VENKATESWARA STONE CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference at the instance of the assessee raises the question whether Section 187 or 188 of the Income-tax Act applies. Mr. Anjaneyulu, the learned counsel appearing for the assessee, relying upon the Full Bench decision of this court in Addl, Commissioner of Income-tax v. Vinayaka Cinema contended the Section 187 does not apply to a situation where a firm is dissolved by the operation of law on account of the death of one of the partners, and that the fact that the partners of the dissolved firm continued the same business as before by taking in one or more partners by fresh agreement will not bring the case under Section 187 of the Act.

(2.) THE facts leading to this reference are these :

(3.) THERE was no express contract between the partners. THERE is also nothing to suggest that the conduct of the partners was such that during the lifetime of Linga Reddi they intended there would be no dissolution of the firm by reason of the death of a partner. The mere fact that no separate sets of accounts were opened or that the accounts were not closed for profit and loss will not by itself establish that there was a contract to the contrary between the partners that the firm shall not get dissolved on the death of one of them. A Full Bench of five judges of this court in Additional Commissioner of Income-tax v. Vinayaka Cinema had to consider the question whether Section 187 or 188 of the Act would be applicable in the case of a dissolution of a firm by operation of law. As the correctness of the view of the Full Bench of three judges of this court in Additional Commissioner of Income-tax v. Visakha Flour Mills [1977] 108 ITR 466 (AP) was canvassed, the Bench of five judges was constituted/ Mr. Rama Rao in this connection invited our attention to the fact that both the Full Benches (Full Bench of three judges in Addl. Commissioner of Income-tax v. Visakha Flow Mills [1977] 108 ITR 466 (AP) and the Full Bench of five judges in Addl. Commissioner of Income-tax v. Vinayaka Cinema , had affirmed an earlier decision of a Bench of this court in Commissioner of Income-tax v. T. Veeraraghavulu Chetty and Sons Co. , to which one of us (Chief Justice) was a party. Kondaiah J., speaking for the Full Bench in Visakha Flour Mills' case [1977] 108 ITR 466 (AP), followed the view expressed by the Division Bench in Veeraraghavulu Chetty's case . In deciding that case, the Tribunal followed its earlier decision in another case, Sri Venugopal Rice, Turmeric and Polish Mill v. Income-tax Officer (I.T.A. 404 (Hyderabad), 68-69). In that firm, there were 19 partners and one of them died. A subsequent deed was drawn up, the only change effected being that in the place of the deceased partner, his son was taken as a partner into the same share in profit and loss. In Veeraraghavulu Chetty's case , there was no death of any partner, but the assets and liabilities belonging to the old firm were taken over by the new firm. Veeraraghavulu Chetty's firm continued with four partners up to October 29, 1965, and on October 30, 1965, three more partners were added. All the previous partners continued to remain as partners and continued the business till the end of the accounting year. The business as such continued with the same assets and liabilities. On the facts aforesaid, the Division Bench held :