Commissioner Of Income Tax vs Punjab Soot Gola
1984 Latest Caselaw 76 Del

JUDGMENT

D.K. Kapur, J.

1. The question referred to us for asst. yr. 1969-70 is as follows :

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that two separate assessments were called for in the present case, one of the period prior to the death of a partner and the dissolution deed and the other of the period subsequent thereof."

2. We may say that it appears that this case covered by the judgment of this Court in CIT v. Sant Lal Arvind Kumar , wherein on similar circumstances it was held that if there is dissolution of a partnership on the death of a partner, then it will be a case of succession and not a case of change of constitution of the firm.

3. Mr. Wazir Singh, ld. counsel for the department, submits that it is not every partnership which is dissolved on the death of a partner. He points out that s. 42 of the Partnership Act, 1932 contains a provision that a firm will dissolve by the death of a partner, but this is subject to contract between the partners. In some cases, the conduct of the parties has led to an inference that in fact the partnership has not dissolved by the death of a partner but has continued. He submits that the facts of the present case, would also suggest that the conduct of the parties was such that the firm was not dissolved by the death of a partner but continued. The facts of the present case show that the partner dies on 1-8-1968 and thereafter the firm was closed for a few days and then a dissolution deed was drawn up and then a new partnership which included the heirs of the deceased was formed. He submits that these facts show that in fact there was no dissolution. The cases relied upon by him, vi., Lala Ram Kumar v. Kishore Lal AIR 1946 Raj. 259 and Kesri Mal v. Dali Chand are cases in which through a partnership should have been dissolved by the death of the partner, still the Court was able to infer that the conduct of the parties showed that there was an implied contract to continue the partnership notwithstanding the dissolution which would otherwise have taken place u.s 42. No doubt. But is must be remembered that it was the case of the partners themselves in those cases. The facts of the present case are in this sense contrary, because here the partners claim that the partnership was dissolved and was not continued. Therefore, the inference that there was the contract to the contrary, as visualised by s. 42 is difficult to draw.

4. In addition, there are other circumstances in this case which would discount the inference that the parties intended to continue the original firm. For one thing, the Will of the deceased shows that he had 31% share in the firm. According to that Will he left 25/31 share to Ashok Kumar and 6/31 to Ramesh Kumar, two of his sons. The fact that the share was left by Will was on account of the fact that otherwise the sons would have shared equally in the deceased's share in the firm. Suppose, there was no new partnership then what would have happened ? The share of the deceased would have to be ascertained by selling the assets, etc. of the firm and then would be divided among his heirs and in that case 25/31 would go to Ashok Kumar and 6/31 to Ramesh Kumar, this excluded the other heirs. As a matter of fact, this contingency did not arise because all the brothers including the excludes brother joined together with the fourth partner to form a new firm w.e.f. 5-8-1968.

5. Then, we have the circumstances that in the original partnership deed, there is an express term, vide term No. 19, to the effect that wherever the partnership deed is silent the terms of Partnership Act will apply. Thus we see that the original partnership deed visualised the dissolution deed written on 5-8-1968, which is Annexure D. This shows that the partners agreed that there had been dissolution on 1-8-1968 but they were making provisions to start the concern again along with a new partner, Ashok Kumar son of the deceased. This Deed expressly provided "the books shall be closed on 1-8-1968. Profits and loss shall be drawn and the net profit shall be divided among the partners". After this had been done, the new firm was started on 5-8-1968. The shares in the new firm were given in para 5 which states : 5. The profits and loosed of the firm shall belong to and be borne by the partners equally." This meant that all the three brother Amar Nath, Ramesh Kumar and Ashok Kumar also got 25% each. Originally the share of Ramesh Kumar was 19% and Ashok Kumar had no share. It appears that 31% share of Shri Mool Raj was given 6% to Ramesh Kumar and 25% to Ashok Kumar, thus making all the partners equal partners. However, the decision to form the new firm and run the new firm was taken by the new partners and they deed not have done so because it was a matter dependent on their own volition. This would, therefore, discount the theory that the new partnership was a continuance of the old one.

6. In any event, the closure of the original books of account and the settlement of the profit and loss account, and the sharing of the profit under the old partnership would show that the new partnership forms on 5-8-1968 was a completely separate firm in the sense that it was started with a new account and a clean slate. This was the exact situation also in the case decided by this Court, Sant Lal Arvind Kumar (supra). The operative part of that judgment was : There was difference between the cases where partners had deliberately dissolved the firm in order to reduce their liability to tax and that of a case in which firm was dissolved on account of death of one of the partners. In the latter case, the law operated to dissolve the firm and, therefore, there was no room for the legal fiction that the firm continued with the change of constitution. As we have already stated, this being the decision of this Court, we would merely follow the same and hold that in the present case, the Tribunal was right in holding that two separate assessments were called for, one for the period prior to the death of the partner and the other in respect of the subsequent period. We would accordingly answer the question referred to us in the affirmative in favor of the assessed and against the department. Since this is a covered case, there will be no order regarding costs.