2001 PLP 3005 (PTD)

Manish R. Bhatt for the Commissioner. K.C. Patel for the Assessee. Heard learned counsel for the parties. On the application of the Commissioner of Income‑tax, the following questions of law have been referred to this Court for its opinion along with the statement of case arising out of the Tribunal's appellate order, dated April 18, 1983, relating to the assessment year 1978‑79: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right to law in coming to the conclusion that the death of the partner, Shri Jayantilal Mohanlal, had not brought the change in the constitution of the firm as contemplated by section 187(2) of the Act? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that two separate assessments were required to be made for the two periods on account of the death of the partner of the assessee firm?" The facts of the case are that the assessee. Naresh Tea Stores, Bhavnagar, is a firm constituted vide partnership deed, dated October, 2, 1970. It consisted of seven partners, one of whom, Shri Kayantilal Mohanlal, died on May 16, 1977, during the previous year relevant to the assessment year 1978‑79 in question. Another partnership deed was executed on Mar 17, 1977, between the remaining partners and Shri Arvind 3ayantilal, son of Jayantilal, and business was carried on in the same name and style. The assessee claimed that on the death of partner Jayantilal, the firm stood dissolved and by the deed of May 17, 1977, a new firm has come into existence hence the old firm, Naresh Tea Stores, with Jayantilal as one of its partners, should be assessed only for the period up to May 15, 1977 namely, up to the date of death of Shri Jayantilal and a separate assessment has to be framed for the newly‑constituted partnership under deed, dated May 17, 1977, for the remainder of the said previous year. The Income‑tax Officer was of the opinion that in the facts and circumstances of the case, it was not a dissolution of the firm but it was merely a reconstitution of the firm and section 187 was applicable to the case and only one assessment for the year in question was framed. that there was no such specific provision in the partnership deed, dated October 2, 1970, for the continuation of the partnership, in the event of death of any partner, nor for that matter, any material has been brought to notice that such a condition exists and further noticed that para. 14 of the partnership deed in terms provided that the provisions of the Partnership Act would be applicable to the partnership in respect of all matters not spelt out in the deed itself. On this premise, the Tribunal found that the provisions of the Partnership Act would prevail in the absence of a contract to the contrary and the partnership came to an end on the death of Jayantilal, as provided in section 42 of the Partnership Act. In our opinion, no exception can be taken to the decision of the Tribunal on the question about the coming to an end of the existing partnership on the death of the partner under the Partnership Act when there was no contract to the contrary. If that be so the consequence would follow that the existing partnership firm of which the deceased was a partner would be assessed only up to the date up to which it existed and for the period thereafter the new firm which has come into existence by dint of a new partnership deed will be assessed for the remainder of the previous year, relating to the said assessment year. This also is the view taken by this Court in CIT v. G. Dalabhai & Co. (1997) 226 ITR

922. As a result of the aforesaid discussion, we answer the questions referred to us in the affirmative, that is to say, in favour of the assessee and against the Revenue. There shall be no order as to costs. M.B.A./291/FC Reference answered.