S.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 is correct in law in holding that consequent to the death of partner Alagappan on 28th May, 1976, two separate assessments and not one assessment should be made for the asst. yr. 1977-78?

Supreme Court Of India

CIT vs. Ayyanarappan & Co. & Anr.

Section 187(2)

Asst. Year 1977-78

J.S. Verma, S.P. Bharucha & Mrs. Sujata V. Manohar, JJ.

Tax Ref. Case No. 12 of 1982

23rd January, 1996

Counsel Appeared

K.N. Shukla with Ms. Luxmi Iyengar & S.N. Terdol, for the Appellant

JUDGMENT

BY THE COURT :

This is a reference made by the Tribunal under s. 257 of the IT Act, 1961, to answer the following question of law, namely :

“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 is correct in law in holding that consequent to the death of partner Alagappan on 28th May, 1976, two separate assessments and not one assessment should be made for the asst. yr. 1977-78?”

The two assessee-firms consisted of five and six partners, respectively. Shri T. Alagappan was one of the partners in each of the two firms. He died on 28th May, 1976. The relevant assessment year is 1977-78 for the period ending on 31st March, 1977. The two firms claimed that on 28th May, 1976, they were dissolved on the death of the said partner and fresh partnerships were entered into on 29th May, 1976. The ITO did not accept the claim of the assessees and held that there was only a change in the constitution of the firms according to s. 187(2)(a) of the Act and not their dissolution. Accordingly, he clubbed the income of the old and new firms in respect of each of the two assessees. The appeals of the assessees were allowed by the CIT. The appeals by the Revenue to the Tribunal have been dismissed. At the instance of the Revenue, the Tribunal has made this reference in view of the conflicting decisions of different High Courts.

By the Taxation Laws (Amendment) Act, 1984, amendment has been made retrospectively, w.e.f. 1st April, 1975, in s. 187 whereby the following proviso has been added in sub-s. (2) : “Provided that nothing contained in cl. (a) shall apply to a case where the firm is dissolved on the death of any of its partners.”

4. In view of this retrospective amendment prior to the relevant assessment year, s. 187 has to be read together with this proviso. By virtue of the said proviso, the applicability of cl. (a) of sub-s. (2) is excluded since the firms were dissolved on the death of one of its partners.

5. Accordingly, the question referred is answered in the affirmative against the Revenue and in favour of the assessee.

No costs.

[Citation: 236 ITR 410]

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