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High Court Of Calcutta
DIPAK KUMAR SEN, C. K. BANERJEE
MATHURDAS GOVARDHANDAS - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 129 Of 1975
Decided On : 08/24/1979
INCOME TAX - Assessment - Change in the constitution of a firm - Dissolution of a firm - Whether the provisions of Section 187 (2) (a) of the Income Tax Act, 1961, would be applicable and as such only one assessment for the whole year was rightly made - HELD, no.
Fact of the Case:
During the assessment year 1966-67, the assessee, a partnership firm, filed two returns of income, one being for the period between 1st November, 1964, and 19th April, 1965, i. e. , up to the death of the said Govardhandas Binani and the other being for the period from the 28th April, 1965, up to the end of the accounting period, i. e. , the 24th October, 1965, and claimed that separate assessments should be made for the said periods inasmuch as after the 19th April, 1965, an entirely new firm had come into existence and had succeeded the old firm.
Finding of the Court:
The Tribunal held that, as on the death of one of the these partners the remaining two partners had continued as partners, therefore, one assessment had to be made for the relevant year. The Tribunal upheld the decision of the AAC and dismissed the appeal.
Issues: Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the provisions of Section 187 (2) (a) would be applicable and as such only one assessment for the whole year was rightly made ?
Ratio Decidendi: The scheme for assessment of firms in the I. T. Act as appears from the sections quoted as aforesaid shows that different procedures are laid down covering three different contingencies: (a) a change in the constitution of the firm, (b) succession of one firm by another, and (c) dissolution of a firm. Section 187 of the I. T. Act lays down the procedure for assessment in cases where there occurs a change in the constitution of a firm. Where any person who was a partner before the change continues as a partner after the change, then, irrespective of the fact that one or more persons have ceased to be partners or one or more new persons have been admitted as partners, it will still be a change in the constitution within the meaning of the said section. The said section also provides that where there is no change in the personnel but the partners change their respective shares, there will also be a change in the constitution. In all such cases, the change in the constitution will not stand in the way of one assessment which will be made on the firm as at the time of assessment. Section 189 deals specifically with the case of the dissolution of a firm. This is an independent section and is not subject to either Section 187 or Section 188. Therefore, where there is a dissolution of a firm, Section 189 will come into operation and the ITO is bound to assess the dissolved firm and, if the business of the dissolved firm has been taken over by another firm, in our view, the successor firm will have to be assessed under Section 188. The operation of Section 188 in such a case cannot be stayed on the ground that the case might be covered under Section 187. Section 187 of the I. T. Act no doubt gives a special meaning or definition to the expression "change in the constitution of a firm", but the said section ex facie does not seek to define or interpret dissolution of a firm. The concept of dissolution, therefore, has to be understood in the context of general law as also of the Indian Partnership Act.
Final Decision: The question referred is answered in the negative and in favour of the assessee. The reference is disposed of accordingly. There will be no order as to costs.
( 1 ) THE facts and the proceedings leading up to the present reference are as follows : Mathurdas Govardhandas, the assessee, is a partnership-firm which carries on business as general merchants and bankers and also as the managing agents of a company named Metal Distributor Ltd. up to April, 1965. The assessee was constituted by a deed of partnership dated the 17th December, 1963, with three partners, namely, Govardhandas Binani, Ghanshyamdas Binani having 2/5ths share each and Sm. Padma Binani, the wife of Ghanshyamdas, having 1/5th share, respectively, in the said partnership. The said deed did not provide for the continuation of the said partnership in the event of the death of any of the partners.
( 2 ) DURING the assessment year 1966-67, the relevant accounting period being the year ending on the 24th October, 1965, the said Govardhandas Binani died on the 19th April, 1965. On the 7th May, 1965, another deed of partnership was executed by the surviving partners, namely, Ghanshyamdas Binani and the said Padma Binani, recording, inter alia, as follows : (a) The partnership carried on under the earlier deed dated the 17th December, 1963, was a partnership at will and on the death of Govardhandas Binani the partnership stood dissolved. (b) The surviving partners had agreed to become partners and continue the business of the old firm to be commenced immediately after the dissolution of the same. (c) The name of the new partnership would be Mathurdas Govardhandas. (d) The new firm would take over all assets and liabilities of the old firm. (e) The shares of the said Ghanshyamdas Binani and Padma Binani in the assets and profits of the new firm would be 4/5ths and 1/5th, respectively.
( 3 ) FOR the assessment year 1966-67, the assessee filed two returns of income, one being for the period between the 1st November, 1964, and the 19th April, 1965, i. e. , up to the death of the said Govardhandas Binani and the other being for the period from the 28th April, 1965, up to the end of the accounting period, i. e. , the 24th October, 1965, and claimed that separate assessments should be made for the said periods inasmuch as after the 19th April, 1965, an entirely new firm had come into existence and had succeeded the old firm. The ITO held that inasmuch as both the partners in the new firm had been partners in the old firm, it was a case of change of constitution of a firm within the meaning of Section 182 (2) (a) of the I. T. Act, 1961, and not one of succession under Section 188 of the said Act. Accordingly, he made one assessment for the assessment year.
( 4 ) BEING aggrieved, the assesses preferred an appeal to the AAC who found that after the death of the said partner no valuation or estimate of his share in the old firm had been made and that the accounts have been carried on in the same set of books till the end of the accounting period though separate profit and loss accounts were made out for the said two periods. He also noted that there was no gap between the date of the death of Govardhandas Binani and the date on which the new partnership came into existence and that Padma Binani was admittedly a common partner in both the firms. He held that the provisions of Section 187 of the Act were attracted in the facts and accordingly upheld the order of the ITO.
( 5 ) FROM the order of the AAC, the assessee preferred a further appeal to the Income-tax Appellate Tribunal. It was contended in, the said appeal by the assessee that as there was no provision in the deed of partnership dated the 17th December, 1963, that the partnership would continue in the case of death of any of the partners, the earlier partnership came to an end on the death of Govardhandas. There was no transaction in the account of the first partnership after the 19th April, 1965, and a new firm had come into existence by the 20th April, 1965. It was submitted that it was a case of succession and not that of a change in the constitution
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