Commissioner Of Income-Tax, ... vs Raghumal Ashok Kumar
1983 Latest Caselaw 285 Del

JUDGMENT

Chada, J.

1. In this reference under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), the following question has been referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there were two firms in existence one for the period June 23, 1966 to March 31, 1967, and the other for the period April 1, 1967 to June 30, 1967, which required to be separately assessed and that it was not a case of a change in the constitution of the firm governed by the provisions of sections 187 ?"

2. The reference has arisen at the instance of the Departmental and relate to the assessment year 1968-69, accounting period ending on June 30, 1967. M/s. Raghumal Ashok Kumar was being assessed as a registered firm. It derived income from a wholesale business in cotton cloth. The firm was constituted under an instrument of partnership dated April 9, 1962. On March 30, 1967, on of the partners died. On April 25, 1967, a new partnership deed was executed which was to have effect from April 1, 1967. For the assessment year 1968-69, two returns were filed in the name of M/s. Raghumal Ashok Kumar. A return declaring an income of Rs. 21,750 was filed in August 12, 1968. This income was or a period June 23, 1966, to March 31, 1967. Along with the return, an application in Form No. 12 for continuation of the registration of the partnership under the deed dated February 9, 1962, was filed. The other return was filed on the same date declaring an income of Rs. 7,250 for the period April 1, 1967, to June 30, 1967. This purported to be the income of the firm constituted under the deed dated April 25, 1967, and this firm also applied for registration in Form No. 11 for the grant of registration.

3. The ITO made a single assessment on M/s. Raghumal Ashok Kumar in which he assessed the income of the entire period from June 23, 1966, to June 30, 1967, and determined the total income at Rs. 32, 000 but the allocated the income for the two periods, namely, June 23, 1966, to March 31, 1967, and April 1, 1967, to June 30, 1967. The profits of the two periods were allocated among the partners who were partners during the respective periods. The ITO also granted continuation of registration to the firm which had applied in Form No 12. On appeal, the order of ITO was confirmed by the AAc by observing that there was only reconstitution of the firm in terms of s. 187(2) of the Act. The assessed went in appeal to the Income-tax Appellate Tribunal. The Tribunal held that the ITO erred in framing one assessment in respect of the two periods on two different firms. It followed the decision of the Bombay High Court in Bhausa Ganusa Pawar & Co. v. CIT [1966] 62 ITR 75, where in it was observed that the legal effect of the death of the partner of the old firms was itself dissolution and the firm thereafter constituted is a new firm and that the mere circumstances that the business continued without interruption and the new firm cam into existence from the moment of the death of the deceased partner of the old firm is not sufficient to hold that there was a mere change in the constitution of the old firm. The assessment was aside and the case restored by the Tribunal to the file of the ITO for framing proper assessments on the two firms in the light of the observations made by the Tribunal. Subsequently, the assessed filed a miscellaneous applications seeking rectification of the order of the Tribunal in certain respects and this application was partially allowed.

4. The question that is raised before us is covered by a large number of decisions, most of them taking in view the in a case such as this the provisions of s. 187 will not apply. These are the two decisions of the Allahabad High Court of the same date reported in Dahi Laxmi Dal Factory v. ITO , followed in the decision of the same High Court in Addl. CIT v. Dilsukh Rai Madho Prasad [1977] 108 ITR 299 and CIT v.Kunj Behari Shyam Lal , the decisions of the Madras High Court in Kaithari Lungi Stores v. CIT [1976] 104 ITR 160, Mavukkarai (N.) Estate Tea Factory v. Addl. CIT [1978] 112 ITR 715 and Addl. CIT v. Thyagasundara Mudaliar [1981] 127 ITR 520, the decision of a Full Bench of five judges of the Andhra Pradesh High Court in Addl. CIT v. Vinayaka Cinema [1977] 110 ITR 468, which had in turn, overruled an earlier decision in Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466 (AP) [FB], and the decision of the Calcutta High Court in Mathurdas Govardhan das v. CIT [1980] 125 ITR 470. On the other hand, the Punjab and Haryana High Court took the contrary view in Dharam Pal Sat Dev v. CIT [1974] 97 ITR 302, which is followed in Jupiter Foundry and Machines (Knives) v. CIT [1977] 109 ITR 92 in a slightly different context and was approved by the Full Bench of the same High Court in Nandlal Sohanlal v. CIT [1977] 110 ITR 170, and followed in CIT v. Jagat Ram Om Prakash [1979] 116 ITR 266. There was also a decision of the Andhra Pradesh High Court in Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466 [FB], which was in favor of this Full Bench Decision has been overruled by a larger Bench in Addl. CIT v. Vinayaka Cinema [1977] 110 ITR 468.

5. All the above cases were cited and considered by a Division bench of this court in CIT v. Sant Lal Arvind Kumar [1982] 136 ITR 379. The Division Bench after having carefully gone through all these decision came to the conclusion that the view taken by the majority of judicial decisions is the preferable view. The Division Bench broadly summarised the reasons in coming to that conclusion. Where the partnership deed of a firm did not contain any provisions that the death of a partner would not dissolve the firm and one of the partners of the firm deed in the middle of the accounting period and thereafter a fresh deed was executed under which the surviving partners took a new partner in the place of the deceased and continued to carry on the business, the case was one of succession and not change in constitution and separate assessments had to be made in regard to the income of the period from the first day of the accounting period up to the date of the death and of the rest of the accounting period up to the last day of the accounting period. We are in respectful agreement with the reasoning of the Division Bench of this court and the conclusion arrived at and would answer the question in the affirmative, i.e., against the Department and in favor of the assessed. As the assessed has not put in appearance, we leave the parties to bear their own costs.