Case: Wazid Ali Abid Ali v. Commissioner of Income Tax, Lucknow. Additional Commissioner of Income Tax, Gujarat Vs. United Commercial Company

attention was, however, drawn to a decision of the Calcutta High Court in the case of Joshi and Co. v. CIT [1986] 162 ITR 268. The court held in that case that on the construction of the relevant sections and the rules framed under the Act of 1961, it appears that under the Income-tax Act, 1961, all that as assessee-firm was required to submit is an instrument of partnership as a documentary evidence of the partnership. It was not stated in the Act that evidence must be contemporaneous nor was it laid down that the instrument of partnership must be executed within the accounting year. On the other hand, it had been left open to the Income-tax Officer to accept an application after the end of the accounting year and a duty was case on the assessee to submit to the Income-tax Officer all subsequent instruments, if any, which may be in existence, right up to the date of the application showing the changes in the constitution of the firm. Under rule 23, all changes in the constitution, even after the date of the application, are required to be intimated to the Income- tax Officer. The duty cast on the Income-tax Officer under the Act of 1961 is to ascertain the genuineness of the firm and its constitution as specified in the instrument. The Income-tax Officer may entertain an application made even after the end of the accounting year if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of such period. In commercial practice, the terms of a partnership constituted initially under an oral agreement are often subsequently recorded in writing in an instrument. It was held that this was not prohibited in law. The instrument showed that the partnership had come into existence from a date other than that of the execution of the instrument and also on the terms and conditions on which the partnership had been and was being carried on. The Indian Income-tax Act, 1922, required the Income-tax Officer to certify and register the deed itself and the registration of the firm would follow. That is not so under the Income-tax Act, 1961. The High Court referred to the proviso to section 187(2) and observed that it could not be interpreted to mean that in every case where one of the partners died, the firm was and must be held to be dissolved for the purpose of registration under the Income-tax Act. The language of the proviso was clear and it stated that nothing in clause (a) of section 187(2) of the Act should apply to a case where a firm was dissolved on the death of any of its partners. In the facts of this case, before the High Court, it was held by the High Court that the assessee-firm was not dissolved on the death of B, one of its partners. Under the terms of the deed, one of the heirs of the deceased partner was inducted as a partner in the firm in respect, and to the extent, of the share and interest of the deceased partner. Hence, there had been a change in the constitution of the firm. It was held that the assessee was entitled to registration for the assessment year 1976-77 on the strength of its application made in Forms Nos. 11 and 11A and on the strength of the new deed of partnership executed after the end of the accounting year. We are in agreement with the views expressed in the said decision. It may, however, be mentioned that so far as the High Court had held that the assessee-firm was not dissolved on the death of one of the partners in view of the terms of the partnership deed, but there is a change in the constitution of the firm, the High Court was right. Whether the assessee was entitled to registration in the facts of that case on the strength of its application Forms Nos. 11 and 11A would, however, require closer examination when the facts of that case are re-examinedIn the aforesaid view of the matter, we are of the opinion, as indicated earlier, that the High Court of Allahabad in Civil Appeal No. 1792 of 1974 was in error in the view it took. The appeal must be allowed and the judgment and order of the High Court must be set aside. The view of the Tribunal must be upheld. 14. So far as Civil Appeal No. 609 of 1975 is concerned, the question is whether, on the facts and circumstances of the case, there was any dissolution of the partnership on the date of the death of Shri Sarabhai Chimanlal and there should be two separate assessments or whether, on the facts and circumstances of the case, the provisions of section 187(2) apply to the facts of this case. There, the High Court found examination of the facts of that case, that the assessees contention was right that the firm as found by the Tribunal was dissolved and the transactions were carried on with the remaining parties in the course of the winding up and for realisation of its dues. The High Court accordingly answered rightly in the affirmative and in favour of the assessee. There was, in fact, a dissolution as found by the Tribunal and on the facts and circumstances of that case and after the dissolution, the firm ceased to exist and there should be two separate assessments. The High Court was right in answering the question as it did. It appears to us that the High Court was also right in answering the second question, in view of the fact that there was a death and as such dissolution of the firm by the manner in which the parties acted, that there is no question of the same firm being continued and the provisions of section 187(2) could not be said to apply in the light of the facts. 15.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]There was a contract to the contrary, in our opinion, in the Allahabad High Courts decision, where the deed provided, inter alia, that where the deed is silent, it shall be governed by the Indian Partnership Act save and except that, on the death or demise of any partner, the firm shall not be dissolved but shall be carried on with the remaining partners and that heir and representative of the deceased partner who resides in India on such terms and conditions to which they mutually agree. Therefore, on the death of the partner, there is no dissolution by the express terms of the contract between the parties but the partnership is deemed to be carried on with the remaining partners and that heir and representative of the deceased partner. The terms and conditions, however, of such carrying on had to be mutually agreed upon. In that case, as mentioned hereinbefore, Qamaruddin, one of the partners, died on June 4, 1964, within the relevant time, and his son, Fariduddin, joined the firm as a partner. Before the expiry of November 4, 1964, that is to say, the previous year which expired on November 4, 1964, the assessee had filed a declaration in Form No. 12 for the relevant assessment year 1965-66 under section 184(7) of the Act. We are of the opinion that in this case, on the death of Qamaruddin and the inclusion of Fariduddin, there was a change in the constitution of the firm. It did not dissolve the firm but brought about a change in the constitution of the firm. Fresh deed had to be executed under sub-section (8) of section 184. This follows from an analysis of the different sections of the Act. The application was not filed for the whole of the assessment year and so, for part of the assessment year, the firm was registered and for the rest, the firm was not registered. The Tribunal held that the assessee would be entitled to the benefit of registration up to June 4, 1964, that is to say, a part of the previous year. The Tribunal further held that the total income be apportioned between the partners who were entitled to receive the profits accordingly as they were entitled to share the profits, the firm being assessed as a registered firm in respect of the profits ending of June 4, 1964, and as an unregistered firm in respect of the profits for the remaining part of the previous year. In our opinion, this conclusion is correct. The High Court has held that there is no warrant for this view. We are unable to agree. As a matter of fact, an analysis of the different sections of the Act leads to that conclusion and there is no contrary provision in the Act. Such a conclusion is logical and equitable and would do justice to both the Revenue as well as to the assessee. Our attention was not drawn to any decision of this court which is against that view though there is a certain amount of divergence of views amongst the High courts on this aspect. According to the High Court, by virtue of section 42(c) of the Indian Partnership Act, a firm was dissolved by the death of the partner but as the section provided, that was subject to the contract between the parties. The High Court was right in the view that clause (7) of the partnership deed dated March 17, 1959, specifically stipulated that the firm would not be dissolved on the death of a partner but it would be carried on with the remaining partners and such heir of the deceased partner who resides in India on the terms and conditions to which they mutually agreed. The High Court was of the view, in our opinion, rightly, that if there was an heir to the deceased partner who resides in India and agrees with the surviving partners on the terms and conditions on which he could be admitted of the partnership, the firm would not be dissolved. The High Court was further to the view that the inclusion of such partner depended upon the mutual agreement between the surviving partners and was not an automatic one, on the death of the deceased partner. In the background of the facts of this case, we are of the opinion that the High Court was right that in such circumstances, the course open was to seek registration to execute a new deed of partnership and to apply for the registration of that deed. But that does not make the registration up to the date of the death of the deceased partner invalid and, in our opinion, subject to any express prohibition indicating the same, the firm is entitled to the benefit of registration. We have found no such express prohibition, as the analysis of the various sections indicates. On the other hand, it would be just and equitable that the assessee should have that limited benefit. We are of the opinion that the Tribunal took the correct view in the first caseIn the aforesaid view of the matter, it must be held that the Allahabad High Court was in error in the view it took. The Tribunal was right. The appeal must be allowed and the judgment and order of the High Court must bethe High Court found examination of the facts of that case, that the assessees contention was right that the firm as found by the Tribunal was dissolved and the transactions were carried on with the remaining parties in the course of the winding up and for realisation of its dues. The High Court accordingly answered rightly in the affirmative and in favour of the assessee. There was, in fact, a dissolution as found by the Tribunal and on the facts and circumstances of that case and after the dissolution, the firm ceased to exist and there should be two separate assessments. The High Court was right in answering the question as it did. It appears to us that the High Court was also right in answering the second question, in view of the fact that there was a death and as such dissolution of the firm by the manner in which the parties acted, that there is no question of the same firm being continued and the provisions of section 187(2) could not be said to apply in the light of the facts