V. Ramaswami, J.
1. The assessee is a firm of partnership carrying on business in lungis under the name and style of 'Kaithari Lungi Stores'. Before February 15, 1962, the partnership consisted of 14 partners. The partners decided to admit one more partner and continue to carry on the same business. A fresh deed of partnership was executed on February 15, 1962. with 15 persons as partners. One of the partners died on May 27, 1963. The remaining partners decided to admit a third party as a partner with effect from May 28, 1963, and continued to carry on the business. After the admission of this partner a fresh deed of partnership dated July 10, 1973, was also executed. On December 15, 1963, two of the partners retired and the remaining 13 partners continued to carry on the business under a fresh deed of partnership dated January 4, 1964, with effect from December 16, 1963.
2. In order to meet the financial needs of the partnership, seven more partners were admitted to the partnership and a fresh deed dated May 26,1964, was executed and they continued to carry on the business. One of the partners died on August 15, 1964, and the remaining 19 partners decided to continue to carry on the business under, the terms and conditions evidenced by another deed dated September 2, 1964. For the assessment year 1964-65, corresponding to the previous year ending April 11, 1964, the assessee-firm filed three returns of income--one for the period ending May 27, 1963, the second for the period December 15, 1963, and the third for the period ending April 11, 1964, and claimed that though the assessee was liable to be assessed for the entire period, as there were changes in the constitution of the firm on the respective dates three separate assessments will have to be made and the income daring these periods could not be clubbed together and one assessment made on the assessee-firm. He also contended that Section 187 of the Income-tax Act, 1961 (hereinafter called the Act), does not authorise the clubbing of the income.
3. The Income-tax Officer held that since the change in the constitution of the firm is covered by the provisions of Section 187, only one assessment has to be made and the entire income will have to be clubbed together. This order was confirmed by the Appellate Assistant Commissioner. The Tribunal also was of the view that, on the facts and the circumstances of the case, the provisions of Section 187(1) alone would apply and that the assessment shall be on the entire income of the previous year and no separate assessments were contemplated. The Tribunal also was of the view that Section 188 was not applicable. At the instance of the assessee the following question of law has been referred :
'Whether the aggregation of the incomes of the three different partnerships constituted under three separate deeds of partnership relating to three different periods in the hands of the assessee for the assessment year 1964 65 is proper and valid in law ?'
4. Though the argument on behalf of the assessee before the Tribunal and the authorities was that even under Section 187 of the Act three separate assessments would have to be made without clubbing the income and making one assessment, in this reference the learned counsel for the assessee also contended that on the death of one of the partners on May 27, 1963, the partnership constituted under the deed dated February 15, 1962, came to be dissolved by operation of law and even if the subsequent partnership as evidenced by the deed dated July 10, 1963, shall be deemed to be a successor to the original firm which stood dissolved by death of a partner, two separate assessments will have to be made under Section 188, one on the predecessor-firm and the other on the successor-firm. The Tribunal had in its order referred to Section 188 and said that on the facts of this case that section has no application, in view of this reference to Section 188 in the order of the Tribunal, though there is no reference to the argument of the learned counsel, on the effect of death of one of the partners on May 27, 1963, we have permitted the learned counsel to argue that point as well. The learned counsel for the revenue submitted that the words 'one or more of the partners ceased to be partners' in Section 188(2) would include within its scope not merely the retirement of partners but also the death of a partner, and, therefore, the ceasing of oneof the partners as a partner by reason of death and the partnership continuing to carry on the business will only amount to a change in the constitution of the firm. He further contended That Section 187 contemplates only single assessment on the firm as constituted at the time of making the assessment on the income of the previous year and the income could not be apportioned and separate assessments made with reference to every time a change in the constitution takes place. He also referred to certain clauses in the partnership deed as providing for the continuance of the partnership irrespective of the death of one or more of the partners.
5. The first point that arises for consideration, therefore, is whether there was merely a change in the constitution of the firm within the meaning of Section 187(2) when one of the partners died on May 27, 1963, or when the two partners retired on December 15, 1963, and when seven new partners were admitted to the partnership with effect from December 16, 1963. Section 187(2) reads as follows :
' (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 circumstances 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
(b) where all the partners continue with a change in their respective shares or in the shares of some of them.'
6. Change in the constitution of a firm may arise in the following cases : By admission, retirement expulsion, insolvency or death of one or more partners, subject to the conditions referred to in Sections 31 to 35 of the Partnership Act. In the case of death of a partner, there shall be a contract, express or implied, between the partners that the firm shall not be dissolved by the death of a partner. Under the ordinary law, every change in the constitution of a firm amounts to a dissolution of the old firm and bringing into existence of a new firm. In law the firm also has no legal existence apart from its members and it is merely a compendious name to describe a collection of persons who are partners. But the mercantile usage recognises the firm as a distinct person. The Partnership Act struck a medial note as between these two extreme propositions and recognised the continued existence of the firm in spite of the change in the constitution. The Income-tax Act went a little further and recognised the firm for the purpose of assessment as a unit independent of the partners constituting it. Section 187, as observed by the Supreme Court in C. A. Abraham v. Income-tax Officer : 41ITR425(SC) , invested the firm with a personality which survives reeonstitution. A change in the constitution of a firm must be distinguished from the dissolution of the firm. The distinction was clearly brought out by this court in Tyresoles (India), Calcutta v. Commissioner of Income-tax : 49ITR515(Mad) , and the following passage in that judgment is worth quoting :
'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 ceastd to exist was continued. A reconstitution of a firm or 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.'
7. We have already noticed that if there is a contract to the contrary against dissolution of a firm by the death of a partner, a change in the constitution of the firm also occurs by reason of death of a partner provided there are at least two surviving partners. In our opinion, therefore, the words 'ceasing to be partners' in Section 187(2) would also include a case of death of a partner when such death, by reason of a contract to the contrary or by reason of any law, did not bring about the dissolution of the partnership. But we are not prepared to accept the further argument of the learned counsel for the revenue that for the purpose of Section 187 even in cases where there is no contract to the contrary against the dissolution of the firm by death of a partner it will amount to a change in the constitution of the firm within the meaning of Section 187(2). Of course, the argument of the learned counsel for the revenue finds support in the dissenting judgment of Justice Seth in Dahi Laxmi Dal Factory v. Income tax Officer : 103ITR517(All) . In that case, the majority judgment had in detail considered the judgment of the Supreme Court in Shivram Poddar v. Income-tax Officer : 51ITR823(SC) , which was relied on by the dissenting learned judge in support of his conclusion and had held that the decision will have to be understood on the particular facts of that case. The learned judges further held that the Supreme Court decision should not be understood as obliterating the well-known distinction between 'reconstitution' and 'dissolution'. We are in respectful agreement with this view of the Allahabad High Court, but we are unable to agree with the majority judgment that Section 187 appliesonly where a firm is reconstituted in accordance with Sections 31 and 32 of the Indian Partnership Act, namely, when a partner is taken or an existing partner retired with the consent oi all the partners. The learned judges have not referred to the provisions in Sections 33, 34 and 35 of the Indian Partnership Act. Further, Section 2(23) of the Income-tax Act which defined 'firm', 'partner' and 'partnership' as having the meanings respectively assigned to them in the Partnership Act, 1932, is to he applied in understanding the provision only if the context does not otherwise require. Section 187(2) specifically states that for the purpose of that section a change in the constitution of the firm is said to have occurred if any of the things mentioned in that section takes place. The words 'ceasing to be partners' in Section 187 is very wide and is not restricted to retirement alone and it will also include cases of death if there is a contract among the partners that death shall not dissolve the firm.
8. In every one of the partnership deeds, we find the following two clauses:
'(16) If any one of the partners passes away the remaining partners shall meet, decide and pay to the legal heirs of the deceased the balance due on capital and share of profit.
(17) The question of taking in the legal heirs of the deceased as partners shall be considered and decided immediately after the event.'
9. These clauses, in our view, clearly imply that the partners intended that death of one partner shall not bring about a dissolution of the partnership. The conduct of the parties in these cases also show that the partners never intended that the dissolution should result in the death of a partner. In the partnership deed that was executed subsequent to the death of one of the partners, in the preamble portion it is clearly stated that the partners continued to carry out the business even after the death of that partner and, subsequently, they admitted one more partner. There could be no doubt that a contract against dissolution by reason of death of a partner could be either express or implied and such implied contract could be gathered from the conduct of the parties. If any authority is needed, reference may be made to the decision in Devji Goa v. Tricumji Jiwandas and Ramkumar v. Kishorilal : AIR1946All259 . We are of the view that the above extracted clauses in the partnership deed and the conduct of the parties show that death was not intended to bring about a dissolution of the partnership. We are, therefore, of the view that by reason of the death of one of the partners on May 27, 1963, there was no dissolution and there was only a reconstitution of the firm on all the occasions, namely, when one of the partners died, two of them retired and the admission of seven more partners. Section 187 is, therefore, clearly applicable.The next qxtestton for consideration is whether even if Section 187 is applicable three different assessments for the three different periods will have to be made and not one single assessment on the entire income of the previous year.
10. It was submitted by the learned counsel for the assessee that Section 187 did not warrant the clubbing of the income of the three periods which belonged to three different entities constituted under separate deeds and that the provision that one assessment should be made would not lead to the clubbing of ail the income. Section 187(1) of course refers to assessment on the firm as constituted at the time of making the assessment. But the assessment is on the total income of the previous year. Clearly, therefore, the section contemplates one assessment on the firm as constituted at the time of making the assessment in respect of the total income of the previous year and it does not contemplate three separate assessments for three separate periods though on the firm as constituted at the time of making the assessment. This is made clear if we refer to the proviso which states that the income of the previous year shall, for the purpose of inclusion in the total income of the partners, be apportioned between the partners, who, during the previous years, were entitled to the same and 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. If three different assessments are contemplated this provision is inappropriate because the apportionment would not arise as between the surviving partners and the partners who retired or are newly admitted. Further, if separate assessments were contemplated under Section 187 there was practically no need for this provision as even without it such separate assessments could have been made under Sections 143 and 144. In view of this, the decision in Commissioner of Income-tax v. Shamiah Setty Brothers : 66ITR328(KAR) is also of no assistance to him. That was a decision given with respect to the provisioES in the Indian Income-tax Act, 1922, when there was no definition of the words 'change in the constitution of the firm' as contained in Section 187(2). Further, in that judgment itself it has been noted, that it may sometimes happen that, although the remaining partners purported to form a new partnership, the old partnership nevertheless continued to exist and that the new partnership masquerades as a new partnership although it is not one. The decision itself was rendered on the basis of a finding that the two partnerships were different and it is on that basis it was held that the aggregation of the income of the two partnerships was not justified. We are, therefore, of the opinion that the assessment of the entire amount as the income of the previous year on the assessee-frrm was justified.
11. For the foregoing reasons, we answer the reference in the affirmative and against the assessee. Revenue will be entitled to its costs. Counsel fee Rs. 250.