Commissioner of Income-Tax, Central-I, Bombay Vs. Messrs. Empire Estate, Bombay  INSC 150 (29
S.P. (J) Bharucha S.P. (J) Verma, Jagdish Saran (J) Manohar Sujata V. (J) Bharucha,
1996 SCC (2) 345 JT 1996 (1) 675 1996 SCALE (1)572
being a conflict in the decisions of the High Courts, the Income Tax Appellate
Tribunal has referred to this Court, under Section 257 of the Income Tax Act,
1961, the following question:
on the facts and in the circumstances of the case and in law, the Tribunal was
justified in holding that there should be two assessments, one for the period
from 1.6.1973 to 12.1.1974 and the other for the period from 13.1.1974 to
30.6.1974, as the assessee's case did not fall within the provisions of Section
187(2) of the Income Tax Act, 1961." The relevant assessment year is A.Y.
1975-76. The relevant accounting year ended on 30th June, 1974.
is a partnership firm. It was constituted under a deed of partnership dated 18th July, 1968. Its there partners were Mrs. Ellen
Keki Modi, Mr.Rustom Keki Modi and Ms. Maneck Keki Modi. Mrs. Ellen Modi died
on 12th January, 1974. There being no provision in the
deed of partnership contemplating the continuance of the partnership in the
event of the death of a partner, the partnership stood dissolved. No deed of
dissolution was executed but the surviving partners executed a fresh deed of
partnership for carrying on the business on and from 13th January, 1974, and it mentioned that the earlier
partnership had stood dissolved on 12th January, 1974.
filed two returns of income for the relevant previous year, one for the period 1st June, 1973 to 12th January, 1974 and the other for the period 13th January, 1974 to 30th
June, 1974. It
contended that the earlier partnership had stood dissolved on the death of Mrs.
Ellen Modi on 12th
January, 1974 and
that, therefore, this was a case of succession contemplated by Section 188 of
the Act and not a case of reconstitution of the partnership within the meaning
of Section 187.The Income Tax Officer rejected the contention. The appeal to
the Commissioner of Income-tax (Appeals) failed. The assessee thereupon
appealed to the Tribunal. The Tribunal noted that there was a difference of
opinion between the Allahabad High Court [Commissioner of
Income-tax vs. Kunji Behari Shyam Lal. 109 I.T.R. 154], the Andhra Pradesh High
Court [Add1. Commissioner of Income-tax vs. Vinayaka Cinema, 110 I.T.R. 468],
the Gujarat High Court [Add1.Commissioner of Income- tax vs. Harjivandas Hathibhai.
108 I.T.R. 571] and the Calcutta High Court [Mathuradas Govardhandas vs. Commissioner
of Income-tax, 125 I.T.R. 470] on the one hand and the Punjab High Court [Nandlal
Sohanlal vs. Commissioner of Income-tax, 110 I.T.R. 170] and the Karnataka High
Court [Sangam Silks vs. Commissioner of Income-tax, 122 I.T.R.479] on the other
hand. The Tribunal followed the view of the High Courts earlier mentioned. It
held that the case of the assessee did not fall within the expression
"change in the constitution of the firm" under Section 187 and
directed the I.T.O. to make assessments for the two aforementioned periods of
the relevant previous year.
187, so far as is relevant, reads thus:
Where at the time of making an assessment under section 143 or section 144 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
For the purposes of this section, there is a change in the constitution of the
firm - (a) 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 (b) where all the partners continue with a change
in their respective shares or in the shares of some of them." Section 188
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 needs to be noted that a proviso was
inserted in Section 187 by the Taxation Laws (Amendment) Act, 1984, with
retrospective effect from 1st April, 1975,
which reads thus:
that nothing contained in clause (a) shall apply to a case where the firm is
dissolved on the death of any of its partners." Mrs. Ellen Modi having
died on 12th January,
1974, the assessee's
case is not affected by the proviso.
42 of the Indian Partnership Act, 1932, so far as it is relevant, reads:
Subject to contract between the partners a firm is dissolved- (a)...
the death of a partner: and (d)...." The deed of partnership between Mrs.
Ellen Modi and the partners who survived her did not provide that the death of
a partner would not dissolve the partnership. Therefore, by reason of Section
42 of the Partnership Act, the partnership stood dissolved on 12th January, 1974, by reason of Mrs. Ellen Modi's
death. This the Tribunal rightly found.
188 states that where a firm carrying on a business is succeeded by another
firm and the case is not covered by Section 187, separate assessments have to
be made on the predecessor firm and the successor firm. Section 187 says that
where, at the time of making an assessment, it is found that a change has
occurred in the constitution of a firm, the assessment shall be made on the
firm as it is constituted at the time of making the assessment. "Change in
the constitution of the firm is defined for the purpose. The relevant part of
the definition states that if one or more of the partners cease to be partners
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, is a
change in the constitution of the firm.
provisions would apply to a firm which survives upon the death of a partner.
They would apply to the case of a partnership where a partner dies and the
partnership deed provides that death shall not result in the dissolution of the
partnership. Such provision is lawful because Section 42 of the Partnership Act
contemplates it. If there is no such provision and a partner dies, the
partnership stands dissolved. The partnership does not then survive upon the
death of the partner. The case is not one of a change in the constitution of
the partnership. It falls outside the scope of Section 187. When the surviving
partners in such a case continue the business in partnership, Section 188 is
attracted for there is a succession of one by an another partnership.
unnecessary to refer to the judgments of the High Courts by reason of which the
Tribunal made the reference directly to this Court for we find the issue
covered by the judgment of this Court in Wazid Ali Abid Ali vs. Commissioner of
Income-tax, Lucknow, 169 I.T.R. 761. The relevant paragraph of the judgment reads
far as Civil Appeal No.609 of 1975 is concerned, the question is whether, on
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 there
should be two separate assessments or whether, on the facts and circumstances
of the case, the 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 realization 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 on the facts and
circumstances of that case and 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. It appears to us that the High Court was also
right in answering the second 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." Learned counsel for the Revenue cited two judgments of the
Allahabad High Court in which the judgment of Wazid Ali Abid ALi was cited. In
Commissioner of Income-tax vs. Basant Behari Gopal Behari and Company, 172
I.T.R. 662, it had been found by the Tribunal that the partnership deed
provided that the partnership would not dissolve on the death of any partner
and that there was no evidence to suggest that the partnership had actually
stood dissolved on the death of a partner. Accordingly, it was held that there
had been a change in the constitution of the partnership on the death of that
partner and only one assessment for the entire assessment year could be made.
In Commissioner of Income-tax vs. Indralok Picture Palace, 188 I.T.R. 730, also, the partnership deed provided that
the death of a partner would not result in the dissolution of the firm. A
filed two returns. The I.T.O. took the view that this was a case of
reconstitution of the partnership and, clubbing the periods, made one
assessment. The High Court upheld his view. In both these cases, the
partnership deeds provided that the death of a partner would not dissolve the
partnerships. The death of a partner, therefore, did not dissolve the
partnerships and the businesses were continued by reconstituted partnerships.
result, we answer the question in the affirmative and in favour of the assessee.
There shall be no order as to costs.