Madras H.C : Whether, on the facts and in the circumstances of the case and having regard to the provisions of s. 187(2) of the IT Act, the Tribunal was justified in law in holding that consequent to the death of one of the partners, on 17th July, 1972, there was dissolution of the old firm and hence two separate assessments have to be made one for the period up to 17th July, 1972, and the other for the subsequent period for the asst. yr. 1973-74 ?

High Court Of Madras

CIT vs. Madhavdas Lalchand

Sections 187(2), 188

Asst. Year 1973-74

Thanikkachalam & N.V. Balasubramanian, JJ.

Tax Case No. 990 of 1984

22nd July, 1996

Counsel Appeared

C.V. Rajan, for the Revenue : None, for the Assessee

JUDGMENT

THANIKKACHALAM, J. :

In compliance with the order of this Court dt. 6th April, 1983, the Tribunal referred the following question for the opinion of this Court under s. 256(2) of the IT Act, 1961 : “Whether, on the facts and in the circumstances of the case and having regard to the provisions of s. 187(2) of the IT Act, the Tribunal was justified in law in holding that consequent to the death of one of the partners, on 17th July, 1972, there was dissolution of the old firm and hence two separate assessments have to be made one for the period up to 17th July, 1972, and the other for the subsequent period for the asst. yr. 1973-74 ?”

The point for consideration is, having regard to the provisions of s. 187(2) of the IT Act, the Tribunal was justified in law in holding that consequent to the death of one of the partners on 17th July, 1972, there was dissolution of the old firm and hence two separate assessments have to be made one for the period up to 17th July, 1972, and the other for the subsequent period for the asst. yr. 1973-74. There was a partnership constituted by a deed dt. 31st Oct., 1959, wherein it is stated that it will be governed by all the provisions of the Indian Partnership Act, 1932. Under s. 42 of the Partnership Act, subject to contract to the contrary, a firm is dissolved by the death of a partner. On 17th July, 1972, a partner died and since there was no contract to the contrary, it was found that thepartnership stood dissolved and a new partnership firm was constituted by a fresh deed dt. 21st July, 1972. The case of the Revenue was that from the conduct of the parties it must be inferred that there was in fact no dissolution. But the Tribunal found that the question of gathering the intention by the conduct of the parties would not arise when there was an express contract in the agreement and the partnership being one at will, the death of the partner automatically brought it to an end. It was also found that the subsequent conduct of the surviving partners will be irrelevant to ascertain the existence of an agreement between a surviving partner and the deceased to continue the business. Hence, the Tribunal found that there was a dissolution of the firm on the death of a partner and consequently separate assessments had to be made for the period up to the date of death and the period after the date of death during the previous year for the asst. yr. 1973-74.

In the present case, there is no clause in the original partnership deed for the continuation of the firm. When there is a written contract, it is not possible to substitute any clause of the written contract by an oral agreement since the written contract can be varied only by another written contract. It further remains to be seen that after the death of one of the partners, the firm was again reconstituted under a separate deed dt. 21st July, 1972. Therefore, there is no question of continuation of the original firm in the present case. A similar question came up for consideration before the Supreme Court in the case of CIT vs. Empire Estate (1996) 132 CTR (SC) 221 : (1996) 218 ITR 355 (SC) wherein the Supreme Court held that the case of the assessee did not fall within the expression “change in the constitution of the firm” under s. 187 and, therefore, the Tribunal was correct in directing the ITO to make two assessments, one for the period from 1st June, 1973, to 12th Jan., 1974, and another for the period from 13th Jan., 1974, to 30th June, 1974, as the assessee’s case did not fall within the provisions of s. 187(2) of the Act. Thus, considering the facts arising in this case, in the light of the judgment of the Supreme Court cited supra and looking into the provisions of s. 42 of the Indian Partnership Act, we hold that there is no infirmity in the order passed by the Tribunal directing to make two separate assessments for the assessment year under consideration since there was no continuation of the original partnership on the death of one of the partners, especially when there is no clause for continuation of the old firm. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.

[Citation:230 ITR 877]

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