High Court Of Allahabad
CIT vs. Paramount Trading Corporation
Sections 43B, 187, 188
Asst. Years 1986-87, 1987-88
R.K. Agrawal & Vikram Nath, JJ.
IT Ref. No. 63 of 1993
27th September, 2006
Counsel Appeared : Shambhu Chopra, for the Revenue JUDGMENT
By the court :
The Tribunal, New Delhi, has referred the following questions of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), for the opinion of this Court :
“1. Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the unpaid liability towards payment to employees’ provident fund, family pension, employees’ State insurance and employees’ deposit linked insurance was not covered by the provisions of s. 43B of the Act ?
Whether, on the facts and circumstances of the case, the Tribunal was legally justified in confirming the CIT(A)’s finding that the proviso to s. 187(2) of the Act was applicable and there was a dissolution of the firm on the death of one of its partners on 23rd June, 1985, in spite of the fact that cl. 10 of the partnership deed dt. 27th April, 1985, specifically provided that in the event of the death of any partner the firm would not be dissolved ?
Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in coming to the conclusion that the partners of the firm decided to dissolve the firm on 23rd June, 1985 ?”
The reference relates to the asst. yrs. 1986-87 and 1987-88. Briefly stated the facts giving rise to the present reference are as follows :
The ITO by applying the provisions of s. 43B of the Act added to the returned income the unpaid liabilities on account of employees’ provident fund, family pension fund, employees’ State insurance and employees’ deposit linked insurance amounting to Rs. 558 in the asst. yr. 1986-87 and Rs. 2,851 in the asst. yr. 1987-88. The aforesaid action on the part of the ITO was upheld by the CIT(A). On further appeal by the assessee, the Tribunal opined that the provisions of s. 43B were not applicable in respect of the aforesaid items. The assessee firm had filed two returns, one for the period from 1st April, 1985, to 23rd June, 1985, and the other for the period from 24th June, 1985, to 31st Dec., 1985, for the reason that one of its partners had died on 23rd June, 1985, whereupon the assessee firm had stood dissolved. The AO treated the case as that of succession, particularly for the reason that condition No. 10 in the partnership deed required continuation of the business of the assessee without dissolving the partnership even in the case of death of a partner. The CIT(A), however, took the view that it was a case of dissolution of the old partnership on the death of the partner on 23rd June, 1985, as per the proviso to s. 187(2) of the Act and, therefore, he directed the AO to frame two assessments for each of the accounting periods, referred to above. Being aggrieved with the order passed by the CIT(A), the Revenue came up in appeal before the Tribunal and before whom it was submitted that in view of the specific condition of the old partnership deed, the partnership could not be deemed to have been dissolved on the death of the partner on 23rd June, 1985, and the business of the assessee firm should be deemed to have been continued by surviving partners and, therefore, there should be only one assessment in the case. The Tribunal, however, rejected the aforesaid argument by taking specific note of the proviso to s. 187(2) of the Act which laid down that the death of a partner resulted in the dissolution of the firm.
Note was also taken of the fact that the aforesaid provision was inserted with retrospective effect from 1st April, 1976. In the ultimate analysis, the Tribunal came to the conclusion that the firm stood dissolved on the death of one of its partners notwithstanding that there was a clause to the contrary in the partnership deed.
We have heard Sri Shambhu Chopra, learned standing counsel appearing for the Revenue, and perused the impugned order of the Tribunal.
We find that under s. 43B of the Act, during the relevant assessment year, there is no prohibition for disallowance of deduction in respect of any sum paid by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees and, therefore, the Tribunal was justified in holding that the unpaid liabilities for payment of employees’ provident fund, family pension, employees’ State insurance and employees’ deposit linked insurance could not have been disallowed.
We, accordingly, answer the first question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.
So far as the remaining two questions are concerned, it is not in dispute that cl. 10 of the partnership deed dt. 27th April, 1985, specifically contains a clause that in the event of death of a partner the firm would not be dissolved. Thus, even on the death of one of the partners on 23rd June, 1985, the legal effect of the partnership firm would be that it should be deemed to have been continued by the surviving partners and did not stand dissolved. It would be a case of s. 187 and not s. 188 of the Act. We are fortified in our view by the decision of the apex Court in the case of CIT vs. Empire Estate (1996) 132 CTR (SC) 221 : (1996) 218 ITR 355 (SC), wherein the apex Court had held that if there is no such provision in the partnership deed for continuance of partnership in the event of death of a partner in that event when surviving partners continue the business in partnership, s. 188 is attracted for there is a succession of one by another partnership.
We, accordingly, answer the remaining questions referred to us in the negative, i.e., in favour of the Revenue and against the assessee. There will be no order as to costs.
[Citation : 288 ITR 21]
