COMMISSIONER OF INCOME TAX Vs. PORWAL AND CO

JUDGEMENT

(1.) Under Section 256(1) of the Income-tax Act, 1961, the Tribunal has stated the following three questions :

(2.) The assessee is a partnership firm. For the assessment year 1974-75, the assessee filed two returns of income, both in the name of Messrs. Porwal and Co. one in respect of the period April 10, 1973, to July 1, 1973, and the other from July 1, 1973, to March 31, 1974. The assessee claimed that one of the partners, Shri Phool Chandra, died on June 27, 1973, and that, thereafter, a fresh partnership deed was executed between the remaining three partners ort July 1, 1973. They also pointed out that the first partnership deed did not contain a clause that death shall not operate as dissolution, nor did it provide for the heir or successor of the deceased partner being inducted in place of the deceased partner. The facts stated by the assessee were found to be correct. Even so the Income-tax Officer held that it was a case of reconstitution of the firm and made one assessment. On appeal, the Appellate Assistant Commissioner agreed with the assessee that it was a case of succession of one firm by another and allowed the appeal. The Department carried the matter to the Appellate Tribunal in appeal which too was dismissed, agreeing with the opinion expressed by the Appellate Assistant Commissioner.

(3.) Once there is no clause in the partnership deed that death shall not result in dissolution, the death of a partner does result in dissolution. In this case, it appears that the partnership deed specifically stated that the duration of the business will be 'at will'. Moreover, after the death of one of the partners, a new partnership deed was also executed by the remaining three partners. In such a situation, the Tribunal was right in holding that it was not a case of reconstitution but succession.