COMMISSIONER OF INCOME TAX Vs. MEENAKSHI BANKERS

JUDGEMENT

(1.) AT the instance of the revenue, the following question has been referred to this court for its opinion by the Income-tax Appellate Tribunal :

(2.) THE assessee in this case for the assessment year 1974-75 filed a return of income on September 7, 1974, for the accounting period April 1, 1973, to November 7, 1973, showing an income of Rs. 14,811 and the said return was filed in the status of a registered firm consisting of four partners, viz., Meenakshi Achi, Ramayee Achi, Rajeswari Achi and Sundari Achi. THE first two partners had a 3/10ths share each and the last two had a 2/10ths share each. According to this return, the said firm, which was constituted under an instrument of partnership dated November 12, 1970, had been dissolved with effect from November 7, 1973. Along with return, the profit and loss account and the trail balance of the dissolved firm for the period up to November 7, 1973, when the firm is said to have been dissolved, had also been filed. On September 10, 1974, another return was filed by the same firm showing an income of Rs. 3,585 for the period November 8, 1973, to March 31, 1974. This return also was filed in the status of a registered firm consisting of five partners, viz., the old four partners and one Subbiah Chetty, as the 5th partner. Out of the five partners, Meenakshi Achi and Ramayee Achi had a 25% share each, Rajeswari Achi and Sundari Achi had a 15% share each and Subbiah Cheety had a 20% share. This firm is said to have been constituted under an instrument of partnership dated November 8, 1973, which stated that the firm of five partners came into existence consequent on the dissolution of the earlier firm of four partners on November 7, 1973. Accompanying this return, there was a separate profit and loss account and trail balance, etc., for the period November 8, 1973, to March 31, 1974. On March 30, 1974, the firm of five partners filed an application seeking registration in Form No. 11. On the same date, the firm had also filed an application in form No. 11A. THE ITO passed an order under s. 185(1)(b) stating as follows :

(3.) IN these decisions, it has been pointed out that if there is factually a dissolution of a firm and reconstitution of a new firm after such dissolution, it should be taken as a succession of one firm by another and it cannot be taken to be a reconstitution of the old firm by the new firm so as to attract s. 187. As a matter of fact, we find that more or less on indentical facts, this court by the decision dated June 13, 1983, in CIT v. R. Sithan Chetty Sons (T.C. No. 16 of 1978-since reported in [1984] 145 ITR 306), categorically held that in cases where on firm ceases to exist and the relationship of the partners inter se comes to an end, that firm which has been dissolved, can no longer be said to continue as before so that it could be said that the old firm continues as reconstituted. The court also pointed out that once a firm is dissolved, it comes to an end and, thereafter, there cannot be any continuity of the firm so as to say that there is a mere fours to the facts and circumstances of this case, where the Tribunal has given a finding that the firm of four partners stood dissolved and the firm of five partners came into existence after the said dissolution. Though the decisions referred to by the learned counsel for the Revenue taken a different view, this court has consistently taken the view that a firm, once dissolved, cannot be taken to continue and any firm, which is reconstituted, with some of the partners of the old firm, should be taken to be a succession rather than a reconstitution of the old firm. Therefor, following the view taken by this court consistently, we have to answer the question in the affirmative and against the Revenue.