Commissioner of Income Tax vs Genuine Coffee and Tea

K.S. Paripoornan, J.—At the instance of the Revenue, the following two questions of law have been referred for the decision of this court :

" 1. Whether, on the facts and in the circumstances of the case and in view of Section 43 of the Partnership Act, the Tribunal was justified in law in holding that the dissolution of the partnership was effected only on the date of preliminary judgment, viz., December 19, 1981, and not on December 26, 1978, the date of service of summons in the suit and that the assessee-firm had not been dissolved during the accounting period and that registration cannot be refused on the ground that the firm had been dissolved ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in finding that the firm was genuine, and that the Income Tax Officer was not justified in refusing registration till the date on which, according to the Income Tax Officer, the firm was dissolved ? "

The respondent is a firm. It is an assessee under the Income Tax Act. We are concerned with the grant of registration for the firm for the year 1979-80. The assessee-firm was granted registration on January 11, 1965. Fresh registration was granted for 1969-70 due to a change in the constitution. For the assessment year 1979-80, the assessee filed a declaration in Form No. 12 on July 31, 1979. The Income Tax Officer took the view that one of the partners of the firm, one Shri K. G. Damodaran, had filed a suit for dissolution. Summons of the suit was served on one of the partners on December 26, 1978. It is within the previous year relevant to the assessment year 1979-80. The previous year of the firm ended on March 31, 1979. One of the partners had filed a suit to grant a decree for the dissolution of the firm. Since the partnership was one at will, the Income Tax Officer held that the filing of the suit and the service of summons will bring about a dissolution of the firm. He took the view that the firm stood dissolved on December 26, 1978 and so it is not entitled to continuation of registration for this year. In appeal, the Appellate Assistant Commissioner of Income Tax held that the dissolution of the partnership is governed by Section 44 of the Partnership Act and, in this case, the preliminary decree was passed on December 19, 1981, and the dissolution can be effective only from that date. In further appeal before the Tribunal, the Appellate Tribunal held that the assessee-firm had not been dissolved during the accounting period and that registration cannot be refused on the ground that the firm had been dissolved. The firm will continue until it is dissolved by any of the methods known to law. The Appellate Tribunal found that the firm was not dissolved as a matter of fact during the accounting year. In this view, the question of allowing registration for part of the year did not arise for consideration. It is thereafter at the instance of the Revenue that the Appellate Tribunal has referred the two questions of law formulated hereinabove.

We heard counsel for the Revenue, Mr. N. R. K. Nair and also counsel for the respondent-assessee.

The main thrust of the argument advanced by the Revenue was that the partnership is at will and, in such a case, the sending of a registered notice and receipt thereof by a partner, will amount to dissolution of the partnership. We are unable to agree with this plea. This is not a case where the partnership was attempted to be dissolved by notice u/s 45 of the Act. This is a case where the parties went to court to dissolve the partnership and the dissolution through the court can be effected only as provided in the Civil Procedure Code. Order 20, Rule 15 of the Civil Procedure Code, 1908, provides that the court has to pass a preliminary decree which, among other things, will fix a date when the partnership would stand dissolved. In a case where dissolution of the partnership is sought to be done by filing a suit, mere service of summons on a party will not amount to dissolution. In the instant case, the preliminary decree for dissolution of the firm was passed on December 19, 1981. The judgment does not mention the date from which the firm would stand dissolved. In the absence of such indication of an earlier date, the dissolution can be deemed to have been effected only from the date of the preliminary decree, i.e., on December 19, 1981. On this basis, it is evident that the assessee-firm has not been dissolved during the accounting period and that the Appellate Tribunal was justified in holding that registration cannot be refused on the ground that the firm had been dissolved during the accounting period relevant to the assessment year 1979-80. The Appellate Tribunal was justified in holding so. We, therefore, answer the first question referred to us in the affirmative, in favour of the assessee and against the Revenue.

The question whether the firm was genuine is largely one of fact. No material was placed before the Tribunal nor was placed before us which will point out that the firm was not genuine. The Income Tax Officer was not justified in declining to grant registration for the relevant assessment year. We answer question No. 2 against the Revenue and in favour of the assessee.

The reference is answered as above.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.