1981 PLP 62 (PTD)

"Provided that, where more than one separate adventure or under taking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventure and undertakings." Under section 42 of the Partnership Act, a firm is dissolved on the happening of the following contingencies‑ (a) if constituted for a fixed term, by the expiry of that term ; (b) if constituted to carry out one or more adventures or under takings, by the completion thereof ; (c) by the death of a partner ; and (d) by the adjudication of a partner as an insolvent; Apart from the above contingencies, a firm can be dissolved by any of the partners giving notice in writing to the rest of other partners of his intention to dissolve the firm. The firm is also dissolved by the decree of a Court in suit of a partner on any of the grounds. Mentioned under section 4 of the said Act. The facts of the case disclose that the present reconstitution of the firm by bringing in a new partner did not fall within the fold of any of the above‑mentioned provisions of Partnership Act for treating the firm to have been dissolved. The case is, therefore, covered by section 63 of the said Act, which deals with the change in the constitution of a registered firm. . This section reads as under :‑ "63.‑(1) When a change occurs in the constitution of a registered firm any incoming, continuing or outgoing partner, and when a registered firm is dissolved any person who was a partner imme diately before the dissolution, or the agent of any such partner or person specially authorised in this behalf, may give notice to the Registrar of such change or dissolution, specifying the date thereof ; and the Registrar shall make a record of the notice in the entry relating to the firm in the Register of Firms, and shall file the notice alongwith the statement relating to the firm filed under section 59. (2) When a minor who has been admitted to the benefits of partner ship in a firm attains majority and elects to become or not to become a partner, and the firm is then a registered firm, he or his agent specially authorised in this behalf, may give notice to the Registrar that he has or has not become a partner, and the Registrar shall deal with the notice in the manner provided in subsection (I)." As the assessee‑firm had done nothing but brought in a new partner in the partnership, therefore, their case could only be covered by the above‑quoted section. The learned Assistant Advocate‑General pressed into service the execution of a new partnership deed on 1‑7‑1970 by the partners in aid of his contention that a new partnership had come into existence by virtue of this deed. The contention has force, as any change in the constitution of the partnership would have to be reduced in writ ing if the partners so choose and a fresh deed has to be executed and mere execution of a fresh deed of partnership does, therefore, not neces sarily bring into being a new firm. The learned Income‑tax Appellate Tribunal was, therefore, perfectly correct in holding that the assessee by bringing in an additional partner in the firm have only reconstituted the same old firm, which was registered with the Registrar of Firms and also with the Income‑tax Authority and was being renewed from year to year till then. A plain reading of section 63 of the Partnership Act (quoted above) would show that on the reconstitution of the firm by inclusion an additional partner, the firm was only required to notify the Registrar of Firms of the change by giving a notice of the same to him, which admit tedly the assessee had done. After the receipt of the notice it was incumbent upon the Registrar to have taken note of the change and have filed the notice under section

59. From the facts of the case it is obvious that with the execution of a new deed neither the name of the firm was changed nor the business for which it was created. From the above discussion on the relevant provisions of Partnership Act it is also clear that the dissolution of the firm did not take place at any time. The Income‑tax Officer was, therefore, not correct in treating the execution of the new partnership deed as ipso facto having the effect of the dissolu tion of the firm, as no new registration was required of it and the Registrar u>' the Firms was only required to bring on record the change in the constitution of the firm and the notice thereof. Thus we are clear in our mind that the order of the Registrar of Firms in treating the re-constituted firm as a new one and refusing to register the same was bad in law. The registration of the firm baying already been made by the Registrar and existing at the time of the execution of the new deed remained in that for all purposes and intents. The natural consequence of the above‑stated legal position is that the case of the firm was not hit by subsection (5) of section 26 (al of the Income‑tax Act, as was presumed by the Income‑tax Officer in refusing the renewal of the firm. ‑Subsection (5) of section 26 (a) reads as under :‑ "(5) No application under this section for registration or renewal of registration in respect of the assessment for the year beginning on the first day of July 1969, or for any year thereafter, shall be made unless the partnership has been registered under the Part nership Act, 1932: Provided that application for registration or renewal of registration may be made by a firm which cannot be registered under the said Act for the reason that the firm name contains any word or name mentioned in subsection (3), (3‑A) or (3‑B) of section 58 of the said Act." The learned Income‑tax Officer in holding that the assessee‑firm was not registered under the Partnership Act was, therefore, labouring under a misconception of law and facts as the firm having only been reconstituted did not require any fresh registration. It was incumbent upon the Income‑tax Officer under subsection (1) of section 26 ...to have made the assessment on the firm as it was constituted at the time of making the assessment. Subsection (1) of section 26 . . . . . . . . . reads as under :‑ "26.‑(1) Where, at the time of making an assessment under section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment shall be made on the firm as constituted at the time of making the assessment: Provided that the income, profits and gains of the previous year shall, for the purpose of inclusion in the total incomes of the partners, be apportioned between the partners who in, such previous year were entitled to receive the same: Provided further that when the tax‑assessed upon a partner cannot be recovered from him it shall be recovered from the firm as constituted at the time of making the assessment." A Division Bench of this Court in an Income‑tax Reference, namely, The Commissioner of Income‑tax, Rawalpindi Zone, Rawalpindi v. Messrs Muhammad Ilyas & Co., D. I. Khan (Reference Application No. 108 of 1972) a case of the reconstitution of the firm the features thereof differed with the instant case only to this extent that in the precedent case a minor was absolved of liability he as a partner by execution of afresh deed, interpreted the requirements of section 26 (a) (ibid) in the following manner :‑ "A reading of section 26 (a) of the Income‑tax Act would show that the main purpose of the provisions incorporated therein is to find out whether there exists a genuine firm which is to be extend ed the benefits under it while assessing its income under the Income‑tax Act. It was not contended before us that the firm is not a genuine one. The added subsection (5) to sec tion‑26(a) of the Income‑tax Act only requires that a firm seeking registration under it has to be registered under the Partnership Act which qualification stands fully complied with in the instant case." In view of the reasons, stated above, and of the facts and the circumstances of the case, we hold that the learned Income‑tax Appellate Tribunal was justified in setting aside the orders of the Income‑tax Office and in holding that the partnership deed dated 1‑7‑1970 did not create any firm and the firm as reconstituted was qualified for renewal by the income‑tax Officer, as having already been registered under the Partner ship Act and as such was also qualified for registration under section 26 (a) of the Income‑tax Act. Our answer to the question of law, under reference is, therefore, in the affirmative. Reference answered in affirmative.