Addl. Commissioner of Income Tax vs M.K.M. Moosa Bhoy Amin

Bhargava, J.—This is a reference u/s 256(1) of the I.T. Act, 1961 (hereinafter to be referred to as "the Act"), wherein the Income Tax Appellate Tribunal, Jaipur Bench, has referred the following question of law for the opinion of this court:

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 187(2) of the Income Tax Act, 1961, was not applicable in this case, and further that separate assessments be made on the two firms for the assessment year 1969-70 ? "

The facts giving rise to this reference, briefly stated, are as follows:

The assessee, M/s. M. K. M. Moosa Bhoy Amin, is a registered firm constituted under a deed of partnership dated December 7, 1956, with the following five partners :

Shri Shamsuddin

Shri Saifuddin

Shri Saifuddin (Sunelwala)

Shri Hakimuddin

Shri Fatima Bai

One of the partners, namely, Shamsuddin, died on June M, 1968, and, thereafter another partnership deed was executed on June 13, 1968, among the remaining four partners of the earlier firm and Shri Kutbuddin and Shri Kalimuddin, sons of Shri Shamsuddin, deceased partner, and it commenced its business on or from June 12, 1968. The assessee filed two returns--one for the period from November 3, 1967, to June 11, 1968, and the other for the period from June 12, 1968, to October 21, 1968. The ITO was of the opinion that there was only a change in the constitution of the firm and, therefore, two separate assessments could not be made and, hence, he clubbed the income for both the periods in that assessment year. The assessee preferred an appeal to the AAC. The AAC agreed with the contention of the assessee that after the death of a partner the firm was automatically dissolved since there was no clause in the partnership deed for continuity of the firm and a new partnership came into being on and from June 12, 1968. Therefore, he was of the view that two separate assessments should have been made for the two different entities for the two periods and directed the ITO accordingly.

The Department appealed to the Income Tax Appellate Tribunal and contended that the case was covered by Section 187(2) of the Act and, therefore, there should have been only one assessment and, in this connection, relied on the following cases :

(1) Shivram Poddar Vs. Income Tax Officer, Central Circle II, Calcutta, and Another, .

(2) R.B. Jessa Ram Fateh Chand Vs. Commissioner of Income Tax, .

(3) Commissioner of Income Tax,Madras Vs. K.H. Chambers, Madras, .

On behalf of the assessee, reliance had been placed on :

(1) Bhausa Ganusa Pawar and Co. Vs. Commissioner of Income Tax, Poona, .

(2) Sita Ram Har Govind Vs. Commissioner of Income Tax, .

However, the Tribunal found that on the death of Shri Shamsuddin, one of the partners, the assessee-firm stood automatically dissolved by operation of law and altogether a new firm came into being on and from June 12, 1968, and, therefore, Section 187(2) of the Act will not apply and dismissed the appeal.

The Department moved an application u/s 256(1) of the Act for making a reference to this court and the Tribunal referred the above-mentioned question of law for opinion to this court.

We have heard Shri R. N. Surolia, the learned counsel for the Department, and Shri N. K. Jain, the learned counsel for the assessee, and have gone through the record of the case and also the various authorities submitted at the Bar.

The learned counsel for the Revenue has placed reliance on a Full Bench decision, consisting of five judges, of the Punjab High Court in Nandlal Sohanlal, Jullundur Vs. The Commissioner of Income Tax, Patiala, wherein it has been held by majority relying on the Supreme Court''s judgments in

(1) C.A. Abraham, Uppoottil, Kottayam Vs. The Income Tax Officer, Kottayam and Another, and

(2) Commissioner of Income Tax, Madras, and Another Vs. S.V. Angidi Chettiar,

that where a special provision was made in a taxing statute in derogation of the provisions of the Partnership Act, effect should be given to it and where no such provision had been made, liability for payment of tax could be determined by taking into consideration the general provisions of the Partnership Act. Therefore, where the provisions of the I.T. Act are clear, resort cannot be had to the provisions of another statute like the Partnership Act. Therefore, Section 187 of the I.T. Act overrides the provisions of Section 42 of the Partnership Act and, therefore, the Tribunal was wrong in holding that there should be two assessments. The Punjab High Court followed its earlier view in Hoshiarpur Electric Supply Co. Vs. Commissioner of Income Tax, and also relied on Karupukula Suryanarayana Shetty and Sons Vs. Commissioner of Income Tax, Mysore, and Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466 and dissented from the Allahabad High Court decisions in Commissioner of Income Tax Vs. Shiv Shanker Lal Ram Nath, and Dahi Laxmi Dal Factory Vs. Income Tax Officer and Another, .

Whereas, the learned counsel for the assessee has relied on the following authorities :

(1) Commissioner of Income Tax Vs. Sant Lal Arvind Kumar, which has taken a contrary view and has relied on earlier decisions reported in Dahi Laxmi Dal Factory Vs. Income Tax Officer and Another, Commissioner of Income Tax Vs. Kunj Behari Shyam Lal, Addl. Commissioner of Income Tax Vs. Dilsukh Rai Madho Prasad, Kaithari Lungi Stores Vs. Commissioner of Income Tax, MAVUKKARAI (N) ESTATE TEA FACTORY Vs. ADDITIONAL COMMISSIONER OF Income Tax, MADRAS-II., Additional Commissioner of Income Tax Vs. Thyagasundara Mudaliar and Munuswami Mudaliar and Co., The Additional Commissioner of Income Tax, (Andhra Pradesh, Hyderabad) Vs. Vinayaka Cinema, Nellore, and Mathurdas Govardhandas Vs. Commissioner of Income Tax, and has dissented from the earlier view of the Punjab High Court reported in Dharam Pal Sat Dev Vs. Commissioner of Income Tax, Jupiter Foundry and Machines (Knives) Vs. Commissioner of Income Tax, Addl. CIT v. Visakha Flour Mills Ltd. [1977] 108 ITR 466 and Nandlal Sohanlal, Jullundur Vs. The Commissioner of Income Tax, Patiala, .

Similarly, the Allahabad High Court in Commissioner of Income Tax Vs. Satya Deo Omprakash, has followed its earlier decisions and has held that where a firm is dissolved either by agreement of partners or by operation of law on the death of a partner and another firm takes over the business Section 187(2) will not come into operation and two separate assessments will have to be made.

The same view has been taken by the Madhya Pradesh High Court in Ganesh Dal Mills Vs. Commissioner of Income Tax, in which they have dissented from the view of the Punjab High Court in Nandlal Sohanlal, Jullundur Vs. The Commissioner of Income Tax, Patiala, and relied on the decisions of the Andhra Pradesh, Allahabad and Madras High Courts, The Orissa High Court in I. RAMAKRISHNAIAH and SONS Vs. COMMISSIONER OF Income Tax, ORISSA., has also taken the same view and has agreed with the view expressed by the Delhi and the Allahabad High Courts and taken a contrary view from that of the Punjab High Court.

Thus, we find that the view taken by the Punjab & Haryana High Court has been dissented by theHigh Courts of Allahabad, Calcutta, Andhra Pradesh, Delhi, Gujarat and Madras. At one time, the view of the Andhra Pradesh High Court was also in line with the Punjab & Haryana High Court, but in The Additional Commissioner of Income Tax, (Andhra Pradesh, Hyderabad) Vs. Vinayaka Cinema, Nellore, (consisting of five Judges), it has overruled its earlier view taken in Addl. CIT v. Visakha Flour Mills Ltd. [1977] 108 ITR 466 and had followed the view taken by the Allahabad, Madras and Gujarat High Courts.

We have also given our thoughtful consideration to the arguments and have gone through the various decisions of different High Courts and we are in agreement with the view taken by the Delhi, Allahabad, Madras, Orissa, Madhya Pradesh, Andhra Pradesh and Gujarat High Courts and dissent from the view taken by the Punjab & Haryana High Court. Since the matter has already been discussed at length in various judgments of the High Courts noted above, especially in Commissioner of Income Tax Vs. Sant Lal Arvind Kumar, we do not think it necessary to discuss the matter in detail. The assessee-firm dissolved automatically on the death of one of its partners, Shri Shamsuddin, on June 11, 1968, in terms of Section 42 of the Partnership Act and a new partnership came into existence with effect from June 12, 1968, and was governed by the new partnership deed executed on June 13, 1968, and, therefore was a separate entity altogether. Therefore, Section 187(2) of the Act was not applicable in the present case and there should have been two separate assessments of the two different firms in the assessment year 1969-70.

Therefore, we answer the question in the affirmative.