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1. These two matters have been placed before a Full Bench of five Judges in view of the order of reference made by a Division Bench of which one of us (Divan C. J.) was a member on December 1, 1976. Those two matters were referred to a larger Bench in view of the conflicting decisions of the different High Courts on the point which is involved in both these matters.

2. The question that has to be decided is whether the provisions of S. 187 of the Income-tax Act , 1961 (hereinafter referred to as 'the Act') can be invoked by the Income-tax authorities, when a partnership firm is dissolved; and after the dissolution of the partnership firm, the business of the firm is continued by another partnership firm in which one or more of the partners of the dissolved firm have also joined and there are thus common partners between the dissolved firm and the new firm which continues the business of the old firm.

3. In order to appreciate the controversies arising in both these matters, we will first refer to the facts in R. C. No. 22 of 1975. We are concerned in this case with assessment year 1969-70. The relevant accounting year is financial year 1968-69. The assessee is a registered firm carrying on business of running a cinema theatre under the name and style of "Sri Vinayaka Cinema" at Nellore. The partnership was constituted by a partnership deed dated April 29, 1967. This partnership was duly registered under the provisions of the Income-tax Act. Amongst 9 partners of the firm, Srinivasulu and his son, Kamalakara Rao were also partners. Kamalakara Rao was a major at the relevant time and was the managing partner of the firm. Srinivasulu had gifted away four out of the twelve shares that he held in the firm to his daughter Smt. Y.V. Ramani and had formed a sub-partnership with her in the firm. The sub-partnership was recognised by the Income-tax Department and assessments were made separately on the father and daughter in respect of their respective share incomes. Srinivasulu, died on August 17, 1968 and on that very day another partner, Subbarama Reddy, retired from the firm after gifting away his interest in the firm's business to one K. Penchala Lakshmamma. There was no clause in the partnership deed dated April 29, 1967 providing that, in the event of the death of one of the partners, the firm was not to be dissolved. Hence, as a result of the death of Srinivasulu, the old partnership firm stood dissolved under the provisions of the Partnership Act. By a deed dated August 19, 1968, a new partnership firm was constituted and under the new partnership deed, seven of the partners of the old firm together with two new partners, viz., Y. V. Ramani and k. Penchala Lakshmamma, started a new partnership firm. This new firm was also registered under the Income-tax Act. For the assessment year 1969-70, two separate returns were filed, one for the period 1-4-1968 to 17-8-1968 and the other for the period 18-8-1968 to 31-3- 1969. It may be mentioned that the business of the old firm was taken over and continued by the new firm that came into existence under the partnership deed dated August 19, 1968. An application for renewal of registration was sent along with the return for the first period while for the second period, a fresh application in form 11 was filed.

19. It may be pointed out that S. 189 (1) deals with a situation where any business or profession carried on by a firm has been discontinued or where a firm is dissolved and the liabilities of the firm which has been dissolved or the liabilities of the firm which has discontinued its business or the income of the firm which has been dissolved or the income of the firm which has been dissolved or the income of the firm which has discontinued its business are to be adjusted in the light of S. 189 (1). It is, therefore, difficult to accept the contention urged on behalf of the Revenue that S. 187 also contemplates a situation where a firm has been dissolved because of the provisions of the Partnership Act. It may be pointed out that, once a firm is dissolved under sub-sec. (8) of S. 184, a fresh registration will have to be applied for. Even if there is a change in the constitution of the firm, the firm has to apply for fresh registration. We are merely referring to the provisions of S. 184 with a view to point out that the notions and concepts in the Partnership Act are not totally to be overlooked when considering the provisions of the 1961 Act. Moreover, S. 2 (23) requires the words 'firm,' 'partner' and 'partnership to be interpreted in the same manner as has been done in the Partnership Act. Once a firm is dissolved in view of the provisions of the Partnership Act, it is obvious that that firm comes to an end and there cannot be said to be a change in the constitution of such a firm just because after the dissolution of the firm, by virtue of a new agreement between some of the partners of the dissolved firm, the business of the firm is continued and the new firm takes over the business of the old firm. It is possible to urge that, in the event of a firm being dissolved under the provisions of the Partnership Act, if some o the partners of the dissolved firm agree to restart the business by virtue of a new agreement, there is a newly-constituted firm but the words 'a newly-constituted firm" which were present in S. 26 (1) of the 1922 Act are absent from S. 187 (1) of the 1961 Act. Under these circumstances, by a mere process of interpretation, it obviously follows that the basic concept underlying S. 187 is a continuity of a firm as an entity. Once dissolution comes about, the provisions of S. 187 can never apply. Therefore, the decision in Shivram Poddar v. Income-tax Officer supra and Commr. of Income-tax v. Kirkend Coal Co. supra both decided by the Supreme Court, cannot help the Income-tax authorities in such an eventuality.

The Full Bench further held:

"However, if there are one or more of the partners continuing as partners in the second firm, it must be construed to be only a change in the constitution of the firm within the meaning of S. 187 but not a case of succession as contemplated by S. 188."

With great respect to the learned Judges of the Full Bench of this Court, we are unable to agree with their interpretation of Ss. 187 and 188 of the Income-tax Act, 1961.

28. Sections 187, 188 and 189 deal with three different situations. Section 187 deals with a case where the firm continues to be the same as before in the eye of law, but there is a change in the constitution either because of a partner coming into or another partner going out and so long as one partner is common there is said to be a mere change in the constitution of the firm. Section 188 deals with situation where there is a succession of one firm by another firm and in such a situation, the assessment has to be made in the light of S. 170. Section 189 deals with a situation where a partnership firm is dissolved or its business discontinued. Just because some of the partners of the dissolved firm constitute a new partnership firm by a new agreement arrived at among themselves it cannot be said that the old firm continues with a mere change in the constitution. It is altogether a new firm and the learned Judges of the Madras High Court have rightly pointed out in Katthari Lungi Stores v. Commr. of Income-tax (1977 Tax LR 354 (Mad)) (supra) that a change in the constitution of the firm must be distinguished from the dissolution of the firm. Under these circumstances, we are unable to accept the reasoning or conclusions of the learned Judges of the Full Bench of this Court in Addl. Commr. of Income-tax v. Visakha Flour Mills. 1977 Tax LR 41 (Andh Para) (FB) (supra), as regards the interpretation of S. 187 in the context of dissolution of a firm by virtue of the provisions of the Partnership Act.