Commissioner of Income Tax vs Bhoopathi Mills

Rangarajan, J.—The questions referred by the Tribunal in this case are as follows :

(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding and had valid materials to hold that the

assessee-firm was factually dissolved on December 6, 1973, and, therefore, two separate assessments have to be made u/s 188--one for the

period from April 1, 1973, to December 6, 1973, and the other for the period from December 7, 1973, to March 31. 1974 ?

(2) Without prejudice to question No. 1 above, whether the provisions of Section 187 cannot be applied to this case, even if the firm had been

dissolved as stated by the Appellate Tribunal ?

The facts on which the Tribunal gave a finding of fact are that there was originally a firm consisting of six partners and, by document dated

December 13, 1973, according to the Tribunal, there was a dissolution (though the document was shown as a release deed), and that there was no

closing stock as on December 6, 1973, and the last purchase by the assessee-firm of kappas was on July 8, 1973, of cotton seed on May 22,

1973, and of lint on May 27, 1973. The Tribunal found that the last sales were effected on June 27, 1973, and that the accounts were thereafter

closed on December 6, 1973, and certain amounts were paid to the retiring partner. On these facts, the Appellate Tribunal drew an inference that

by conduct, the partners have dissolved the firm even though by agreement only one partner had retired. On that finding of fact, the Tribunal

applied Section 188 and accepted the claim of the assessee for making two assessments, one for the period up to December 6, 1973, and the

other for the period from December 7, 1973, to March 31, 1974.

Learned counsel for the Revenue has pointed out that the document dated December 13, 1973, clearly indicated that there was only a

retirement of one of the partners and even the description of the parties were ""the retiring partner"" and ""the continuing partners"". There was also a

clause to show that the continuing partners shall pay off the retiring partner whatever dues are left after further collections. The document also

indicated that the retiring partner released his rights in respect of the assets of the firm which consisted of immovable properties. Hence it was

argued that there was no dissolution in this case.

No doubt, a dissolution can take place by conduct. But, as in this case, when there is a written agreement and the subsequent conduct of the

parties does not contradict the written agreement, the finding of the Tribunal that there was in fact a dissolution is vitiated, because, there is nothing

to show that there was a determination of the rights and liabilities of the continuing partners. On the other hand, there are several clauses in the

agreement which indicate that the continuing partners retained their rights and liabilities inter se and also carried on business with the assets which

remained with them without disruption. The fact that no closing stock was left or that there were no trading transactions between December 6,

1973, and the execution of the partnership deed by the continuing partners, is insufficient to indicate any dissolution of the firm by conduct. Since

the finding of the Tribunal that there was a dissolution cannot be upheld, it follows that the assessments made by the Income Tax Officer of the total

income of the assessee-firm for the entire period u/s 187 was correct. The first question is answered in the negative and against the assessee. The

second question becomes academic and does not require any answer. No costs.