had a 15% share each and Subbiah Cheety had a 20% share. This firm is said to have been constituted under an instrument of partnership dated November 8, 1973, which stated that the firm of five partners came into existence consequent on the dissolution of the earlier firm of four partners on November 7, 1973. Accompanying this return, there was a separate profit and loss account and trail balance, etc., for the period November 8, 1973, to March 31, 1974. On March 30, 1974, the firm of five partners filed an application seeking registration in Form No. 11. On the same date, the firm had also filed an application in form No. 11A. The ITO passed an order under s. 185(1)(b) stating as follows :

'There was a change in the constitution of the firm with effect from November 8, 1973. The assessee-firm filed a Form No. 11A on August 11, 1974, which is out of time. Under the circumstances, the registration asked for by the firm is hereby cancelled and the status of the firm is taken as that of an unregistered firm.'

3. Simultaneously with the passing of the order under s. 185(1)(b) of the Act the ITO made on March 14, 1975, a single assessment in the status of an unregistered firm on a total income of Rs. 18,400 for the period April 1, 1973, to March 31, 1974. The assessment order, however, does not state any reason why one single assessment was made. Subsequently, it would appear, another ITO made another assessment in respect of income of the firm from November 8, 1973, to March 31, 1974, on February 8, 1977, on an income of Rs. 4,250. He also granted registration under s. 185 of the Act to the firm of five partners with effect from November 8, 1973. Aggrieved against the single assessment made by the ITO, Circle 1(1), cuddalore, an appeal was filed before the AAC. The AAC held that the order refusing registration is to be cancelled, as the order has been passed with out considering the declaration filed by the assessee and it was on record. On merits, on the question as to whether there should be a single assessment or there should be two separate assessments, the AAC held that there was a dissolution of the firm of four partners on November 7, 1973, and consequently, the income from November 8, 1973,had to be excluded in making an assessment on the dissolved firm. Thus, the AAC took the view that there should be two separate assessments, one for the period prior to November 7, 1973, and the other for the period from November 8, 1973.

4. Aggrieved against the said order of the ACC holding that two separate assessments have to be made, the Revenue went before the Tribunal questioning the conclusion arrived at by the ACC. Before the Tribunal, the Revenue contended, that even if there has been a dissolution of the firm of four partners, since there is a reconstitution of the same firm by adding one more partner, the assessment will have to be made as per s. 187 and in support of the said submission, it relied on the decision of the Full Bench of the Punjab and Harayana High Court in Nandlal Sohanlal v. CIT , and also the Full Bench decision of the Andhra Pradesh High Court in Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466. Before the Tribunal, the assessee, on the other hand, contended that, since the firm of four partners had been dissolved and a new firm of five partners had been constituted after such dissolution, the assessment should be separately made, one on the dissolved firm and the other on the new firm of five partners, that when there is a dissolution of the firm of four partners, it should be taken to be that the old firm had been succeeded to by the new firm and that, therefore, s. 188 will stand attracted. In support of the said submission, the assessee relied on the Full Bench decision of the Andhra Pradesh High Court in Addl. CIT v. Vinayaka Cinema : [1977]110ITR468(AP) , a Division Bench decision of this court in Kaithari Lungi Stores v. CIT : [1976]104ITR160(Mad) , and also the Full Bench decision of the Allahabad High Court in Dahi Laxmi Dhal Factory v. ITO : [1976]103ITR517(All) .

5. The Tribunal after considering the rival submissions held that, since the assessee has claimed that there was dissolution of the earlier firm of four partners and such a dissolution stands established on the materials on record, the matter has to be considered on the basis that there has been a dissolution of the firm of four partners. Based on that fact, the Tribunal preferred to follow the decision in Dahi Laxmi Dhal Factory v. ITO : [1976]103ITR517(All) [FB], which is referred to with approval by this court in Kaithari Lungi Stores v. CIT : [1976]104ITR160(Mad) . The tribune; felt itself bound by the decision of this court in Kaithari Lungi Stores v. CIT : [1976]104ITR160(Mad) and, therefore, it held that, on the facts and circumstances of the case, the provisions in s. 188 of the I.T. Act are applicable to the facts of this case and that, therefore, there should be two assessments, one for the period prior to November 7, 1973, and the other for the period subsequent to November 8, 1973. Aggrieved by the order of the Tribunal, the Revenue sought and obtained a reference on the question refereed to above.

6. As already stated, the ACC as well as the Tribunal have proceeded on the basis that there has been a dissolution of the firm of four partners on November 7, 1973, before the constitution of the firm of five partners. Though the learned counsel for the Revenue questioned that finding, we are inclined to agree with the view taken by the Tribunal that there was a dissolution of the firm of five partners and that it is only after the dissolution, he firm of five partners was coincide. It is no doubt true that there is no deed of dissolution as such. But the fact of dissolution has been referred to in the return filed for the dissolved firm and there is a reference to the factum of dissolution even in the partnership deed constituted by the five partners dated November 8, 1973 Based on the factum of dissolution in the subsequent partnership deed, the AAC as well as the Appellate Tribunal have proceeded on the basis that there has been a dissolution of the earlier firm of four partners and their was a settlement of accont between the partners and that the new firm was consitituted after the dissoluion of the earlier partnership. The learned counsel for the Revenue, however, contends that even assuming that there has been a dissolution, as claimed by the assessee, still, since the new firm was constituted with four of the partners of the dissolved firm, it should be taken as a reconstitution as contemplated in s. 187(2) and a single assessment has to be made and not two assessments under s. 188. He would further submit that notwithstanding the faact that some of the partners of the old firm and the new firm are common and that, therefore, it should be taken as a reconstitution of the firm and by virtue of s. 187, the old firm should be deemed to continue for the purpose of assessment notwithstanding the dissolution in view of s. 187. No doubt this submission of the learned counsel for the Revenue finds support from the decision of the Andhra Pradesh High Court in Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466 , the Full Bench decision of the Punjab and Harayana High Court in Nandlal Sohanlal v. CIT , the decision of the Karnataka High Court in Sangam Silks v. CIT : [1980]122ITR479(KAR) , and the decision of the Madhya Pradesh High Court in Vimal and Amar Talkies v. CIT : [1982]138ITR660(MP) . But we find that a contrary view has been taken by this court in Kaithari Lungi Stores v. CIT : [1976]104ITR160(Mad) , in Mavukkarai(N.) Estate Tea Factory v. Addl.CIT : [1978]112ITR715(Mad) , and the recent unreported decision in CIT v. Sithan Chetty Sons [T.C.No.16 of 1978, judgment dated June 13,1983-since reported in : [1984]145ITR306(Mad) . The same view has been taken by the Full Bench of the Andhra Pradesh High Court in Addl. CIT v. Vinayaka Cinema : [1977]110ITR468(AP) and Division Bench of the Calcutta High Court in Mathurdas Goverdhandas v. CIT : [1980]125ITR470(Cal) and a decision of the Allahabad High Court in Dahi Laxmi Dhal Factory v. ITO : [1976]103ITR517(All) [FB].

7. In these decisions, it has been pointed out that if there is factually a dissolution of a firm and reconstitution of a new firm after such dissolution, it should be taken as a succession of one firm by another and it cannot be taken to be a reconstitution of the old firm by the new firm so as to attract s. 187. As a matter of fact, we find that more or less on indentical facts, this court by the decision dated June 13, 1983, in CIT v. R. Sithan Chetty Sons (T.C. No. 16 of 1978-since reported in : [1984]145ITR306(Mad) , categorically held that in cases where on firm ceases to exist and the relationship of the partners inter se comes to an end, that firm which has been dissolved, can no longer be said to continue as before so that it could be said that the old firm continues as reconstituted. The court also pointed out that once a firm is dissolved, it comes to an end and, thereafter, there cannot be any continuity of the firm so as to say that there is a mere fours to the facts and circumstances of this case, where the Tribunal has given a finding that the firm of four partners stood dissolved and the firm of five partners came into existence after the said dissolution. Though the decisions referred to by the learned counsel for the Revenue taken a different view, this court has consistently taken the view that a firm, once dissolved, cannot be taken to continue and any firm, which is reconstituted, with some of the partners of the old firm, should be taken to be a succession rather than a reconstitution of the old firm. Therefor, following the view taken by this court consistently, we have to answer the question in the affirmative and against the Revenue.

8. Having regard to the conflicting decisions on the point in question, the learned counsel for the Revenue makes an oral application for grant of leave to appeal to the Supreme Court against the decision just now rendered. The learned counsel for the Revenue also brings to our notice that there is a direct reference by the Tribunal to the Supreme Court under s. 257 on this point and the said reference is pending before the Supreme Court. In view of the fact that there is a conflicting opinion between the various High Court on the questions involved in this case and in view of the fact that the questions has already been referred to, and the same is pending before, the Supreme Court, we grant leave to the Revenue to appeal to the Supreme Court against our pronouncement just now made.

9. The assessee will get its costs from the Revenue. Counsel's fee Rs. 500.


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