Commissioner of Income Tax vs Gupta Oil and Flour Mills

U.L. Bhat, C.J.—This is a reference made at the instance of the Revenue by the Income Tax Appellate Tribunal, u/s 256(1) of the Income Tax Act, 1961. The following questions have been referred :

"(i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in coming to the conclusion that there was no change in the constitution of the firm after the death of Shri Ramcharan Omar, on August 28, 1977, when his wife joined the firm as partner ?

(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in granting registration to the firm for part of the period holding that the case is of a complete dissolution when there was no application in Forms Nos. 11 and 11A ?"

The respondent-assessee is not represented. We have heard the Central Government standing counsel.

Ramcharan Omar was one of the partners of the assessee-firm. He died on August 28, 1977, during the accounting year relevant to the assessment year 1978-79. After his death, his wife was taken as a partner. No application for registration was made in Form No. 11A of the Rules. While completing the assessment, the Income Tax Officer came to the conclusion that it was only a case of change of constitution and not a case of dissolution of the firm. He, therefore, declined registration.

In appeal, the Appellate Assistant Commissioner reversed this decision and held that there was dissolution followed by a new entity and benefit of registration for the period after the dissolution was directed. Further appeal filed by the Revenue was dismissed by the Tribunal which also declined to make reference.

A Full Bench of this court has taken the view that where a firm is dissolved on the death of one of the partners and a new partner is admitted, that would amount to a change in the constitution of the firm. (See Girdharilal Nannelal and Sukhlal Jhamaklal Vs. Commissioner of Income Tax, This view was taken on the basis that a matter for which the provision has been made in the income tax Act, 1961, such as Section 187, has to be governed by it not withstanding anything different or contrary contained in the general law relating to the matter. This view has been disapproved by the Supreme Court in Wazid Ali Abid Ali Vs. Commissioner of Income Tax, Lucknow, . The Supreme Court held that on the death of a partner, dissolution takes place, though not in cases where there is contract to the contrary. In the case considered by the Supreme Court, there was a contract to the contrary and the death of the partner was followed by inclusion of another person as a partner. Therefore, it was held that there was change in the constitution, but not dissolution of the firm.

In the circumstances referred to above, the view taken by the Tribunal has to be affirmed. The questions referred to the High Court are answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

A copy of this judgment be sent to the Registrar to be transmitted to the Income-lax Appellate Tribunal, Jabalpur. No directions as to costs.