Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income-Tax vs Saggar Forgings And Allied Industries on 30 July, 1993
Equivalent citations: [1994]49ITD1A(CHD)
ORDER
J. Kathuria, Accountant Member
1. The short question in this appeal by the revenue for assessment year 1984-85 is whether there should be two separate assessments for two separate periods or whether there should be one assessment for the whole period. In other words, the question to be decided is whether it is a case of dissolution of firm or of a mere change in its constitution.
2. Briefly stated the facts of the case are these. The assessee-firm was constituted under a deed of partnership dated 1-4-1976. It consisted of six partners, namely, S/Shri Dharam Dev Saggar, Sat Dev Saggar, Ramesh Kumar Saggar, Prem Kumar Saggar, Suresh Kumar Saggar and Anil Kumar Saggar.
The partnership was to be "at will" and there was no provision of continuation of the firm in the case of death of any partner. On 10-9 1983, Shri Suresh Kumar Saggar died. Thereafter, w.e.f. 12-9-1983, a fresh partnership deed was drawn. In addition to the five partners, who were there before the death of Shri Suresh Kumar Saggar, two more partners, namely, Smt. Neelam Saggar and Master Raghav Saggar, were brought in as partners. The assessee filed two separate returns - one for the period from 1-4-1983 to 10-9-1983 and the other for the period from 12-9-1983 to 31-3-1984. The Assessing Officer, however, clubbed the income of both the periods and passed one composite order determining the total income of the firm at Rs. 1,05,781. The Assessing Officer did so on the ground that there was no evidence to the effect that the firm stood dissolved on 10-9-1983.
3. The 1d. CIT(A), however, directed the Assessing Officer to frame two separate assessments for the two aforesaid periods. The revenue has come in second appeal.
4. The 1d. Departmental Representative submitted that the partner Shri Suresh Kumar Saggar had died on 10-9-1983 whereas it was claimed before the Assessing Officer that the business was closed on 11-9-1983. It was also pointed out that as per the bank certificate, the business was closed on 11-9-1983. It was vehemently argued that conduct of surviving partners was very relevant in determining whether the firm had been dissolved or not and since the business was closed on 11-9-1983, it was argued that the conduct showed that the firm had not been dissolved as a result of the death of one of the partners. Reliance in this regard was also placed on the Allahabad High Court decision in CIT v. Hanuman Prasad Dwarka Prasad [1987] 168 ITR 116. It was, therefore, submitted that the impugned order may be reversed and the order of the Assessing Officer may be restored.
5. Shri D.K. Gupta, the learned counsel for the assessee, however, submitted that there was no clause in the partnership deed of 1-4-1976 according to which the death of the partner would not dissolve the firm. The 1d. counsel was fair enough to submit that the decision of the jurisdictional High Court of Punjab and Haryana in Nandlal Sohanlal v. CIT [1977] 110 ITR 170 (FB) was against the assessee. It was, however, submitted that the said decision was rendered on 24-5-1977 and that thereafter a lot of case law had developed and the Supreme Court had also decided the issue in Wazid Ali AbidAli v. C/T[1988] 169 ITR 761 with the result that the law laid down by the Punjab and Haryana High Court was no longer good law. It was also pointed out that the Taxation Laws (Amendment) Act, 1984, with retrospective effect from 1-4-1975, had inserted a proviso to Section 187(2) according to which in the case of death of a partner, the firm automatically stood dissolved. It was also submitted that the reference to 11-9-1983 being the date of closure of business was a clerical mistake because the partner had died on 10-9-1983 and the firm stood dissolved on that date.
6. We have carefully considered the rival submissions as also the facts on record. In the normal circumstances, the judgment of the jurisdictional High Court in Nandlal Sohanlal's case (supra) would have been binding on us. In that case, it was held that where a special provision was made in a taxing statute in derogation of the provisions of the Partnership Act, effect should be given to it and where no such provision had been made, liability for payment of tax could be determined by taking into consideration the general provisions of the Partnership Act. The High Court laid down that where the provisions of the Income-tax Act are clear, resort cannot be had to the provisions of another statute like the Partnership Act. It is agreed on all sides that if the said judgment has to be applied to the present case, then it has to be held that it is a case of mere change in the constitution of the firm and not of dissolution.
7. In the case of Wazid Ali Abid Ali (supra), it was held that dissolution of the firm does not take place by death if there is a contract to the contrary but if there is no contract to the contrary, then on the death of a partner, there is dissolution of the firm. A large number of authorities were cited before the Supreme Court in that case. It, however, appears that the Punjab and Haryana High Court decision in Nandlal Sohanlal's case (supra) was not cited. The Supreme Court considered the Full Bench decision of the Madhya Pradesh High Court in Girdharilal Nannelalv. CIT (1984] 147 ITR 529. That decision had in terms followed the aforesaid decision of the Punjab and Haryana High Court in Nandlal Sohanlal's case (supra). The Madhya Pradesh High Court had held that any matter for which a provision is made in the Income-tax Act, 1961, is to be governed by it, notwithstanding anything different or to the contrary contained in the general law relating to that matter. In other words, the view of the Madhya Pradesh High Court corresponded to the view of the jurisdictional High Court of Punjab and Haryana. While dealing with the said decision of the Madhya Pradesh High Court, the Supreme Court held that they were unable to agree with the conclusion of the High Court. Thus, the Supreme Court disapproved the Full Bench decision of the Madhya Pradesh High Court in Girdharilal Nannelal's case (supra). This means that impliedly, the decision of the honorable jurisdictional High Court of Punjab and Haryana in Nandlal Sohanlal's case (supra) has also been disapproved. It may further be mentioned that the Supreme Court of India in CIT v. Amritlal Nihalchand (1992] 196 ITR 346 has followed its earlier decision in Wazid All Abid Ali's case (supra).
8. Since there is no clause in the partnership deed of 1-4-1976 to continue the firm even after the death of a partner, the firm did stand dissolved on the death of Shri Suresh Kumar Saggar on 10-9-1983. The mention of date of 11-9-1983 was a mere clerical mistake and nothing really hinges on that. At this stage, we might as well deal with the case law cited by the learned Departmental Representative. In the case of Hanuman Prasad Dwarka Prasad (supra), the facts were that one of the partners of the assessee-firm died in October 1977. The remaining two partners continued the business but claimed that the firm was dissolved on the death of the partner and that two assessments had to be made for the assessment year 1978-79. The Assessing Officer rejected the claim. The Tribunal accepted the claim of the assessee in this regard.
9. When the matter came before the Allahabad High Court, it was considered necessary to find out as to what was contained in the partnership deed and whether there was a clause relating to the continuance of the firm even in the event of death of any partner. Since there was no finding of fact by the Tribunal in this regard, the matter was remanded to it. This case, in fact, supports the case of the assessee. In the case of the assessee, the partnership deed does not contain a clause relating to the continuance of the firm even in the event of death of any partner. In such a situation, the firm shall stand dissolved on the death of Shri Suresh Kumar Saggar on 10-9-1983.
10. It may also be mentioned that while rendering its decision in Nandlal Sohanlal's case (supra), the jurisdictional High Court of Punjab and Haryana had dissented from the Allahabad High Court decision in CTT v. Shiv Shanker Lal Ram Nath (1977] 106 ITR 342, which decision has in terms been approved by the Supreme Court in Wazid Alt Abid Ali's case (supra). The Bombay High Court in KukrejaAgenciesv. CIT( 1993] 202 ITR 257 has considered the aforesaid decision of the Supreme Court in Wazid Ali Abid Ali's case (supra) and held that the decision of the Allahabad High Court in Shiu Shanker Lal Ram Nath's case (supra) has been approved by the Supreme Court.
11. In the light of foregoing discussion, we hold that the 1d. CIT(A) was justified in directing the Assessing Officer to make two assessments for two distinct periods and not to make a composite assessment.
12. Now we come to the proviso to Section 187(2) of the Income-tax Act which was inserted retrospectively from 1-4-1975. We have looked into the Explanatory Notes to Taxation Laws (Amendment) Act, 1984 contained in Circular No. 394, dated 4 9-1984. It has been mentioned in the explanatory notes that the question whether the provisions of Section 187(2) of the Act would apply in cases where a firm stands dissolved by operation of law or by virtue of an agreement amongst the partners, has given rise to considerable litigation and conflict of judicial decisions. With a view to ending uncertainty and litigation on this issue, the Amending Act has inserted a proviso to provide that nothing contained in Clause (a) of Section 187(2) shall apply to a case where the firm is dissolved on the death of any of its partners. According to the Circular, the effect of this amendment will be that where a firm is dissolved on the death of any of its partners, it shall not be regarded as a case of change in the constitution of the firm under the special provisions contained in Section 187(2)(a) of the Income-tax Act.-
13. We do not agree with the submission of the learned counsel for the assessee that in every case, where one of the partners dies, the firm is and must be held to be dissolved for the purposes of the Act. According to us, the language of the proviso is clear and it says that nothing contained in Clause (a) of Section 187(2) of the Act shall apply to a case where a firm is dissolved on the death of any of its partners. This proviso does not provide for automatic dissolution. In this regard, we are supported by the Calcutta High Court decision in Joshi& Co. v. C/T(1986] 162 ITR 268. This decision had also been cited before the Supreme Court in Wazid Ali Abid Ali's case (supra) at 779-780 and the Supreme Court expressed its agreement with the views expressed in the said decision.
14. The net effect of the insertion of the proviso to Section 187(2)(a) of the Act is that if there is no contract to the continuation of the firm even after the death of a partner, then the firm shall stand dissolved on the death of a partner. That is precisely what has happened in the instant case. A partner has died. There is no clause in the Partnership Act relating to its continuance after the death of the partner. In such a situation, there is a dissolution of the firm and hence two separate assessments had to be made for two separate distinct periods for which separate accounts have also been maintained and separate returns filed.
15. We accordingly uphold the order of the 1d. CIT(A) and dismiss the revenue's appeal.