KAITHARI LUNGI STORES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a firm of partnership carrying on business in lungis under the name and style of "Kaithari Lungi Stores". Before February 15, 1962, the partnership consisted of 14 partners. THE partners decided to admit one more partner and continue to carry on the same business. A fresh deed of partnership was executed on February 15, 1962. with 15 persons as partners. One of the partners died on May 27, 1963. THE remaining partners decided to admit a third party as a partner with effect from May 28, 1963, and continued to carry on the business. After the admission of this partner a fresh deed of partnership dated July 10, 1973, was also executed. On December 15, 1963, two of the partners retired and the remaining 13 partners continued to carry on the business under a fresh deed of partnership dated January 4, 1964, with effect from December 16, 1963.

(2.) IN order to meet the financial needs of the partnership, seven more partners were admitted to the partnership and a fresh deed dated May 26, 1964, was executed and they continued to carry on the business. One of the partners died on August 15, 1964, and the remaining 19 partners decided to continue to carry on the business under, the terms and conditions evidenced by another deed dated September 2, 1964. For the assessment year 1964-65, corresponding to the previous year ending April 11, 1964, the assessee-firm filed three returns of income--one for the period ending May 27, 1963, the second for the period December 15, 1963, and the third for the period ending April 11, 1964, and claimed that though the assessee was liable to be assessed for the entire period, as there were changes in the constitution of the firm on the respective dates three separate assessments will have to be made and the income daring these periods could not be clubbed together and one assessment made on the assessee-firm. He also contended that Section 187 of the INcome-tax Act, 1961 (hereinafter called the Act), does not authorise the clubbing of the income.

(3.) WE have already noticed that if there is a contract to the contrary against dissolution of a firm by the death of a partner, a change in the constitution of the firm also occurs by reason of death of a partner provided there are at least two surviving partners. In our opinion, therefore, the words "ceasing to be partners" in Section 187(2) would also include a case of death of a partner when such death, by reason of a contract to the contrary or by reason of any law, did not bring about the dissolution of the partnership. But we are not prepared to accept the further argument of the learned counsel for the revenue that for the purpose of Section 187 even in cases where there is no contract to the contrary against the dissolution of the firm by death of a partner it will amount to a change in the constitution of the firm within the meaning of Section 187(2). Of course, the argument of the learned counsel for the revenue finds support in the dissenting judgment of Justice Seth in Dahi Laxmi Dal Factory v. Income tax Officer, . In that case, the majority judgment had in detail considered the judgment of the Supreme Court in Shivram Poddar v. Income-tax Officer, , which was relied on by the dissenting learned judge in support of his conclusion and had held that the decision will have to be understood on the particular facts of that case. The learned judges further held that the Supreme Court decision should not be understood as obliterating the well-known distinction between "reconstitution" and "dissolution". WE are in respectful agreement with this view of the Allahabad High Court, but we are unable to agree with the majority judgment that Section 187 applies only where a firm is reconstituted in accordance with Sections 31 and 32 of the Indian Partnership Act, namely, when a partner is taken or an existing partner retired with the consent oi all the partners. The learned judges have not referred to the provisions in Sections 33, 34 and 35 of the Indian Partnership Act. Further, Section 2(23) of the Income-tax Act which defined "firm", "partner" and "partnership" as having the meanings respectively assigned to them in the Partnership Act, 1932, is to he applied in understanding the provision only if the context does not otherwise require. Section 187(2) specifically states that for the purpose of that section a change in the constitution of the firm is said to have occurred if any of the things mentioned in that section takes place. The words "ceasing to be partners" in Section 187 is very wide and is not restricted to retirement alone and it will also include cases of death if there is a contract among the partners that death shall not dissolve the firm.