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Income Tax Act, 1961-Effect of death of one of the partners of a registered firm during the assessment year on the continued benefit of registration under section 184(7) thereof-Whether a fresh application for registration with partnership deed embodying change in constitution of firm, required. % Two appeals were filed before this Court one (Civil Appeal No. 1792 (NT) of 1974) by the assessee from the Allahabad High Court, and the second (Civil Appeal No. 609 (NT) of 1975) by certificate, at the instance of the revenue, from the Gujarat High Court. Both the appeals dealt with a common situation, namely, the position of the registered firm during the assessment year if one of the Partners died or retired. In the assessee's case above-mentioned, the assessee was a partnership firm styled as Messrs. Wazid Ali Abid Ali, constituted under a deed of partnership, which, inter alia provided "that where the deed is silent, it shall be governed by the Indian Partnership Act save and except that on the death or demise of any partner the firm shall not be dissolved but shall be carried on with the remaining partners and that heir and representative of the deceased partner who resides in India on such terms and conditions to which they mutually agree. " On June 4, 1964, one of the partners, Qamaruddin, died and his son, Fariduddin, joined the firm as a partner. New deed of partnership evidencing the change in the constitution of the firm was not executed (before November 4, 1964). The assessee filed a declaration in Form No. XII for the relevant assessment year 1965-66 under section 184(7) of the Act, signed by all the partners and Fariduddin taken in as a partner in place of his father, Qamaruddin. The Income Tax officer held that the admission of a new partner in place of the deceased partners amounted to a change in the constitution of the firm and as the firm had failed to file a fresh application for registration, the assessee was not entitled to the continued benefit of registration under section 184(7) of the Act. An appeal filed by the assessee before the Appellate Assistant Commissioner was dismissed. The assessee preferred an appeal to the Income 918 Tax Appellate Tribunal. The Tribunal held that the death of Qamaruddin and the inclusion of Fariduddin involved a change in the constitution of the firm and a fresh deed of partnership should have been executed and a fresh application for registration, filed. The Tribunal, however, also held that the conditions laid down in sub-section (7) of section 184 of the Act had been satisfied and the assessee would be entitled to the benefit of registration upto June 4, 1964; that is, a part of the previous year, and that the Income Tax officer should have made a single assessment only on the assessee and apportioned the total income between the partners who were entitled to receive' the profits accordingly as they were entitled to share the profits, the firm being assessed as a registered firm in respect of the profits for the remaining part of the previous year. And the question "whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the period covered by the old constitution the income was assessable in the hands of the assessee as a registered firm?" was referred to the High Court, which answered the question in favour of the revenue and in the negative. The assessee appealed to this court for relief, as aforementioned. In the second appeal afore-mentioned at the instance of the revenue, the assessee, a registered firm, consisted of five partners, out of whom, one partner, Sarabhai Chimanlal died on March 9, 1963. The assessee firm filed two returns for the assessment year in question-one for the period ending on March 9, 1963 and the other, for the rest of the accounting period. A declaration under section 184(2) of the Act was enclosed along with the return for the first period. The two returns were filed on the basis that according to the assessee there was a dissolution of the firm on the death of the partner Sarabhai Chimanlal, and, therefore, the subsequent continuance of business was only for the purpose of winding up the firm. The Income Tax officer held that there was a change in the constitution of the firm within the meaning of section 187(2), and the assessee should have applied for registration and should not have remained content with the filing of the declaration under section 187(2) of the Act. The assessee filed an appeal before the Appellate Assistant Commissioner, who dismissed the same. The assessee then appealed to the Income Tax Appellate Tribunal, which came to the conclusion that there was a dissolution of the partnership on March 9, 1963, and at the instance of the revenue the Tribunal referred to the High Court, two questions "(1) Whether, in the facts and circumstances of the case, there was any dissolution of the partnership on the date of death of Shri Sarabhai Chimanlal and that, therefore, there should be separate assessment till the date of his death? and (2) 919 Whether in the facts and circumstances of the case, provisions of section 187(2) apply to the facts of the case? The High Court answered the first question in both parts in the affirmative and in favour of the assessee, and the second question, in the negative and in favour of the assessee, and granted certificate to the revenue to appeal to this court as aforementioned. Allowing the assessee's appeal (the Allahabad case) and dismissing the appeal by the revenue (the Gujarat case), the Court, ^ HELD: The real question in both these appeals is when there is a death of a partner within a previous year in the case of a registered firm, what happens. [930B-C] In the context of the relevant statutory provisions of the Income Tax Act, 1961, the question arises whether on the death of the partners in the situations of the two appeals, the firm was dissolved or whether two assessments should be made. [932H; 933A] It is well to reiterate that in all cases, dissolution does not take place by death if there is a contract to the contrary. If that is so, then, in such a situation, the next question is whether there was any contract to the contrary in the situations of the two cases. [933A-Bl There was a contract to the contrary in the Allahabad case, where the deed of partnership provided, inter alia that where the deed is silent, it shall be governed by the Indian Partnership Act save and except that on the death or demise of any partner, the firm shall not be dissolved but shall be carried on with the remaining partners and that heir and representative of the deceased partner who resides in India on such terms and conditions as they mutually agree to. Therefore on the death of the partner, there is no dissolution by the expressed terms of the contract between the parties but the partnership is deemed to be carried on with the remaining partners and that heir and representative of the deceased partner, who was in India. The terms and conditions of the partnership, however, had to be mutually agreed upon. In this (Allahabad) case, Qamaruddin, one of the partners, died on June 4, 1964. Within the relevant time, his son, Fariduddin joined the firm as a partner. Before the expiry of November 4, 1964, that is, the assessment year which expired on November 4, 1964, the assessee had filed a declaration in Form XII for the relevant assessment year 1965-66 under section 184(7) of the Act. [933B-E] 920 In this case, on the death of Qamaruddin and the inclusion of A Fariduddin, there was a change in the constitution of the firm, but the firm was not dissolved. Fresh deed had to be executed under sub-section (7) of section 187. The application was not filed for the whole of the assessment year; so, for a part of the assessment year, the firm was registered and for the rest, the firm was not registered. The Tribunal held that (1) the assessee would be entitled to the benefit of registration upto June 4, 1964, that is, a part of the previous year and (2) the total income would be apportioned between the partners who were entitled to receive the profits accordingly as they were entitled to share the profits, the firm being assessed as a registered firm in respect of the profits ending on June 4, 1964, and as an unregistered firm in respect of the profits for the remaining part of the previous year. This conclusion of the Tribunal is correct. An analysis of the different sections of the Act lead to that conclusion and there is no contrary provision in the Act. Such a conclusion is logical and equitable and would do justice to both, the revenue and the assessee. In the circumstances of the case, the course open was to seek registration to execute a new deed of partner-ship and apply for the registration of that deed, as rightly held by the High Court, but failure to do so, does not make the registration upto the date of the death of the partner Qamaruddin invalid, and in the absence of any express prohibition indicating the same, the firm was entitled to the benefit of such registration. [933E-H; 934A- E] In the Allahabad case, the Tribunal took the correct view and the High Court was in error in the view it took. Judgment and order of the High Court set aside. The view of the Tribunal upheld. [934G] In the second appeal (Gujarat case), the question is whether in the facts and circumstances of the case, there was any dissolution of the partnership on the date of the death of Shri Sarabhai Chimanlal and whether there should be two separate assessments till the death or whether in the facts and circumstances of the case, provisions of section 187(2) of the Act apply to the facts of this case. The High Court found that the assessee's contention was right that the firm, as found by the Tribunal, was dissolved and the transactions were carried on with the remaining parties in the course of the winding up and for the realisation of its dues. The High Court, accordingly, answered rightly in the affirmative and in favour of the assessee. There was in fact a dissolution, as found by the Tribunal, and in the facts and circumstances of the case, after the dissolution, the firm ceased to exist and there should be two separate assessments. The High Court was right in answering the question as it did. The High Court was also right in answering the 921 question in view of the fact that there was a death and as such dissolution of the firm by the manner in which the parties acted, there was no question of the same firm being continued and the provisions of section 187(2) could not be said to apply in the light of the facts. [939E-H] In re. Hakerwal Colliery, [1942] 10 ITR 422, Girdharilal Seetaram & Bros. v. C.I.T, [1949] 17 I.T.R. 282; Pannalal Babulal v. C.I.T., [1969] 73 I.T.R. 503; Rex v. General Commissioners for the City of London, 24 Reports of Tax Cases 221; Commissioner of Income-Tax v. Shiv Shankar Lal Ram Nath, 106 I.T.R. 342; Vishwanath Seth v. Commissioner of Income Tax, U. P., 146 I.T.R. 249; Badri Narain Kashi Prasad v. Additional Commissioner of Income Tax, 115 I.T.R. 858; Sandersons Morgans v. Income Tax `A' ward, District III (I), Calcutta, and others, 87 I.T.R. 270; Joshi & Co. v. Commissioner of Income-Tax, 162 I.T.R. 268; Girdharilal Nannelal v. Commissioner of Income-Tax, 147 I.T.R. 529; Commissioner of Income-Tax, Delhi-IV v. Sant Lal Arvind Kumar, 136 I.T.R. 379; Dungarsidas Kaluram v. Additional Commissioner of Income-tax, M.P., 132 I.T.R. 526; Ganesh Dal Mills v. Commissioner of Income-Tax, 136 I.T.R. 762; Dahi Laxmi Lal Factory v. Income-Tax Officer, Sitapur, and another, 13 I.T.R. 517; Additional Commissioner of Income-tax, Gujarat v. Harjivandas Hathibhai, 108 I.T.R. 517; I. Ramakrishnaiah & Sons. v. Commissioner of Income-tax Orissa, 111 I.T.R. 296; Tyresoles (India), Calcutta v. Commissioner of Income-tax, Coimbatore, 49 I.T.R. 515 and Mayukkaria (N) Estate Tea Factory v. Additional Commissioner of Income-tax, Madras II, 112 I.T.R. 715, referred to. 1988 AIR 757, 1988( 1 )SCR 917, 1988Suppl.SCC 193, 1987( 2 )SCALE1078, 1987( 4 )JT 349


PETITIONER:
WAJID ALI ABID ALI, ETC.

Vs.

RESPONDENT:
COMMISSIONER OF INCOME TAX, LUCKNOW, ETC.

DATE OF JUDGMENT10/11/1987

BENCH:
SEN, A.P. (J)
BENCH:
SEN, A.P. (J)
RAY, B.C. (J)

CITATION:
 1987 AIR 2074  1987 SCR  (3)1049
 1987 SCC  Supl.  329  JT 1987 (3) 370
 1987 SCALE  (2)351


ACT:
     Income Tax Act, 1961-Effect  of death  of one  of the
partners of  a registered firm during the assessment year on
the continued  benefit of  registration under section 184(7)
thereof-Whether a  fresh application  for registration with
partnership deed  embodying change  in constitution of firm,
required.



HEADNOTE:
%
     Two appeals  were filed  before this  Court one  (Civil
Appeal No.  1792 (NT)  of 1974) by the assessee  from the
Allahabad High Court, and  the second (Civil Appeal No. 609
(NT) of 1975) by  certificate,  at  the  instance  of the
revenue, from the Gujarat High Court. Both the appeals dealt
with  a common situation,  namely,  the  position  of the
registered firm during the  assessment year  if one  of the
Partners died or retired.
     In the  assessee's case  above-mentioned, the  assessee
was a partnership firm styled as Messrs. Wazid Ali Abid Ali,
constituted under  a deed  of partnership, which, inter alia
provided "that where  the  deed  is  silent,  it  shall  be
governed by  the Indian Partnership Act save and except that
on the death or demise of any partner the firm shall not be
dissolved  but shall  be  carried  on with  the  remaining
partners and  that heir and representative  of the deceased
partner who resides in India on such terms and conditions to
which they mutually agree. "
     On June  4, 1964, one of the partners, Qamaruddin, died
and his son, Fariduddin,  joined the firm as a partner. New
deed  of   partnership evidencing   the   change   in the
constitution of the firm  was not executed (before November
4, 1964).  The assessee filed a declaration in Form No. XII
for the relevant  assessment  year  1965-66  under  section
184(7) of the Act, signed by all the partners and Fariduddin
taken in  as a partner in  place of his father, Qamaruddin.
The Income  Tax officer held that  the admission  of a new
partner in  place of  the deceased  partners amounted  to  a
change in  the constitution  of the firm and as the firm had
failed to  file a  fresh application  for registration, the
assessee was  not  entitled  to the  continued benefit  of
registration under  section 184(7)  of the  Act.  An  appeal
filed  by   the assessee  before  the Appellate  Assistant
Commissioner was dismissed. The assessee preferred an appeal
to the Income
918
Tax Appellate  Tribunal. The Tribunal held that the death of
Qamaruddin and the inclusion of Fariduddin involved a change
in the constitution  of  the  firm  and  a  fresh  deed  of
partnership  should   have  been   executed  and   a   fresh
application for registration, filed. The Tribunal, however,
also held  that the  conditions laid down in sub-section (7)
of section  184 of  the Act  had  been satisfied  and the
assessee would be entitled  to the  benefit of registration
upto June 4, 1964; that is, a part of the previous year, and
that the  Income Tax  officer  should  have  made  a  single
assessment only on the assessee and  apportioned the total
income between the partners  who were entitled to receive'
the profits  accordingly as  they were entitled to share the
profits, the  firm being  assessed as  a registered  firm in
respect of  the profits  for  the  remaining  part  of the
previous year. And the question "whether, on the facts and
in the circumstances of the case, the Tribunal was justified
in  holding   that  for  the  period  covered by  the old
constitution the  income was  assessable in the hands of the
assessee as  a registered  firm?" was  referred to  the High
Court, which  answered the question in favour of the revenue
and in the negative. The assessee appealed to this court for
relief, as aforementioned.
     In the second appeal afore-mentioned at the instance of
the revenue,  the assessee,  a registered firm, consisted of
five partners, out of whom, one partner, Sarabhai Chimanlal
died on March 9,  1963. The assessee firm filed two returns
for the assessment year  in  question-one  for the  period
ending on  March 9,  1963 and the other, for the rest of the
accounting period. A declaration under section 184(2) of the
Act was enclosed along with the return for the first period.
The two returns were  filed on the basis that according to
the assessee  there was a dissolution of the firm on the
death of the partner Sarabhai Chimanlal, and, therefore, the
subsequent continuance of business was only for the purpose
of winding  up the  firm. The  Income Tax  officer held that
there was  a change  in the  constitution of the firm within
the meaning  of section 187(2), and the assessee should have
applied for  registration  and should not  have  remained
content with  the filing  of the  declaration under  section
187(2) of  the Act.  The assessee filed an appeal before the
Appellate Assistant  Commissioner, who dismissed the  same.
The assessee  then appealed  to the  Income  Tax  Appellate
Tribunal, which came to  the conclusion  that there  was  a
dissolution of the partnership on March 9, 1963, and at the
instance of  the revenue  the Tribunal referred to the High
Court, two   questions "(1)  Whether, in  the  facts and
circumstances of  the case, there was any dissolution of the
partnership on the date of death of Shri Sarabhai Chimanlal
and that,  therefore, there  should be separate  assessment
till the date of his death? and (2)
919
Whether in   the  facts  and  circumstances  of  the  case,
provisions of section 187(2) apply to the facts of the case?
The High  Court answered the first question in both parts in
the affirmative and in favour of  the assessee,  and the
second question,  in the  negative  and in  favour  of the
assessee, and  granted certificate  to the revenue to appeal
to this court as aforementioned.
     Allowing the assessee's appeal (the Allahabad case) and
dismissing the appeal by the revenue (the Gujarat case), the
Court,
^
     HELD: The real question  in both these appeals is when
there is  a death of a partner within a previous year in the
case of a registered firm, what happens. [930B-C]
     In the  context of the relevant statutory provisions of
the Income Tax Act, 1961, the question arises whether on the
death of  the partners in the situations of the two appeals,
the firm  was dissolved or whether two assessments should be
made. [932H; 933A]
     It is  well to reiterate that in all cases, dissolution
does not  take place  by death if there is a contract to the
contrary. If that is so, then, in such a situation, the next
question is  whether there  was any contract to the contrary
in the situations of the two cases. [933A-Bl
     There was a contract  to the contrary in the Allahabad
case, where  the deed  of partnership  provided, inter alia
that where  the deed  is silent, it shall be governed by the
Indian Partnership  Act save and except that on the death or
demise of  any partner, the firm shall not be dissolved but
shall be  carried on  with the remaining partners  and that
heir and  representative of the deceased partner who resides
in India on such terms and conditions as they mutually agree
to. Therefore  on the  death of the partner,  there  is  no
dissolution by the expressed  terms of the contract between
the parties  but the  partnership is deemed to be carried on
with the remaining partners and that heir and representative
of the deceased partner,  who was  in India.  The terms and
conditions of  the partnership, however, had to be mutually
agreed upon.  In this  (Allahabad) case,  Qamaruddin, one of
the partners,  died on June 4, 1964. Within  the  relevant
time, his  son, Fariduddin  joined the firm as a  partner.
Before the  expiry  of November  4,  1964,  that  is, the
assessment year which expired on  November  4,  1964, the
assessee had  filed  a declaration  in Form  XII  for the
relevant assessment year 1965-66 under section 184(7) of the
Act. [933B-E]
920
     In this  case, on the  death  of Qamaruddin  and the
inclusion of  A Fariduddin,  there  was  a  change  in the
constitution of the firm,  but the  firm was not dissolved.
Fresh deed  had to  be executed under sub-section  (7)  of
section 187.  The application was not filed for the whole of
the assessment year; so, for a part of the assessment year,
the firm  was registered  and for the rest, the firm was not
registered. The Tribunal held that (1) the assessee would be
entitled to  the benefit  of registration upto June 4, 1964,
that is,  a part  of the  previous year and (2)  the  total
income would  be apportioned  between the  partners who were
entitled to  receive the  profits accordingly  as they were
entitled to  share the profits, the firm being assessed as a
registered firm in respect of the profits ending on June 4,
1964, and  as an unregistered firm in respect of the profits
for the remaining part of the previous year. This conclusion
of the Tribunal is  correct. An  analysis of  the different
sections of  the Act lead to that conclusion and there is no
contrary provision  in the Act. Such a conclusion is logical
and equitable  and would do justice to both, the revenue and
the assessee.  In the  circumstances of the case, the course
open was  to seek  registration to  execute a  new  deed  of
partner-ship and apply for the registration of that deed, as
rightly held  by the  High Court, but failure to do so, does
not make  the registration upto the date of the death of the
partner Qamaruddin  invalid,  and  in  the  absence  of any
express prohibition  indicating  the  same,  the  firm was
entitled to the benefit of such registration. [933E-H; 934A-
E]
     In the  Allahabad case,  the Tribunal  took the correct
view and  the High  Court was  in error in the view it took.
Judgment and  order of the High Court set aside. The view of
the Tribunal upheld. [934G]
     In the  second appeal  (Gujarat case),  the question is
whether in  the facts  and circumstances  of the case, there
was any dissolution of the partnership  on the date of the
death of Shri Sarabhai Chimanlal and whether there should be
two separate  assessments till the death  or whether in the
facts and  circumstances of  the case, provisions of section
187(2) of  the Act apply to the facts of this case. The High
Court found  that the  assessee's contention  was right that
the firm,  as found  by the  Tribunal, was dissolved and the
transactions were  carried on  with the remaining parties in
the course  of the winding up and for the realisation of its
dues. The  High Court, accordingly, answered rightly in the
affirmative and in favour of the assessee. There was in fact
a dissolution, as found  by the  Tribunal, and in the facts
and circumstances  of the  case, after the dissolution, the
firm ceased  to exist  and  there  should  be  two  separate
assessments. The  High Court  was  right  in  answering the
question as  it did.  The  High Court was  also  right  in
answering the
921
question in  view of  the fact that there was a death and as
such dissolution  of the  firm by  the manner  in which the
parties acted, there was no question of the same firm being
continued and  the provisions of section 187(2) could not be
said to apply in the light of the facts. [939E-H]
     In re.   Hakerwal Colliery,   [1942]  10  ITR 422,
Girdharilal Seetaram & Bros. v. C.I.T, [1949] 17 I.T.R. 282;
Pannalal Babulal  v. C.I.T.,  [1969] 73 I.T.R. 503;  Rex v.
General Commissioners  for the City of London, 24 Reports of
Tax Cases  221; Commissioner  of Income-Tax  v. Shiv Shankar
Lal  Ram   Nath,  106 I.T.R. 342;   Vishwanath  Seth  v.
Commissioner of Income Tax,  U. P.,  146 I.T.R.  249; Badri
Narain Kashi  Prasad v. Additional Commissioner  of  Income
Tax, 115  I.T.R. 858;  Sandersons Morgans  v. Income Tax `A'
ward, District III (I), Calcutta, and others, 87 I.T.R. 270;
Joshi & Co. v. Commissioner of Income-Tax, 162 I.T.R. 268;
Girdharilal Nannelal  v.  Commissioner of  Income-Tax, 147
I.T.R. 529; Commissioner of Income-Tax, Delhi-IV v. Sant Lal
Arvind Kumar, 136  I.T.R.  379;  Dungarsidas Kaluram  v.
Additional Commissioner of Income-tax, M.P., 132 I.T.R. 526;
Ganesh Dal  Mills v.  Commissioner of Income-Tax, 136 I.T.R.
762; Dahi  Laxmi Lal Factory v. Income-Tax Officer, Sitapur,
and another,  13  I.T.R.  517; Additional  Commissioner  of
Income-tax, Gujarat  v. Harjivandas  Hathibhai, 108  I.T.R.
517; I. Ramakrishnaiah & Sons. v. Commissioner of Income-tax
Orissa, 111  I.T.R.  296;  Tyresoles  (India), Calcutta  v.
Commissioner of Income-tax, Coimbatore,  49 I.T.R.  515 and
Mayukkaria (N) Estate Tea Factory v. Additional Commissioner
of Income-tax, Madras II, 112 I.T.R. 715, referred to.



JUDGMENT:
     CIVIL APPELLATE JURISDICTION. Civil Appeal No. 1792(NT)
of 1974 etc.
     From the  Judgment and  Order dated  22.2.1972  of the
Allahabad High Court in I.T. Reference No. 163 of 1970.
     Dr. Gauri Shankar, Amicus Curiae, Manoj Arora and S.
Rajappa for the Appellant.
     S.C. Manchanda, K.C. Dua and Miss A. Subhashini for the
Respondents.
     The Judgment of the Court was delivered by
     SABYASACHI MUKHARJI, J. By this judgment we will dis-
922
pose of two  appeals-first  one  at  the  instance  of the
assessee and  second one  at the instance of the revenue-but
both these appeals deal with one common situation namely the
position of  the registered  firm during the assessment year
if one of the partners dies  or retires.  Civil Appeal No.
1792(NT) of  1974 is  an appeal by the assessee  from the
judgment and  order of the Allahabad  High Court dated 22nd
February, 1972 answering the following question referred to
it  under  section  256(1)  of the  Income-tax Act,  1961,
hereinafter referred  to as the Act, for the assessment year
1965-66 in favour of the revenue and in the negative:-
      "Whether,   on the   facts   and   in the
 circumstances of   the  case  the  Tribunal was
 justified in holding that  for the period covered
 by the  old constitution the income was assessable
 in the hands of the assessee as a registered firm?
     For the  assessment year  1965-66 the relevant previous
year commenced on 17th November, 1963 and  ended  on 4th
November, 1964. The assessee  was a partnership firm styled
as Messrs  Wazid Ali  Abid Ali of Phulpur in the district of
Azamgarh. It  was constituted  under a deed of partnership
dated 17th  March, 1959 with  17  members.  The  said deed
provided, inter alia, as follows:
 "That where  the  deed  is  silent,  it  shall  be
 governed by  the Indian  Partnership Act  save and
 except that  on the death or demise of any partner
 the firm  shall not  be  dissolved  but  shall  be
 carried on  with the remaining partners  and that
 heir and  representative of  the deceased  partner
 who resides  in India on such terms and conditions
 to which they mutually agree."
     On June  4, 1964, one of the partners, Qamaruddin died
and his son, Fariduddin  joined the  firm as a partner. New
deed  of   partnership evidencing   the   change   in the
constitution  of  the  firm  was  not  executed before 4th
November, 1964. The assessee filed a declaration in Form No.
XII for the relevant  assessment year 1965-66 under section
184(7) of  the Act.  The declaration  was signed  by the  16
members who  had continued  all along and also by Fariduddin
who had become a  partner in  place of his deceased father.
The Income  Tax Officer held that  the admission  of a new
partner in  place of  the deceased  partner  amounted  to  a
change in  the constitution of the firm. He, therefore, held
that the  assessee was not entitled to the continued benefit
of registration under section 184(7) of the Act. He was of
the opinion that the firm had
923
failed to  file a  fresh application  for  registration and
therefore he  disallowed the  benefit of registration to the
firm. On  appeal the  Appellate Assistant  Commissioner held
that the  assessee should have filed a fresh application for
registration along  with the  partnership deed embodying the
change in  the constitution  of the  firm.  The appeal was
accordingly dismissed by him. The assessee preferred further
appeal to  the Tribunal and urged  that  the  change  which
occurred on  the death of Qamaruddin  did not require the
execution  of a  new deed  of  partnership  nor  a  fresh
application  for   registration.   Alternatively,   it was
contended that the assessee  was entitled  to the continued
benefit of  registration at  least  for that  part  of the
previous year  during which  Qamaruddin had  remained alive.
The Tribunal  was of  the view that the death of Qamaruddin
and the inclusion of  Fariduddin involved  a change  in the
constitution of the firm. It was, therefore, necessary that
a fresh deed of  partnership should  have been executed as
well as a fresh  application for  registration filed. The
Tribunal, however,  accepted the  alternative contention and
observed that the conditions laid down in sub-section (7) of
section 184  of the  Act had  been satisfied  and  that the
assessee would be entitled  to the  benefit of registration
upto 4th  June, 1964, that is to say, a part of the previous
year.  In  view of  section  187(2)  of  the  Act,  it was
obligatory according  to the  Tribunal and  the Income Tax
Officer to  make single assessment only on the assessee and
to apportion  the total income between the partners who were
entitled to  receive the  profits accordingly  as they were
entitled to  share the profits, the firm being assessed as a
registered firm in respect  of the profits ending 4th June,
1964 and  as an unregistered firm in respect of the profits
for the remaining part of the previous year. Thereupon the
aforesaid question was referred to the High Court.
     The High  Court was  of the  view that  on the death of
Qamaruddin on 4th June, 1964 and on the entry of Fariduddin,
there  was  a  change  in  the constitution  of  the  firm.
According to  the High Court, by virtue of section 42(c) of
the Indian Partnership Act, 1932 a firm was dissolved by the
death of  the partner  but as  the section provided that was
subject to the contract between the partners. The High Court
was of the view that clause 7 of the partnership deed dated
17th March, 1959 specifically stipulated that the firm would
not be dissolved on  the death of a partner but it would be
carried on  with remaining  partners and  such heir  of the
deceased  partner   who resides   in  India  on  terms and
conditions to  which they mutually agree. The High Court was
of the view that  if there  was any  heir of  the  deceased
partner who  resides in India and agrees with the surviving
partners on the terms and condi-
924
tions on  which he could be admitted to the partnership, the
firm would  not be  dissolved. The High Court was further of
the view  that the  condition that  there should  be  mutual
agreement between  the surviving  partners and the incoming
partner indicated  that the  inclusion of  the heir  of the
deceased  partner  was not  automatic one  but  rested  on
agreement.
     The High  Court referred  to  the decision  in  In  re
Makerwal Colleiry,  [1942], 10 ITR. 422,  where  Monir,  J.
Observed that under the partnership constituted by a deed of
partnership,  the   legal  representatives   of a  deceased
partner, who  by reason of a  provision  in  the  deed was
entitled but  not bound to become  a partner  for a  period
which might  be the  same or different from the period fixed
under the deed he was to continue in the partnership for the
unexpired portion  of the  period, the constitution of the
firm is altered and, therefore, the new firm could not apply
for the renewal of  registration nor can in such a case the
new firm  apply for registration of the original partnership
as ex  hypothesi, the  applicants for  registration were not
parties to  the deed of partnership. There the learned Judge
had further  observed that  the only  course  open  to seek
registration was to execute a new deed of partnership and to
apply for the registration of that deed.
     Reference was made by the High Court to the decision of
the Orissa  High Court in Giridharilal Seetaram & Bros, v.
C.I.T., [1949] 17 ITR. 282. The Orissa High Court held that
in case where the  partnership deed  provided that  on the
death of  a partner his legal representative was entitled to
join the  partnership and the partnership would be continued
without dissolution,  an application for registration signed
by the surviving partners  and the  son  of  the  deceased
partner was  not defective and should not be rejected on the
ground that  the  original  partnership  deed without any
alteration had been produced. The learned Judge observed:
 "It may  be that ordinarily on the death of any of
 the partners the firm gets dissolved automatically
 but it  does not  so dissolve where the  deceased
 partner's heir  automatically, by  virtue  of the
 terms of  the deed,  becomes a partner without any
 fresh agreement."
According to the High Court the aforesaid observation of the
learned Judge  had not been endorsed  by the Allahabad High
Court in  Pannalal Babulal  v. C.I.T., [1969] 73  ITR 503.
While agreeing to the observations  in  Makerwal  Colliery
(supra) Oak,  C.J., and T.P. Mukherjee J. found themselves
unable to adopt the view taken in Giridharilal
925
Seetaram &  Bros. (supra) that on the death of a partner his
successor would become a partner of the firm automatically.
It was open to the heir,  according to  their decision, to
join or not to join the partnership. He was not bound to do
so. In that view,  application for  renewal of registration
signed by the surviving partners and the son of the deceased
partner could  be rejected  because the constitution of the
firm  was   no longer reflected  in the  instrument  of
partnership. The  High Court  in the instant case was of the
view that  the Tribunal  was  right  in  holding  that the
inclusion of  Fariduddin as  a partner upon  the  death  of
Quamaruddin resulted  in a change in the constitution of the
firm and  it could  be no  longer  be  given  the  continued
benefit of registration on the basis of original partnership
deed. The  High Court was of the view that the next question
was whether  the Tribunal was also right in holding that the
assessee  was entitled  to   the  continued benefit  of
registration in respect of the profits after 4th June, 1964
that is to say the period during which Quamaruddin remained
alive. According  to  the  High Court it  was clear that
continued benefit  of registration must be in respect of the
entire assessment  year, and  therefore it  must affect the
profits of  the entire year relating to the assessment year.
If the firm had  dissolved on 4th June, 1964 with the death
of Quamaruddin the relevant  previous year  would have been
the period  commencing from  17th November, 1963 to 4th June
1964 and the profits for that period would have been treated
for the assessment as in case of a registered firm. The firm
was, however,  not  dissolved  and  continued  in  existence
throughout the previous year  that  is to  say  from 17th
November, 1963 to 4th November, 1964. The High Court was,
therefore, of the view that there was merely a change in the
constitution of the firm. The High Court was of the opinion
that by reason of  the proviso to subsection (7) of section
184 of the Act the registration granted in a preceding year
could not  continue to have effect  for the assessment year
under consideration.  The High Court was of the view that it
was necessary  for the assessee by reason of section 164(8)
of  the  Act  to  apply  for  fresh  registration  for the
assessment year concerned in accordance with the provisions
of section  184. That  required an instrument evidencing the
partnership and specifying the individual  shares  of the
partners. The  declaration in Form No. XII was misconceived,
according to  the High Court. The view taken by the Tribunal
that the profits upto 4th June, 1964 should be treated as in
case of a registered  firm and the profits for the rest of
the previous  year should  be  treated as  in case  of  an
unregistered firm,  according to  the High  Court, found  no
support in  the statute. The High Court was of the view that
dividing the  profits of  the previous year in this fashion
amounted to  treating the  firm as  a registered  firm for a
part of the assessment year and an
926
unregistered for the remaining part. The High Court found it
difficult to  conceive such  a case  under the Act. The High
Court was,  therefore, of the view that the Tribunal was not
right in  holding that during the  period  covered  by the
constitution of the original partnership deed the income was
assessable in  the hands  of the  assessee as  a  registered
firm. The  High Court  accordingly answered  the question in
the negative.  In consequence, the revenue  succeeded. The
validity of  this answer to the question has been challenged
in this appeal by  the assessee.  Indeed, on  this question
divergent views have been taken by different High Courts as
we shall presently notice.
     Civil Appeal  No. 609(NT) of  1975  is  an  appeal  by
certificate  granted  by  the  High  Court  of Gujarat and
admitted by  this Court.  This is  an appeal  from the High
Court of  Gujarat at  the instance  of the  revenue for the
assessment year 1964-65. The  following two  questions were
referred to the High Court of Gujarat:
 "(1) Whether, in the facts and  circumstances of
 the  case,   there  was  any dissolution  of the
 partnership on  the date of death of Shri Sarabhai
 Chimanlal  and  that therefore  there  should  be
 separate assessment till the date of his death?
      (2) Whether  in the  facts and circumstances,
 of the case, provisions of section 187(2) apply to
 the facts of the case?"
The facts involved in the said appeal were that the assessee
was a partnership firm. The firm was granted registration in
the preceding  year 1963-64  under the Act. Originally the
firm consisted of five partners and one of the partners was
Sarabhai Chimanlal.  Sarabhai died  on 9th  March, 1963. The
business of the firm was of executing contracts entered into
with the  Railways for handling of goods at various Stations
and also  some business in respect of coal, dealing in coal
on commission  etc. The major part  of the work was that of
handling  contacts   entered  into  with  the  Railways for
handling goods at Sabarmati  Railway Station in Gujarat. On
the  death   of Sarabhai   Chimanlal, the   books  of the
partnership firm  dealing the  contracts with  the  Railways
were closed.  The firm was maintaining its accounts in three
separate sets  of books.  Set No. I dealt with the contracts
of Railways.  In accounts  maintained in  Set No. II and Set
III books  of accounts were continued but in accounts of Set
No. I  balances were  struck after preparing profit and loss
upto June,  1963, and  the  profits  were  credited  to the
respective partners' account including the
927
receipts. Thereafter the account of the deceased was carried
forward in   different books. In  respect  of  the  other
businesses, the books were  closed but at the end of the
period of  account, profits  were determined  and bifurcated
between periods,  the first period till the date of death of
the deceased  partner and  the second period being after his
death. The  previous year  was Samvat Year 2019. Samvat Year
2019 commenced from 28th  October, 1962  and ended  on 27th
October, 1963. The profits  were credited in the account of
Sarabhai along with the accounts of other partners for both
the periods  so far  as Set  No. II  and Set  No.  III were
concerned. The assessee firm  filed  two  returns  for the
assessment year in question-one for the period ending on 9th
March, 1963  and the  other for the rest  of the accounting
period. A  declaration under  section  184(2)  was  enclosed
along with  the return for the first period. The basis on
which these two returns were filed was that according to the
assessee there was dissolution of the firm on the death of
Sarabhai   Chimanlal and,   therefore,   the  subsequent
continuance of business was only for the purpose of winding
up the firm. The  Income Tax  officer refused to accept the
contentions of the assessee  and his  main ground  was that
there was  a change  in the  constitution of the firm within
the meaning of section 187(2). Therefore, the assesee should
have applied  for registration and should not have remained
content with  the filing  of the  declaration under  section
187(2) of  the Act.  Against the said decision, the assessee
appealed and  the Appellate  Assistant Commissioner  agreed
with the  conclusion of the Income Tax Officer and dismissed
the appeal. The assessee appealed to the Appellate Tribunal.
The Tribunal  came  to the  conclusion that  there  was  a
dissolution of the partnership on 9th March, 1963 and that
conclusion was drawn from  the various circumstances which
the Tribunal  took into consideration. Then at the instance
of the revenue, reference was made to the High Court on the
aforesaid two questions mentioned hereinbefore.
     The Tribunal  had negatived the contention that section
187(2) of the Act, applied to the facts and circumstances of
the case.  The High  Court took into account two clauses in
the background of the partnership deed.  According to the
Tribunal  that the  balances  were  completely struck and
carried to  a new set of books was an important circumstance
and evidence  to find  out whether  the parties did want to
bring about  dissolution. The  Tribunal was of the view that
by virtue of clause 8 of the Partnership Deed the death of a
partner would  not bring  about a dissolution automatically,
yet by mutual consent of the parties which could be inferred
from the  facts the firm has been dissolved. The High Court,
however, noted that the primary circumstance was that
928
the books  of accounts in Set No. I, which was in respect of
major business, were closed  on the  death of the Sarabhai
Chimanlal.  The  Tribunal,  however,  had  noted  that the
contract in  respect of the Sabarmati Railway Station was to
expire on  31st March, 1963 but  the contract was deemed to
have been  extended  till  30th April, 1963. As  soon  as
Sarabhai died, books of accounts of the firm were closed and
necessary entries  were effected in respect of other Railway
Stations also, since the contracts were terminated, that is,
in September, 1963 books of other Railway Stations were also
closed. The High Court noted that another major circumstance
in  support   of  its  conclusion  was mutual consent for
dissolution of the firm  and the  fact that the partnership
firm did  not enter into new business activities and did not
undertake any new contract. The High Court noted that if the
surviving partners  of the  firm  wanted  the firm  should
continue as  it could  have continued  under clause 8 of the
Partnership Deed  then surely  they  would  have  taken new
contracts or entered into new activities because a firm like
the assessee  firm surely would have come to a halt if there
were no business activities  or no  new business contracts.
The  Tribunal had  found  considerable  substance  in the
contention of the assessee that after the death of Sarabhai,
the  partners wanted to   close  the  business.  Another
circumstance which had appealed to the Tribunal was that the
profits earned subsequent to the death of Sarabhai were also
credited to  the account of the deceased proportionately and
even in respect of  profit earned for the subsequent period
the deceased  partner was given profit. The High Court noted
that these,  according to  the assessee,  indicated that the
firm was  dissolved but in the course of winding up whatever
was realised  was  proportionately  distributed and  amount
coming to  the share  of the  deceased was  credited in his
account even  though he had expired on 9th March, 1963. The
High Court  noted that the Tribunal was of the view that the
conduct of  the partner clearly  indicated  that  firm had
agreed not  to carry on business and whatever was done after
death of  Sarabhai was merely by  realisation of  certain
outstanding dues in the course of dissolution of the firm in
discharging certain  obligations by completing the contracts
entered into prior to the death of Sarabhai.
     The  High Court noted  that  there  were  two  other
circumstances which  were pointed  out. One  was that no new
deed of partnership was executed after Sarabhai's death nor
was any application made  for registration by the surviving
partners. The  application contemplated by Section 184(7) of
the Act was filed in connection with the period uptil March
9, 1963 and it was also  pointed out before the High Court
that the  major source of  profits  was  of  the  business
mentioned in Set No. I,
929
that is,  Sabarmati Railway  contract and  actually in other
accounts losses were being  incurred or not much profit was
being incurred in the business set  out in  Set II and Set
III. After  noting these  facts, the  High Court  was of the
view that  the important  thing was  the  intention  of the
partners and  referring to  the different  clauses the High
Court was  of the  view that  the conclusion of the Tribunal
that  the  partners  had  by  mutual  agreement decided  to
dissolve the  firm with effect from  March 9, 1963  was  a
correct and  justified one  and, therefore, the Tribunal was
also justified in holding  that the  rest of the activities
between March  9, 1963 and the end of the accounting period,
that is, till the end of Samvat Year 2019 were in the course
of the dissolution of the firm. The Tribunal was, therefore,
right in  holding that there should  be separate assessment
till the  date of death of Sarabhai Chimanlal. So far as the
second question was concerned the High Court was of the view
that where at the time of making an assessment under Section
143 or section 144 of the Act, it was found that there was a
change which  had occurred  in the constitution of the firm,
the assessment should be made on the firm as constituted at
the time  of the  making of  the assessment  and one  of the
consequences of a change  occurring in the constitution of
the firm  was that  if there  was any change in the previous
year the  firm had  to apply  for fresh registration for the
assessment year concerned in accordance with the provisions
of Section  184. Under sub-section (2) of section 187, for
the purposes  of section  187, there  was a  change  in the
constitution of the firm  if one  or more  of the  partners
ceased to  be a partner or  one or  more new  partners were
admitted, in  such circumstances  where one  or more  of the
persons who  were partners of the firm before the change had
continued as  partner or partners after the change; or where
all the partners continued with a change in their respective
shares or   in the  shares  of  some of  them.  In  those
circumstances, according  to the High Court, since there was
dissolution of the firm with effect from March 9, 1963 there
was no question of the same firm being continued with change
in the constitution of the firm  and the  requirements  of
clause (a) of sub-section (2) of Section 187 were not at all
satisfied. The High Court  was further of the view that in
any event,  so far  as clause  (b)  was concerned  all the
partners  did not  continue  with  some  change  in  their
respective shares  or in  the shares  of some  of them since
Sarabhai who  held thirty  per cent  share in the profits of
the firm  had died on March 9, 1963 and thereafter there was
no new partner in  his place. Of  course,  the  estate  of
Sarabhai as  represented by his wife Kanchanben who was also
a partner  got the  benefit of the profits which went to the
share  of   Sarabhai  but  Kanchanben  got  that  amount  as
representing the  estate of Sarabhai and not in her capacity
as a partner of the firm. Under
930
these circumstances  the provisions of section 187(2) of the
Act could  not be  said to apply to the facts of the present
case. In  the premises the High  Court answered  the  first
question both  parts in the affirmative and in favour of the
assessee. As  to second the High  Court answered  it in the
negative and  in favour of the assessee.  The High  Court
granted the  certificate as mentioned hereinbefore to appeal
to this Court.
     The real  question with  which we are concerned in both
these appeals  is, therefore,  when  there  is death  of  a
partner within a previous year in case of a registered firm
what happens.
     In order to appreciate the controversy in this case, it
is necessary  to have a perspective of the scheme of the Act
of the assessment of  firms. Under  the scheme of the Act
assessment of  firm has been provided in Chapter XVI and it
can be found in sections 182 to 189 of the Act. Section 170
of the Act which  is relevant in this connection provides
succession to  business or  profession and  stipulates that
where a person carrying  on any  business or  profession or
such person  herein-after in  that section being referred to
as the predecessor has been succeeded therein by any other
person who   continues to   carry  on  that business  or
profession, the predecessor shall be assessed in respect of
the income of the previous year in which the succession took
place up  to the date of succession; and the successor shall
be assessed  in respect of the income of the previous year
after the  date of  succession. The  other  sub-sections  of
section 170  deal with certain contingencies  with which we
are not concerned. The expressions "firm" and "partnership"
have the  same meaning as given  in the  Indian Partnership
Act, 1932. "Partnership" is defined by section 4 of the said
Act as the relation between persons who have agreed to share
the profits  of a  business carried on by all or any of them
acting for  all. It  is further stated that the relation of
partnership  arises  from  contract  and  not  from  status.
Section 39   of  the said  Act  provides  dissolution  of
partnership between  all the  partners of  a firm called the
"Dissolution of the firm". A firm may be dissolved with the
consent of all the partners or in accordance with a contract
between the  partners. Section 42 provides  that subject to
contract between  the partners a firm is dissolved,  inter
alia see  clause (c)  by the  death  of a  partner.  It  is
necessary to  bear in  mind  that  section  143 deals with
regular assessment  and section 144 deals with best judgment
assessment. Section  182 of  the Act which is in Chapter XVI
as mentioned  hereinbefore provides  for assessment  of firm
and stipulates that notwithstanding  anything contained  in
sections 143  and 144  and subject to the provisions of sub-
section (3),  in the case of a registered firm the income of
the firm shall be distributed
931
in the manner indicated therein. Sub-section (3) of Section
182 is not material for our purpose. Section 183 of the Act
deals  with  assessment of  unregistered  firms.  Group  of
sections under heading contained  in section 184 to section
186 deal  with registration  of firm. Section 184 of the Act
deals with  the application  for registration  of the  firms
under the  said Act.  It is  not necessary  for the  present
purpose to  set out  in extenso all the  provisions of this
sub-section. It may, however, be borne  in  mind  that  an
application for registration of a firm must be made which is
evidenced by  an instrument and such application may be made
during the  existence of  the firm or after its dissolution.
Sub-section  (3)   of  section 184  stipulates   that the
application shall  be made  to the Income-tax Officer having
jurisdiction to assess the firm, and shall be signed by all
the partners  and in case of dissolution by all persons (not
being minors)  who were partners in  the  firm immediately
before its  dissolution and  by the  legal representative of
any such partner who is deceased. It further stipulates that
the application shall be made before the end of the previous
year  for   the assessment   year  in respect  of   which
registration is sought. The proviso to sub-section (4) also
provides  that the  Income-tax Officer  may  entertain  an
application made  after the  end of the previous year, if he
is satisfied that the firm was prevented by sufficient cause
from making  the application  before the end of the previous
year. The  other requirements  of the  application, the mode
and manner of making it as set out in other sub-sections are
not relevant  for the present purpose except sub-section (7)
of section  184 which  provides that  where registration  is
granted to  any firm  for any assessment year, it shall have
effect for  every subsequent  assessment year: Provided that
there is  no change  in the  constitution of the firm or the
shares of  the partners as evidenced  by the  instrument of
partnership on the basis  of  which  the  registration was
granted and  the firm  furnishes, before  the expiry  of the
time allowed  under sub-section (1) or sub-section (2)  of
section 139  (whether fixed  originally or on extension) for
furnishing  the  return  of   income  for  such  subsequent
assessment year,  a  declaration  to  that  effect,  in the
prescribed form and verified  in the prescribed manner, so,
however, that where the Income-tax Officer is satisfied that
the firm  was prevented by sufficient cause from furnishing
the declaration within the time so allowed, he may allow the
firm to furnish the  declaration at  any  time before the
assessment is  made. Sub-section  8 of section 184 provides
that where  any such  change has taken place in the previous
year, the  firm shall  apply for  fresh registration for the
assessment year concerned in accordance with the provisions
of this section. So, therefore, normally where registration
is granted  for any  firm for any assessment year, it should
have effect  for every subsequent  assessment year  unless
there is
932
any change  in the  constitution of the firm or the share of
the partners.  If there is a  change in the constitution of
the firm  then in  such a  case the registration will not be
continued for  subsequent years but will have to be applied
afresh. Section 185 deals  with the procedure on receipt of
the application. It is not necessary for the present purpose
to deal with the  provisions of  the said  section  in the
instant case.  Section 186  deals with the cancellation  of
registration. It  is also  not necessary  to  set  out the
provisions of  the said section.  The sections  under the
heading Clause are Sections 187, 188 and 189 of the Act and
deal  with   changes   in   constitution,   succession and
dissolution. Sub-section  (1) of  section 187  provides that
where at  the time of making an assessment under section 143
or section  144 of  the Act  it is  found that a change has
occurred in the constitution of a firm, the assessment shall
be made on the firm as constituted at the time of making the
assessment. The said sub-section  further provides that the
income of  the previous year shall,  for  the purposes  of
inclusion  in the  total   incomes  of  the  partners,  be
apportioned between the partners who, in such previous year,
were entiled  to receive the same; and 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. Sub-section (2) of section 187 provides that
for the purpose of  this section,  that is  to say, section
187, there  is a  change in the constitution of the firm, if
one or more of the partners cease to be partners or one or
more new  partners are admitted, in such circumstances that
one or more of the persons  who were partners of the firm
before the  change continue as partner or partners after the
change or  where all  the partners continue with a change in
their respective  shares or  in the  shares of some of them.
Section 188  deals with succession of one firm  by another
firm. It  provides that where a firm carrying on a business
or profession  is succeeded by another firm, and the case is
not one covered by  section 187, separate assessments shall
be made on the predecessor firm  and the successor firm in
accordance with the provisions of section  170. It  may be
mentioned that a proviso  to sub-section (2) of section 187
had been inserted by the Taxation Laws (Amendment) Act, 1984
with retrospective  effect  from  Ist  of  April,  1975.  It
provides that  nothing contained  in clause  (a) that  is to
say, indicating where the change in the constitution of the
firm is supposed to have taken place, shall apply to a case
where the  firm is  dissolved on  the death  of any  of its
partners. Section  189 deals with firm dissolved or business
discontinued.  In   the context   of  the  above  statutory
provisions, the question in  the instant case is whether on
the death of the partners in the two situations mentioned in
the above  two decisions  out of  which these  appeals have
arisen, whether the firm was dissolved
933
or whether two assessments should be made. Now it is well to
reiterate that in all cases dissolution does not take place
by death  if there is a contract to the contrary. If that is
so then in such  a situation, the next question is whether
there was any contract to the contrary in the two situations
as  contemplated   in  the   decisions with  which  we are
concerned, one of the Allahabad High Court and the other of
the Gujarat High Court.
     There was contract to the contrary, in our opinion, in
the  Allahabad High  Court's decision,  where  the deed
provided, inter alia, that  where the deed is silent,  it
shall be  governed by  the Indian  Partnership Act  save and
except that  on the  death or demise of any partner the firm
shall not  be dissolved but shall  be carried on with the
remaining partners  and that  the heir and representative of
the deceased  partner who resides in India on such terms and
conditions to  which they  mutually agree. Therefore, on the
death of  the  partner, there is  no dissolution  by the
expressed terms of the contract between the parties but the
partnership is deemed to  be carried  on with the remaining
partners and  that heir and representative  of the deceased
partner. The terms and conditions, however, of such carrying
on had to be  mutually agreed. In that  case as  mentioned
hereinbefore that Qamaruddin one of the partners died on 4th
of June,  1964 being  within  the  relevant  time  his son,
Fariduddin joined  the firm  as a partner. Before the expiry
of 4th November, 1964, that is to say, the assessment year
which expired  on 4th November, 1964, the assessee had filed
a declaration  in Form No. XII for the relevant assessment
year 1965-66  under section 184(7) of the Act. We are of the
opinion that in this case on the death of Qamaruddin and the
inclusion  of Fariduddin  there   was a   change  in the
constitution of the firm.  It did not dissolve the firm but
brought about  a change in the constitution of  the  firm.
Fresh deed  had to  be executed under sub-section  (7)  of
Section 187. This follows from the analysis of the different
sections of  the Act.  The application was not filed for the
whole of  the assessment  year so for part of the assessment
year the  firm was  registered and the rest the firm was not
registered. The Tribunal held that the  assessee would  be
entitled to the benefit of registration upto 4th June, 1964,
that is to say,  a part  of the previous year. The Tribunal
further held  that to apportion the total income between the
partners  who were  entitled to  receive   the   profits
accordingly as they were entitled to share the profits, the
firm being  assessed as a registered firm in respect of the
profits ending on 4th of June, 1964 and as an unregistered
firm in respect of the profit for the remaining part of the
previous year. In our opinion this  conclusion is correct.
The High  Court has  held that there is no warrant for this
view. We are unable to
934
agree. As  a matter  of fact  an analysis  of the  different
sections of  the Act lead to that conclusion and there is no
contrary provision  in the Act. Such a conclusion is logical
and equitable  and would  do justice  to both the revenue as
well as to the assessee. Our attention was not drawn to any
decision of  this Court which is  against that view, though
there is  certain amount  of divergence of views amongst the
High Courts  on this aspect. According to the High Court, by
virtue of  section 42(c)  of the  Indian Partnership  Act, a
firm was  dissolved by the death  of the partner but as the
section provided  that was  subject to the contract between
the parties.  The High Court was  right in  the  view that
clause (7) of the partnership deed dated 17th of March, 1959
specifically stipulated that the firm would not be dissolved
on the death of  a partner  but it would be carried on with
remaining partners and such heir of the deceased partner who
resides in  India on  terms and conditions  to which they
mutually agreed.  The High  Court was  of the  view, in our
opinion, rightly  that if  there was an heir of the deceased
partner who  resides in India and agrees with the surviving
partners on  the terms and conditions on which he could be
admitted  to   the  partnership,   the firm  would  not  be
dissolved. The High Court  was further of the view that the
inclusion of such partner depended upon the mutual agreement
between the surviving partners and was not automatic one, on
the death  of the deceased partner. In the background of the
facts of  this case,  we are  of the  opinion that  the High
Court was  right that  in such circumstances the course open
was  to  seek registration   to  execute  a  new  deed  of
partnership and to apply for the registration of that deed.
But that does not make the registration upto the date of the
death of  the deceased partner invalid and in our opinion,
subject of  any express prohibition indicating the same, the
firm is entitled to  the benefit  of such  registration. We
have found  no such  express prohibition, as the analysis of
the various  sections indicate. On the other, it  would be
just and  equitable and that the  assessee should have that
limited benefit.  We are  of the  opinion that the Tribunal
took the correct view in the first case.
     In the  aforesaid view  of the  matter it must be held
that the  Allahabad High  Court was  in error in the view it
took. The  Tribunal was right. The  appeal must be allowed,
and the judgment and  order of the High  Court must be set
aside.
     large number of authorities were cited before us but we
shall note some of these. But we are of the opinion that for
answering the  particular question  in view  of  the  clear
consequences that flow from the analysis of the sections, it
is not necessary to be bogged by deci
935
sion.  We   may,  however,   refer  to Stroud's   Judicial
Dictionary, Fourth  Edition, pages 412-414 where the meaning
of the expression "cease"  has been analysed from different
angles. When  and how  does a  partner cease to be a partner
has, however,  to be determined in the context of particular
set of facts. It  is not necessary to refer to the decision
in Rex v. General Commissioner of Income Tax for the City of
London, 24  Reports of Tax Cases  221 where  the shares  of
erstwhile  partnership business  were  apportioned  in  a
particular manner. These though throwing light, however, are
non-sequitur for the issue before us.
     Commissioner of  Income-tax v.  Shiv  Shankar  Lal Ram
Nath, 106  I.T.R. 342  is a  Bench decision of the Allahabad
High  Court  which  held  that in  case  where a  firm  is
reconstituted the  old firm ceases to exist. It was observed
by the court that section 187 of the Act even by implication
does not create a fiction that the income derived by the old
firm becomes  the income of the reconstituted firm. The High
Court held that the Tribunal was right in holding that after
reconstitution it  becomes a  separate assessable  unit. The
same High  Court in  a Full  Bench decision of 5 Judges held
that it was well settled that on the death of a partner the
constitution of the firm  changes. It observed that  if  a
partner dies and is replaced by a legal representative there
is a change in the constitution of the firm and the new firm
will be liable in respect of the income derived from the old
firm. The Full Bench suggested that after the reconstitution
the firm  becomes a  distinct assessable  entity,  different
from the  firm before  its reconstitution.  It observed that
two different  assessment orders  had to  be passed,  one in
respect of  income derived  by it  before reconstitution and
the  other   in respect   of  income derived after its
reconstitution. The decision under appeal here was overruled
by the said Full  Bench decision. But the Full Bench of the
Allahabad High Court consisting  of  5 learned  Judges  in
Vishwanath Seth v. Commissioner  of  Income-tax,  U.P. 146
I.T.R. 249  overruled the previous decision of that court in
Commissioner of Income-tax v. Shiv Shanker  Lal Ram  Nath,
(supra) and  Badri Narain Kashi Prasad v. Addl. Commissioner
of Income-tax, 115 I.T.R.  858. This  Full Bench ruled that
under the  general  law of  partnership  under the  Indian
Partnership Act as well  as under section 187 of the Act in
case of reconstitution of a firm it retains its identity and
is assessable  in respect  of the  entire previous  year. In
view, however, under the  scheme of Chapter XVI of the Act,
we are unable to  agree;  if  we  were left  with  general
position under the Indian  Partnership Act,  we might have
agreed. That  decision of  the High  Court, however  did not
deal with the controversy in issue.
936
     It was  held by one of us (Sabyasachi Mukharji) sitting
singly in the Calcutta High Court in Sandersons & Morgans v.
Income-tax, "A" Ward, District III(I), Calcutta, and others,
87 (I.T.R.  270), that a "change  in the  constitution of a
firm" normally and ordinarily would mean every alteration in
the set up of the firm, that is to say, death, retirement,
incapacity of  partners, alteration  in the  shares  of the
partners in the firm etc. It was so mentioned in the Maxwell
on  the  Interpretation  of   Statutes,  10th edition and
observations appearing at page 76 of the said book. The said
decision of the single Judge was confirmed by Bench decision
of that court and  is reported in 108 I.T.R. 954 and it was
reiterated that if one of the partners dies or retires there
is change  in the  constitution of the firm even if there is
no dissolution. This  decision was  also  noted  in  Bench
decision of  the Calcutta  High Court  in Joshi and Co.  v.
Commissioner of Income-tax, 162 I.T.R. 268 at page 280.
     The Full  Bench of the Madhya  Pradesh High  Court  in
Girdharilal  Nannelal  v.  Commissioner of  Income-tax 147
I.T.R. 529  held that  any matter  for which a provision was
made in the Income-tax Act, 1961, was to be governed by it,
notwithstanding anything   different  or  to  the  contrary
contained in the general law relating to that matter. It was
further held that  in   the case  of  a  change  in the
constitution of a firm during the  accounting  year, the
income earned  by the  firm before  such dispute  was to  be
clubbed with  the income  earned after such  change  and  a
single assessment  had to be made on the firm for the entire
accounting period. On the analysis of the different sections
of the Act we are unable to agree with this conclusion.
     The Delhi High Court,  however, held  in the  case  of
Commissioner of Income-tax, Delhi-IV  v.  Sant Lal  Arvind
Kumar (136I.T.R.379), that Section 187 of the Income-tax Act
came into  operation and  applied only when there was in the
eye of law a firm with continued existence and not to a case
where under the law one firm had ceased to exist and another
came into  existence.  The  High  Court observed  that the
purpose of  sub-section (2)  of section 187 was  not one of
expansion  of the  normal  concept  of  a  change  in the
constitution of a firm but was really one of limitation; the
purpose was  not to  say that a firm would continue in spite
of dissolution but rather to say that, even in a case where
there was only a change in the constitution, sub-section (1)
would not  apply if  the partners before or after the change
were not  common. It  is not  correct, according to the High
Court, to  say that  section 187(2) contemplated a change in
all cases  where the  business continued though in the hands
of a different firm provided there were
937
common partners.  The High Court was of the view that though
creating a  mild ambiguity,  the language  of section 188 is
not only  inconsistent or  contradictory but  in a way is to
clarify the  meaning of section  187  and  to exclude the
possibility  of  the  common  law  doctrine  regarding the
possibility of a firm even in case of a mere change in the
constitution. The  concept of  partnership, it was held, is
one of the agreement  between the partners. If the partners
agreed, not  that one  partner should  go  out and  another
should come in, but that on a particular event happening the
firm should  be treated as dissolved, they are entitled to
say so, and what  the partners have disrupted and it is not
for  the  department  to  unite unless there is  specific
authorisation in  the  Act.  Where  there  is, however,  no
agreement to  treat the firm as  continuing notwithstanding
the death of a partner, the partners have no option to treat
the firm  as continuing under the  Indian Partnership Act,
1932, the  firm gets dissolved and the Income Tax Officer is
not entitled to ignore this consequence. There is nothing in
the language  of sections 187, 188 or 189, according to High
Court, which  precludes the  application of  the partnership
law  principles even  under  the  Income-tax  Act.  It was
accordingly,  held   by the   High  Court  that  where the
partnership deed  of a firm did  not contain  any provision
that the death of a partner would not dissolve the firm, one
of the partners of  the firm  died in the  middle  of the
accounting period  and thereafter  a fresh deed was executed
under which  the surviving  partners took a fresh partner in
the place  of the  deceased and continued to  carry on the
business, the  case was one of succession and not change in
the constitution  and separate assessments had to be made in
regard to the incomes. With respect we agree that where in a
case, there  is a  change in the constitution of the firm by
taking of  a new  partner and an old firm succeeded by a new
firm then  in such  a case,  there might  be succession and
there could be two assessments as contemplated under section
188 of the Act. We accept the reasoning of that decision.
     large number  of  decisions  were referred  to  us  as
indicating divergent views. The view which found favour with
the Tribunal  in the  instant case was accepted more or less
by the Madhya Pradesh High Court in Dungarsidas Kaluram v.
Addl. Commissioner  of Income-tax  M.P.,  132 I.T.R. 526;
Ganesh Dal  Mills v.  Commissioner of Income-tax, 136 I.T.R.
762, by the Allahabad High Court in Dahi Laxmi Dal Factory,
v. Income-tax  Officer, Sitapur, and another, 13 I.T.R. 517,
by the Gujarat High  Court in Addl. Commissioner of Income-
tax, Gujarat  v. Harjivandas  Hathibhai, 108  I.T.R. 517, by
the Orissa  High  Court in  I. Ramakrishnaiah &  Sons  v.
Commissioner of Income-tax, Orissa,  III I.T.R. 296, by the
Madras High Court in Tyresoles (India), Calcutta v.
938
Commissioner  of  Income-tax,  Coimbatore,  49 I.T.R. 515;
Mavukkarai (N) Estate Tea Factory v. Additional Commissioner
of Income-tax, Madras-II, 112 I.T.R. 715.
     Our attention  was, however, drawn to a decision of the
Calcutta High  Court  in  the  case  of Joshi and  Co.  v.
Commissioner of Income-tax, (supra). The court held in that
case that  on the  construction of the relevant sections and
the rules  framed under the Act  of 1961,  it appears that
under the Income-tax Act, 1961, all that an assesee-firm was
required to  submit  is an  instrument of  partnership  as
documentary evidence  of partnership.  It was  not stated in
the Act that evidence must be contemporaneous nor  was it
laid  down  that  the  instrument  of  partnership  must  be
executed within the accounting year. On the other hand, it
had been  left open  to the  Income-tax Officer to accept an
application after  the end of the accounting year and a duty
was cast on the assessee to submit to the Income-tax Officer
all  subsequent  instruments, if  any,  which may  be  in
existence, right  upto the  date of  the application showing
the changes  in the constitution of the firm. Under rule 23,
all changes  in the  constitution even after the date of the
application, are  required to be intimated to the Income-tax
Officer. The  duty cast on the Income-tax Officer under the
Act of 1961 is to ascertain the genuineness of the firm and
its constitution as specified in the instrument. The Income-
tax Officer may entertain an application made even after the
end of the accounting year if he is satisfied that the firm
was  prevented by  sufficient  cause from making the
application before  the end  of such  period. In  commercial
practice, the  terms of a partnership constituted initially
under an  oral agreement  are often subsequently recorded in
writing in  an instrument.  It was  held that  this was not
prohibited  in law.  The   instrument showed  that the
partnership had come into existence from the date other than
that of the execution of the instrument and also the terms
and conditions on which  the partnership  had been  and was
being carried  on. The Indian Income-tax Act, 1922, required
the Income-tax Officer to  certify the register  the deed
itself and  the registration  of the firm would follow. That
is not so under  the Income-tax Act of 1961. The High Court
referred to  the proviso to section 187(2) and observed that
it could not be interpreted to mean that in every case where
one of the partners  died, the firm was and must be held to
be dissolved  for the  purpose of  registration  under the
Income-tax Act. The language of the proviso was clear and it
stated that  nothing in clause (a) of section 187(2) of the
Act should apply to a case where a firm was dissolved on the
death of  any of  its partners. In the facts of  this case
before the  High Court, it was held by the High Court that
the assessee firm was not dissolved on the death of
939
B, one of its partners. Under the terms of the deed, one of
the heirs  of the deceased partner was inducted as a partner
in the firm in respect and  to the extent of the share and
interest of  the deceased  partner. Hence,  there had been a
change in the constitution of the firm. It was held that the
assessee was  entitled to  registration for  the  assessment
year 1976-77  on the  strength of  its application  made  in
Forms Nos. II and IIA and on the strength of the new deed of
partnership executed  after the end of the accounting year.
We are in agreement  with the views expressed in the said
decision. It  may, however,  be mentioned that so far as the
High Court had held that the assessee firm was not dissolved
from the  death of  one of the partners in view of the terms
of the partnership deed,  but there  is  a  change  in the
constitution of the firm, the High Court was right. Whether
the assessee  was entitled  to registration  in the facts of
that case  on the  strength of its application in Forms Nos.
II and IIA would,  however, require closer examination when
the facts of that case are re-examined.
     In the  aforesaid view  of the  matter, we are of the
opinion as  indicated earlier the High Court of Allahabad in
Civil Appeal  No. 1792 of 1974 was in error in the view it
took. The  appeal must be allowed and the judgment and order
of the High Court  must be  set  aside.  The  view  of the
Tribunal must be upheld.
     So far  as Civil Appeal No.  609  is  concerned the
question is  whether in the facts  and circumstances of the
case, there  was any  dissolution of  the partnership on the
date of death of Shri Sarabhai Chimanlal and there should be
two seprarate  assessments till the death or whether in the
facts and  circumstances of  the case  provisions of section
187(2) apply to the facts of this case. There the High Court
found on  examination of  the facts  of that  case, that the
assessee's contention  was right  that the  firm as found by
the Tribunal was dissolved and the transactions were carried
on with the remaining parties in the course of the winding
up  and  for  realisation  of its  dues.  The High  Court
accordingly answered  rightly  in  the affirmative  and  in
favour of  the assessee.  There was in fact a dissolution as
found by  the Tribunal and in the facts and circumstances of
that case and after the dissolution the firm ceased to exist
there should be two separate assessments. The High Court was
right in  answering the question as it did. It appears to us
that the  High Court  was also right in answering the record
question in  view of  the fact that there was a death and as
such dissolution  of the  firm by  the manner  in which the
parties acted, that there  is no  question of the same firm
being continued and the  provisions of section 187(2) could
not be said to apply in the light of the facts.
940
     In the  view we  have taken  of  the  matter,  in this
appeal, the Civil Appeal No. 609 (NT) of 1975, must fail and
is accordingly dismissed.
     In the  facts and circumstances of the case the parties
in both the appeals will bear their own costs.
S.L. C.A.No.  1792/74 is  allowed and  C.A.No. 609(NT)/75 is
dismissed.
941