TaxTMI 
TaxTMI 
1992 (1) TMI 6
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1969-70, the corresponding previous year being Samvat year 2024, that is, November 3, 1967, to October 21, 1968. The assessee-firm is a registered partnership firm and it deals in cloth. For the assessment year 1969-70, the firm had filed two returns of income for two periods falling within Samvat year 2024 relevant to the assessment year 1969-70. The first return was for the period from November 3, 1967, to January 22, 1968, showing an income of Rs. 24,147. The second return was for the period January 23, 1968, to October 21, 1968, showing a total income of Rs. 70,251. In this case, the original deed of partnership was executed on June 24, 1963, and, under this deed, the partnership was said to have come into existence with effect from April 15, 1963. The firm was carrying on business in the name of Messrs. Amritlal Nihalchand. It had two partners, Raichand Chunilal Daxini and Chaturdas Nihalchand Tanna. In this original partnership which is also referred to as "the old firm", two minors, Amritlal Nihalchand Tanna and Pratapbhai Sagalchand Chandan, were admitted to the benefits of the partnership. Amritlal Nihalchand Tanna attained majority on June 23, 1968. It is the case of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntioned that intimations that the old firm was dissolved and the new firm had been brought into existence were sent to the Registrar of Firms functioning under the Indian Partnership Act and also to the Income-tax Officer. Along with the returns, an application in Form No. 12 for declaration regarding the continuance of the firm as well as an application for registration under Form No. 11 had been sent. The Income-tax Officer was of the view that the new firm had taken over the business of the old firm as a going concern and even though the income-tax liabilities of the old firm were payable by the partners of the old firm, the tax payable by that firm was actually debited to the profit and loss account of the new firm. On these facts, he held that this was merely a case of a mere change in the constitution of the firm and not a dissolution of the previous firm and he made a single assessment clubbing the income of the two periods together in the hands of the new firm. He also passed an order under section 185 of the Income-tax Act, 1961, granting registration to the new firm for the assessment year 1969-70. Against the decision of the Income-tax Officer, the assessee took the mat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Hathibhai's case [1977] 108 ITR 517 that the decision of the Allahabad High Court in R. B. Jessa Ram Fateh Chand [1972] 81 ITR 409 has been overruled by the decision of a Full Bench of the same High Court in Dahi Laxmi Dal Factory v. ITO [1971] 103 ITR 517. After considering the legal position, it was held that section 187 of the Incometax Act does not introduce any change in the relationship between the parties and does not introduce a change from the general law of partnership as laid down by the Indian Partnership Act. It was contended on behalf of the Revenue before us, as has been contended in the instant case that, in view of the provisions of section 187 and particularly subsection (2) of that section, even if there is a dissolution of an old firm and some of the partners continue in the new firm, by virtue of subsection (2) of section 187, there is, in the eye of the law, particularly the income-tax law, a mere continuation of the firm and not a case of succession of one firm by another. After examining the different decisions on the point and the provisions of the Partnership Act, this High Court ([1977] 108 ITR 517) agreed with the summary of the legal position as set o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re, all that sub-section (2) of section 187 points out is that with the retirement of one or more of the partners, so long as one of the old partners continues and with the introduction of new partners so long as one of the old partners continues, there is a mere change in the constitution of the firm. Again, under clause (b) of sub-section (2) of section 187, by a mere variation in the respective shares of the partners or shares of some of the partners, there is no change in the firm itself. The old firm still continues and that is emphasised by clause (b) of sub-section (2) of section 187." For the reasons set out in the decision in Addl. CIT v. Harjivandas Hathibhai [1977] 108 ITR 517 (Guj), it must be held that the view taken by the Tribunal in the instant case was not in accordance with law. The facts are not in dispute and cannot be in dispute. The major partners, namely, Raichand Chunilal Daxini and Chaturdas Nihalchand Tanna who were the major partners in the old firm, agreed to dissolve the firm and that agreement of the two partners in the firm which was a partnership at will, as pointed out by the deed of partnership dated June 24, 1963, annexure 'J' to the statement o....