Case: Commissioner of Income Tax, West Bengal III Vs. Pigot Chapman and Company

over the business and carried it on as from April 1, 1959, under the style of M/s. Pigot Chapman & Co. at the same place and, therefore, it could not be said that it was a case of a dissolution of the erstwhile firm and succession to the old business by a new firm and as such both the Tribunal and the High Court were in error in granting relief under s. 25(4) to the respondent-assessee. We might mention that in support of the aforesaid contention, counsel for the appellant relied upon few decided cases including a decision of this court in CIT v. A. W. Figgies & Company [1953] 24 ITR 405 , but in our view it is unnecessary to discuss the facts of those cases and the conclusions reached therein because the principle is well settled that it is on an examination of relevant documents and relevant facts and circumstances that the court has to be satisfied in each case as to whether there has been a succession or a mere change in the constitution of the partnership. It cannot be disputed that " dissolution " and " reconstitution " are two distinct legal concepts, for, a dissolution brings the partnership to an end while a reconstitution means the continuation of the partnership under altered circumstances but, in our view, in law there would be no difficulty in a dissolution of a firm being followed by the constitution of a new firm by some of the erstwhile partners who may take over the assets and liabilities of the dissolved firm. In other words it is not possible to accept the contention of counsel for the appellant that, upon a dissolution of a firm, succession to the old business by another person would arise only if a solitary partner takes over the assets and liabilities and carries on the business as a sole proprietor thereof or if some of the erstwhile partners along with some strangers take over the assets and liabilities of the old firm and carry on the business. The two instances mentioned by counsel for the appellant are undoubtedly clear cases of succession to the old business by another person or entity but succession to the old business contemplated under s. 25(4) need not be and cannot be confined to the instances mentioned by counsel for the appellant. Under s. 40 of the Partnership Act, 1932, a firm can be dissolved with the consent of all the partners or in accordance with the contract between the partners; under s. 43 a partnership at will can be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm and upon such notice being given the firm gets dissolved as from the date mentioned in the notice as the date of dissolution and, if no date is so mentioned, as from the date of the communication of the notice, while s. 44 contemplates dissolution of a firm by and under orders of the court in certain contingencies mentioned therein. It is quite conceivable that in cases of dissolution of the firm brought about by a notice under s. 43 or by an order of the court under s. 44 some of the erstwhile partners may take over the assets and liabilities and carry on the same business by constituting a new firm and even such cases would be cases of succession to the old business within the meaning of s. 25(4) of the 1922 Act. In our view, the question whether there has been a dissolution of the firm and upon such dissolution a new firm has succeeded to the business of the old firm, is a question which depends upon the intention of the parties to be gathered from the document or documents, if any, executed by and between the partners and other facts and surrounding circumstances of the caseIn the instant case, therefore, the question is whether there has been a dissolution of the old firm followed by the creation of a new firm which could be said to have succeeded to the business of the old firm? We have already summarised, while narrating the undisputed facts, the effect of the earlier documents commencing from the initial deed of partnership dated 18th May, 1953, right up to the deed dated 30th of March, 1959, with which we are principally concerned. On an examination of these documents the following facts emerge clearly: (a) that the initial partnership between Haywood, Blomenstok, Ablitt and Roy under the deed dated 18th May, 1953, was for a fixed term of six years from April 1, 1953, and as such the same would automatically stand dissolved under s. 42(a) of the Partnership Act on March 31, 1959; (b) under the deed dated 30th of March, 1959, the partnership between Mclean, Ablitt and Roy was in terms " dissolved by mutual consent as from 1st April, 1959 "; (c) the document expressly states both in the recital portion and in the operative part (vide cls. 1 and 2) that the firm has been dissolved by mutual consent; (d) the continuing partners were given the sole right to collect all the assets of the dissolved firm and to issue, recover and give full receipts for all debts of that firm; (e) each of the parties to the deed released the other from all proceedings, accounts, costs, claims and demands in respect of the dissolved firm; (f) the Tribunal found as a fact that the relevant account books clearly indicated that the old firm stood dissolved and its assets and liabilities were taken over by the new firm of the two continuing partners; and (g) within three months, another document was executed on 29th June, 1959, by and between the continuing partners recording the terms and conditions on which the continuing partners, to the exclusion of the retiring partner, were to carry on the business of the old firm with effect from April 1, 1959.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]According to counsel when a partnership is dissolved and only one of the erstwhile partners takes over the business and carries it on as the proprietor thereof or upon dissolution some of the erstwhile partners take some outsiders as partners and carry on the business, those would be the cases where another person (entity) could be said to have succeeded to the business within the meaning of s. 25(4) but in the instant case, after the retirement of Mclean, the two erstwile remaining partners, namely, Ablitt and Roy, jointly described as continuing partners by the deed dated 30th March, 1959, took over the business and carried it on as from April 1, 1959, under the style of M/s. Pigot Chapman & Co. at the same place and, therefore, it could not be said that it was a case of a dissolution of the erstwhile firm and succession to the old business by a new firm and as such both the Tribunal and the High Court were in error in granting relief under s. 25(4) to theWe might mention that in support of the aforesaid contention, counsel for the appellant relied upon few decided cases including a decision of this court in CIT v. A. W. Figgies & Company [1953] 24 ITR 405 , but in our view it is unnecessary to discuss the facts of those cases and the conclusions reached therein because the principle is well settled that it is on an examination of relevant documents and relevant facts and circumstances that the court has to be satisfied in each case as to whether there has been a succession or a mere change in the constitution of the partnership. It cannot be disputed that " dissolution " and " reconstitution " are two distinct legal concepts, for, a dissolution brings the partnership to an end while a reconstitution means the continuation of the partnership under altered circumstances but, in our view, in law there would be no difficulty in a dissolution of a firm being followed by the constitution of a new firm by some of the erstwhile partners who may take over the assets and liabilities of the dissolved firm. In other words it is not possible to accept the contention of counsel for the appellant that, upon a dissolution of a firm, succession to the old business by another person would arise only if a solitary partner takes over the assets and liabilities and carries on the business as a sole proprietor thereof or if some of the erstwhile partners along with some strangers take over the assets and liabilities of the old firm and carry on the business. The two instances mentioned by counsel for the appellant are undoubtedly clear cases of succession to the old business by another person or entity but succession to the old business contemplated under s. 25(4) need not be and cannot be confined to the instances mentioned by counsel for the appellant. Under s. 40 of the Partnership Act, 1932, a firm can be dissolved with the consent of all the partners or in accordance with the contract between the partners; under s. 43 a partnership at will can be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm and upon such notice being given the firm gets dissolved as from the date mentioned in the notice as the date of dissolution and, if no date is so mentioned, as from the date of the communication of the notice, while s. 44 contemplates dissolution of a firm by and under orders of the court in certain contingencies mentioned therein. It is quite conceivable that in cases of dissolution of the firm brought about by a notice under s. 43 or by an order of the court under s. 44 some of the erstwhile partners may take over the assets and liabilities and carry on the same business by constituting a new firm and even such cases would be cases of succession to the old business within the meaning of s. 25(4) of the 1922 Act. In our view, the question whether there has been a dissolution of the firm and upon such dissolution a new firm has succeeded to the business of the old firm, is a question which depends upon the intention of the parties to be gathered from the document or documents, if any, executed by and between the partners and other facts and surrounding circumstances of thethe instant case, therefore, the question is whether there has been a dissolution of the old firm followed by the creation of a new firm which could be said to have succeeded to the business of the old firm?We have already summarised, while narrating the undisputed facts, the effect of the earlier documents commencing from the initial deed of partnership dated 18th May, 1953, right up to the deed dated 30th of March, 1959, with which we are principally concerned. On an examination of these documents the following facts emerge clearly: (a) that the initial partnership between Haywood, Blomenstok, Ablitt and Roy under the deed dated 18th May, 1953, was for a fixed term of six years from April 1, 1953, and as such the same would automatically stand dissolved under s. 42(a) of the Partnership Act on March 31, 1959; (b) under the deed dated 30th of March, 1959, the partnership between Mclean, Ablitt and Roy was in terms " dissolved by mutual consent as from 1st April, 1959 "; (c) the document expressly states both in the recital portion and in the operative part (vide cls. 1 and 2) that the firm has been dissolved by mutual consent; (d) the continuing partners were given the sole right to collect all the assets of the dissolved firm and to issue, recover and give full receipts for all debts of that firm; (e) each of the parties to the deed released the other from all proceedings, accounts, costs, claims and demands in respect of the dissolved firm; (f) the Tribunal found as a fact that the relevant account books clearly indicated that the old firm stood dissolved and its assets and liabilities were taken over by the new firm of the two continuing partners; and (g) within three months, another document was executed on 29th June, 1959, by and between the continuing partners recording the terms and conditions on which the continuing partners, to the exclusion of the retiring partner, were to carry on the business of the old firm with effect from April 1, 1959.