Partnership reconstitution and income tax apportionment: Rule 9 remained effective despite a change in partners.

Rule 9 of the Rules applicable to Cases I and II of Schedule D was treated as continuing to operate where a partnership changed constitution during the assessment year but the business carried on. Read with the partnership assessment provisions and Rule 11 on change and succession, the rule was construed as allowing the firm to be regarded as a revised taxing entity for fair apportionment of liability. The statutory history, including earlier enactments and the Finance Act 1926, was taken to show that Rule 9 remained effective and was not displaced by Rule 11. On that basis, the assessment could be adjusted by apportionment for the reconstituted partnership.

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Issues: Whether Rule 9 of the Rules applicable to Cases I and II of Schedule D of the Income-tax Act, 1918 applied where, during the year of assessment, a partnership carrying on a business took in a new partner and the business continued with some of the original partners.

Analysis: The rule was construed in the context of the income-tax code as a whole, including the provisions on joint assessment for partnerships and the later Rule 11 dealing with changes in partnership and succession. The reasoning treated a partnership business, for tax purposes, as capable of being regarded as a changed taxing entity when the constitution of the firm altered during the year. The statutory history, including earlier enactments and the Finance Act, 1926, was read as showing that Rule 9 was not spent and that Parliament intended it to retain practical operation in cases where the partnership personnel changed but the trade continued. The presence of Rule 11 did not exclude Rule 9, and the language of succession and cessation was held capable of covering a reconstituted partnership for the purpose of apportioning liability fairly.

Conclusion: Rule 9 applied to the altered partnership, and the assessment could lawfully be adjusted by apportionment.

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