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M/S. Surana & Co., Bhilwara v. The Commissioner Of Income Tax, Rajasthan (29)
Factual and Procedural Background
This reference arose from a question referred by the Income-tax Appellate Tribunal, Jaipur Bench (the "Tribunal"). The Tribunal asked whether it was justified in holding that the assessee's case fell within the exception under Section 188 of the Income-tax Act, 1961 and therefore was covered by the provisions of Section 187(1) read with Section 187(2) so that only one assessment should be framed for the entire accounting period corresponding to the assessment year 1970-71.
The petitioner is a firm whose accounting year for assessment year 1969-70 ended on Diwali 1968. On that date the partners were: (1) Fatehlal, (2) Niranjan Kumar, and (3) Nirmal Kumar. One partner, Fatehlal, died on 14 July 1969. By a partnership deed dated 24 July 1969 (made operative from 15 July 1969), the widow of the deceased partner, Smt. Asha Kumari, was admitted to the partnership in the same profit share as her deceased husband.
After the death of Fatehlal, the firm did not close its books or prepare a balance-sheet as at the date of death; the same books were continued and profits were computed up to Diwali without bifurcation between the period before death and the period after death. Before the Income-tax Officer (ITO), the assessee contended that two separate assessments should be framed — one for the period up to the date of death and a second for the remainder of the accounting period — relying on Section 188 read with Section 170 of the Income-tax Act. The ITO rejected this contention and assessed the firm for the entire accounting period by his order dated 7 December 1972.
The assessee's appeal to the Appellate Assistant Commissioner (AAC) was dismissed on 10 June 1975, the AAC relying on a decision of the Punjab & Haryana High Court in Dharm Pal Sat Dev v. CIT. The assessee then appealed to the Tribunal, which upheld the view of the ITO and the AAC. An application under Section 256(1) of the Act was then made to the Tribunal, producing the present reference for decision by the higher court.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee's case fell within the exception provided in Section 188 of the Income-tax Act, 1961, and was therefore covered by the provisions of Section 187(1) read with Section 187(2) so that only one assessment should be framed on the firm for the entire accounting period corresponding to assessment year 1970-71.
Arguments of the Parties
Assessee's Arguments
- The assessee argued before the ITO that two different assessments should be framed: one for the period up to the date of death of the partner (Fatehlal) and the other for the period after his death up to the end of the accounting period, relying on Section 188 read with Section 170 of the Income-tax Act.
- Before the Tribunal the assessee relied on several High Court decisions (for example, Addl. CIT v. Harjivandas Hathibhai and Dahi Laxmi Dal Factory v. ITO) and later relied on Division Bench decisions such as Moosa Bhoy Amin, Hind Agencies and Addl. CIT v. Emery Stone Manufacturing Co.
Revenue's Arguments
- The ITO and the AAC took the view that the facts established only a change in the constitution of the firm (surviving partners continuing business and widow stepping in with the same share), not a dissolution and formation of a new firm, and therefore the firm should be assessed for the entire accounting period as a single entity.
- The Department relied on authorities such as CIT v. Kelukutty and CIT v. Veeraraghavulu Chetty & Sons Co., and on certain High Court decisions (including the Punjab & Haryana High Court view in Nandlal Sohanlal v. CIT) which were said to support the proposition that where taxing statute contains special provisions, they override the Partnership Act and that Section 187 of the Income-tax Act may govern the incidence of assessment.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dharm Pal Sat Dev v. CIT [1974] 97 ITR 302 (P & H) | Relied upon by the AAC in support of assessing the firm for the entire accounting period. | The court noted the AAC's reliance on this case but did not follow the Tribunal/AAC conclusion; the court held the firm was dissolved on the death of the partner and that two assessments were required. |
| Addl. CIT v. Harjivandas Hathibhai [1977] 108 ITR 517 (Guj) | Cited before the Tribunal on behalf of the assessee. | Noted as a case relied upon by the assessee; considered among decisions bearing on the issue. |
| Dahi Laxmi Dal Factory v. ITO [1976] 103 ITR 517 (All) [FB] | Cited before the Tribunal on behalf of the assessee (an Allahabad High Court decision). | Referenced as one of the decisions in the conflicting body of authorities; the court considered it in context but did not base its final holding solely on it. |
| CIT v. Kelukutty [1972] 85 ITR 102 (Ker) | Relied upon by the Department. | Mentioned as authority relied upon by Revenue; the court considered competing authorities instead and reached a conclusion favouring two assessments. |
| CIT v. Veeraraghavulu Chetty & Sons Co. [1975] 100 ITR 723 (AP) | Relied upon by the Department. | Mentioned among the authorities the Department cited; the court did not adopt the single-assessment view urged by Revenue. |
| Venkateswara Stone Co. v. CIT [1978] 115 ITR 236 (AP) | Cited for the proposition that the firm was dissolved on the death and a new firm came into existence. | Regarded by the court as having facts similar to the present case and regarded as applicable; used in concluding that the original firm dissolved and a successor firm arose, requiring two assessments. |
| Ganesh Dal Mills v. CIT [1982] 136 ITR 762 (MP) | Cited in support of the view that a firm stood dissolved on the death of a partner and a successor firm arose. | Found by the court to be similar in facts and applicable; used in concluding dissolution and necessity for two assessments under Section 188. |
| Addl. CIT v. Moosa Bhoy Amin [1984] 148 ITR 89 (Raj) | Cited and discussed in relation to competing High Court views about whether Section 187 overrides the Partnership Act and whether two assessments were required. | Considered by the court as part of the body of authorities; the court treated it as one of the decisions applicable to resolve the factual and legal questions and included it among authorities supporting dissolution and two assessments. |
| CIT v. Hind Agencies [1984] 148 ITR 94 (Raj) | Cited on behalf of the assessee. | Included by the court among decisions applicable to the facts; assisted the court in concluding that the original firm had been dissolved and a successor firm came into existence. |
| Addl. CIT v. Emery Stone Mfg. Co. [1985] 153 ITR 150 | Cited before the court (Division Bench decision of this court). | Regarded as applicable by the court and considered in reaching the conclusion that two assessments were required. |
| Ghella Dayal v. CIT [1945] 13 ITR 133 (Bom) | Cited by Revenue. | Mentioned as part of the authorities relied on by the Revenue; the court did not adopt Revenue's single-assessment position. |
| Jessa Ram Fateh Chand v. CIT [1971] 81 ITR 409 (All) | Cited by Revenue among other authorities. | Noted in the list of cases cited by Revenue; not held to determine the outcome in favour of Revenue. |
| Kaithari Lungi Stores v. CIT [1976] 104 ITR 160 (Mad) | Cited by Revenue (and appears in lists of cases with differing views). | Referenced among the contested authorities; the court's decision did not follow the single-assessment view attributed to some of these cases. |
| Jupiter Foundry and Machines v. CIT [1977] 109 ITR 92 (P & H) | Cited by Revenue. | Mentioned among authorities relied upon by the Revenue; the court concluded otherwise on the facts before it. |
| Nandlal Sohanlal v. CIT [1977] 110 ITR 170 (P & H) [FB] | Held (as described in the opinion) that where a taxing statute contains a special provision, it should be given effect and the tax liability may be determined by reference to the taxing statute rather than the Partnership Act; interpreted as Section 187 of the Income-tax Act overriding Section 42 of the Partnership Act. | Cited by the Department and discussed at length; the court reviewed the conflicting authorities and ultimately did not accept the Nandlal Sohanlal approach for the present facts, concluding that the original firm stood dissolved and that two assessments were required. |
| Vimal & Amar Talkies v. CIT [1982] 138 ITR 660 (MP) | Cited by Revenue. | Included in the catalog of authorities; not determinative in favour of the Revenue in the present case. |
| CIT v. Sanilal Arvind Kumar [1982] 136 ITR 379 (Del) | Cited before the court (as relied on in other cases) as taking a contrary view to the Punjab High Court. | Mentioned as part of the body of case law showing a contrary view; the court treated such authorities as supporting dissolution/two-assessment approach. |
| CIT v. Kunj Behari Shyam Lal [1977] 109 ITR 154 (All) | Cited among authorities taking a view contrary to the Punjab High Court. | Referenced in the opinion as part of decisions adopting the two-assessment view. |
| Addl. CIT v. Dilsukh Rai Madho Pd [1977] 108 ITR 299 (All) | Cited as part of the Allahabad/other High Courts' body of decisions. | Noted in the discussion of conflicting precedents; considered among cases favouring two assessments in appropriate factual situations. |
| Mavukkarai (N.) Estate Tea Factory v. Addl. CIT [1978] 112 ITR 715 (Mad) | Cited among decisions of the Madras High Court and others taking a contrary view to Punjab. | Referenced as part of the body of authorities supporting the view that dissolution on death may require two assessments. |
| Addl. CIT v. Thyagasundara Mudaliar [1981] 127 ITR 520 (Mad) | Cited among Madras High Court decisions. | Included among authorities representing a contrary approach to that of the Punjab High Court; considered in the court's comparative analysis. |
| Addl. CIT v. Vinayaka Cinema [1977] 110 ITR 468 (AP) [FB] | Cited among Andhra Pradesh authorities and others. | Mentioned as part of the body of decisions that the court weighed in reaching its conclusion favoring two assessments. |
| Mathurdas Govardhandas v. CIT [1980] 125 ITR 470 (Cal) | Cited in the course of reviewing conflicting high court authorities. | Included among cases considered in the comparative survey of authority. |
| Hoshiarpur Electric Supply Co. v. CIT [1971] 79 ITR 164 (Punj) | Followed by the Punjab High Court as part of its approach. | Noted as part of the Punjab High Court's line of authority from which several other High Courts dissented; the present court did not adopt the Punjab High Court's conclusion for the facts at hand. |
| Karupukula Suryanarayana Shetty & Sons v. CIT [1973] 92 ITR 141 (Mys) | Relied upon by the Punjab High Court. | Mentioned as part of the Punjab High Court's reasoning; the present court followed other High Court decisions instead. |
| Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466 (AP) [FB] | Relied upon by the Punjab High Court. | Noted in the survey of authorities; the present court did not follow the Punjab High Court's single-assessment approach in this matter. |
| CIT v. Shiv Shanker Lal Ram Nath [1977] 106 ITR 342 (All) | An Allahabad High Court decision cited in the context of the dispute among High Courts. | Referenced as part of the conflicting authorities; the present court's view aligned with decisions holding that dissolution on death can require two assessments. |
| CIT v. Satya Deo Omprakash [1982] 136 ITR 720 (All) | Held that where a firm is dissolved by agreement or by operation of law on the death of a partner and another firm takes over the business, Section 187(2) will not operate and two separate assessments are required. | Noted by the court as supporting the proposition that dissolution on death with a successor firm leads to two assessments; used in the comparative analysis favouring the assessee's position. |
| Ramakrishnaiah & Sons v. CIT [1978] 111 ITR 296 (Orissa) | Accepted the view of the Delhi and Allahabad High Courts and disagreed with the Punjab High Court. | Mentioned as part of the body of authority agreeing with the two-assessment approach; taken into account by the court. |
| Abraham v. ITO [1961] 41 ITR 425 (SC) | Supreme Court authority cited in the context of whether a special taxing provision overrides the Partnership Act. | Mentioned in the court's recounting of arguments relying on the proposition that where the taxing statute is clear it prevails; the court nevertheless resolved the present matter on the basis of facts and the other applicable decisions it accepted. |
| CIT v. Angidi Chettiar [1962] 44 ITR 739 (SC) | Supreme Court authority cited alongside Abraham v. ITO on the interaction between a taxing statute and the Partnership Act. | Referenced as part of the argument that the Income-tax Act could override the Partnership Act where the provisions are clear; the court considered but did not adopt the single-assessment outcome urged under that approach for these facts. |
Court's Reasoning and Analysis
The court's analysis proceeded from the facts of the partnership deeds and statutory provisions. The partnership deed dated 22 October 1968 described the partnership as "one at will" (clause 11). That deed contained no clause providing for continuance of the partnership after the death of a partner. On the death of Fatehlal on 14 July 1969, a fresh partnership deed dated 24 July 1969 was executed by the two surviving partners and by the widow of the deceased; the recital records that the surviving partners had decided to take Smt. Asha Kumari into the partnership and the new deed was made operative from 15 July 1969.
The court examined Section 42 of the Partnership Act, which provides that a firm is dissolved by the death of a partner, subject to any contract between the partners. The court observed that if the partnership deed provides for continuance after death, the firm will not be dissolved; conversely, where no such contract appears in the deed, dissolution on death follows under Section 42. Because the earlier deed contained no continuance clause, the court concluded that the deed dated 22 October 1968 did not evidence a contractual arrangement for continuance after Fatehlal's death.
The court then conducted a comparative survey of conflicting authorities from various High Courts and considered the parties' authorities. It noted that some decisions (including those of the Punjab High Court) had taken the view that the special provisions of the Income-tax Act (notably Section 187) should be given effect and could override the Partnership Act; other High Courts (including decisions cited for the assessee) had held that where a firm is dissolved by operation of law on the death of a partner and a new firm takes over the business, Section 187(2) will not operate and two separate assessments are required under Section 188.
Applying the statutory test and comparing the present facts to authorities on both sides, the court found the facts of this case similar to the decisions in Venkateswara Stone Co., Ganesh Dal Mills, Moosa Bhoy Amin, Hind Agencies and Addl. CIT v. Emery Stone Mfg. Co., which the court regarded as applicable. On that basis the court concluded that the firm under the deed of 22 October 1968 stood dissolved on the death of Fatehlal (14 July 1969) and that a new, successor firm came into existence under the deed dated 24 July 1969 operative from 15 July 1969.
Given that conclusion (dissolution and successor firm), the court held that two assessments must be made under Section 188 of the Income-tax Act: one in respect of the outgoing firm for the period up to the date of death and one in respect of the successor firm for the period thereafter to the end of the accounting period. Consequently, the Tribunal was not right to hold that the case fell within the exception in Section 188 so as to be governed by Section 187(1) read with Section 187(2) and thus to permit only one assessment for the entire accounting period.
Holding and Implications
Answer to the referred question: Answered in the negative (in favour of the assessee and against the Revenue).
Core ruling: The firm constituted by the partnership deed dated 22 October 1968 stood dissolved on the death of the partner Fatehlal on 14 July 1969; a new firm came into existence by the partnership deed dated 24 July 1969 (operative from 15 July 1969). The successor firm is a distinct entity and, therefore, two assessments are required under Section 188 of the Income-tax Act (one for the pre-death period and one for the post-death period).
Direct effects and immediate consequences:
- The Tribunal's conclusion that only one assessment should have been framed for the entire accounting period is set aside for the facts of this case.
- Two assessments are to be made in accordance with Section 188: one in respect of the outgoing firm (up to the date of death) and another in respect of the successor firm (from the date after death to the end of the accounting period).
- The parties were directed to bear their own costs of the reference.
- The answer is to be returned to the Tribunal in accordance with Section 260(1) of the Act.
The opinion does not discuss broader precedential implications beyond the comparative analysis of authorities; the decision is grounded on the statutory provision (Section 42 of the Partnership Act) as read with the facts and the court's selection among competing High Court authorities. The court did not purport to formulate a new general rule beyond deciding the referred question on these facts.
1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal", has referred the following question for our decision :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the case of the assessee fell within the exception provided in Section 188 of the Income-tax Act, 1961, and was, therefore, covered by the provisions of Section 187(1) lead with Section 187(2) of the Income-tax Act, 1961, and that, therefore, only one assessment should have been framed on the firm for the entire accounting period corresponding to the assessment year 1970-71."
2. The petitioner-assessee is a firm. Its accounting year for the assessment year 1969-70 ended on Diwali 1968 and the following persons were the partners of the firm on that date :
1. Fatehlal
2. Niranjan Kumar
3. Nirmal Kumar
3. One of the partners, namely, Shri Fatehlal, died on July 14, 1969, and on his death, his widow, Smt. Asha Kumari, was taken in as a partner and she was allotted the (same) share of profit as was being held by her deceas-edhusband. This is evidenced by the partnership deed dated July 24, 1969. After the death of Fatehlal, the account books of the assessee were not closed. The balance-sheet as on the date of death of Fatehlal was not separately drawn. The books of account were closed at the end of the accounting period corresponding to the assessment year 1970-73, i.e., on Diwali 1969. Profits in the various trading accounts were also worked out up to Diwali day and no attempt was made to bifurcate the profits in two parts, i.e., one preceding the death of Fatehlal and the other succeeding his death. Before the Income-tax Officer (ITO), it was submitted that two different assessments should be framed on the firm, one for the period up to the date of death of the partner (Fatehlal) and the other after the date of death of the partner to the end of the accounting period in accordance with Section 188 read with Section 170 of the I.T. Act, 1961 (No. XLIII of 1961) (" the Act" herein). The ITO did not accept the above contention of the assessee. He, by his order dated December 7, 1972, opined that it was a case of a change in the constitution of the firm as all the surviving partners had continued to do business as usual without any break and the widow of the deceased partner had joined the partnership with the existing capital and rights of the deceased. He, therefore, assessed the assessee-firm on the total income for the entire accounting period. Aggrieved against the order dated December 7, 1972, of the ITO, the assessee preferred an appeal and the AAC, vide his order dated June 10, 1975, dismissed the appeal. While doing so, the AAC relied on a decision of the Punjab and Haryana High Court in Dharm Pal Sat Dev v. CIT [1974] 97 ITR 302 (P & H). Dissatisfied, the assessee-firm appealed to the Tribunal. Before the Tribunal, on behalf of the assessee, Addl. CIT v. Harjivandas Hathibhai [1977] 108 ITR 517 (Guj) and Dahi Lalxmi Dal Factory v. ITO [1976] 103 ITR 517 (All) [FB] were cited. The Department relied on CIT v. Kelukutty [1972] 85 ITR 102 (Ker) and CIT v. Veeraraghavulu Chetty & Sons Co. [1975] 100 ITR 723 (AP). The Tribunal upheld the view taken by the ITO as well as by the AAC. An application under Section 256(1) of the Act was moved before the Tribunal and that has led to this reference.
4. We have heard Mr. D. S. Shishodia, learned counsel for the assessee-firrn, as well as Mr. J. P. Joshi, learned counsel for the Revenue.
5. Clause (11) of the partnership deed dated October 22, 1968, which was executed between Fatehlal, Niranjan Kumar and. Nirmal Kumar is as follows :
"(11) That the partnership is one at will,"
6. In the partnership deed dated October 22, 1968, there is no clause that after the death of one of the partners of the firm, it may be continued with the mutual consent of the surviving partners by themselves or after taking a new partner or partners. As stated above, Fatehlal died on July 14, 1969, and after his death, afresh partnership deed dated July 24, 1969, was executed by the two surviving (remaining) partners and the widow of the deceased partner. The recital in the partnership deed dated July 24, 1969, is to the effect that as Fatehlal has died on July 14, 1969, the remaining partners have decided to take Smt. Asha Kumari, wife of Fatehlal; in the partnership on the terms and conditions mentioned therein. This newly constituted partnership was made operative from July 15, 1969, i.e., the day following the death of Fatehlal who died on July 14, 1969. After the death of Fatehlal, account books were not closed. Nor the balance-sheet as on the date of death of Fatehlal was drawn. The same books of account were availed of by the newly constituted firm. Profits in the various trading accounts were worked out up to Diwali and they were not bifurcated into two parts : one preceding the death of Fatehlal and the other succeeding his death. On these facts, the question before the taxing authorities was whether the firm which was constituted by means of the partnership deed dated October 22, 1968, stood dissolved and a new partnership had come into existence, or despite the fact that a new firm was constituted by the partnership deed dated July 24, 1969, which was made operative from July 15, 1969, there was merely a change in the constitution of the firm within the meaning of Section 187(2) of the Act.
7. Section 42 of the Partnership Act deals with dissolution on the happening of certain contingencies. The relevant part of Section 42 of the Partnership Act is as follows :
"Section 42. Dissolution on the happening oj certain contingencies.--Subject to the contract between the partners, a firm is dissolved,--...
(c) by the death of a partner ; and..."
8. Dissolution under Section 42 of the Partnership Act is subject to the contract between the partners. If the partnership deed provides for the continuance of the partnership after the death of a partner, then the firm will not be dissolved. From the partnership deed dated October 22, 1968, no such contract for the continuance of the partnership after the death of a partner can be inferred.
9. Mr. D. S. Shishodia, learned counsel for the asses see-firm, has relied on Venkateswara Stone Co. v. CIT [1978] 115 ITR 236 (AP), Ganesh Dal Mills v. CIT [1982] 136 ITR 762 (MP), Addl. CIT v. Moosa Bhoy Amin [1984] 1 48 ITR 89 (Raj), CIT v. Hind Agencies [1984] 148 ITR 94 (Raj) and Addl. CIT v. Emery Stone Manufacturing Co. (D.B.I.T. Ref. No. 4 of 1974 decided on December 5, 1984--[1985] 153 ITR 150). The latter three decisions are the decisions of the Division Benches of this court. On the other hand, Mr. J. P. Joshi, learned counsel for the Revenue, has cited Ghella Dayal v. CIT [1945] 13 ITR 133 (Bom), Jessa Ram Fateh Chand v. CIT [1971] 81 ITR 409 (All), Dharam Pal Sat Dev's case [1974] 97 ITR 302 (P & H), Kaithari Lungi Stores v. CIT [1976] 104 ITR 160 (Mad), Jupiter Foundry and Machines v. CIT [1977] 109 ITR 92 (P & H), Nandlal Sohanlal v. CIT [1977] 110 ITR 170 (P & H) [FB] and Vimal & Amar Talkies v. CIT [1982] 138 ITR 660 (MP).
10. In Moosa Bhoy Amin's case [1984] 148 ITR 89 (Raj); on behalf of the Revenue, reliance was placed on Nandlal Sohanlal's case [1977] 110 ITR 170 (P & H) [FB], wherein it was held by a majority relying on the Supreme Court's judgments in Abraham v. ITO [1961] 41 ITR 425 (SC) and CIT v. Angidi Chettiar [1962] 44 ITR 739 (SC) as under (p. 92 of 148 ITR):
...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. Therefore, where the provisions of the i.t. act are clear, resort cannot be had to the provisions of another statute like the Partnership Act. Therefore, Section 187 of the I.T. Act overrides the provisions of Section 42 of the Partnership Act and, therefore, the Tribunal was wrong in holding that there should be two assessments.
11. The Punjab High Court followed its earlier view in Hoshiarpur Electric Supply Co. v. CIT [1971] 79 ITR 164 (Punj) and also relied on Karupukula Suryanarayana Shetty and Sons v. CIT [1973] 92 ITR 141 (Mys) and Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466 (AP) [FB] and dissented from the Allahabad High Court decisions in CIT v. Shiv Shanker Lal Ram Nath [1977] 106 ITR 342 (All) and Dahi Laxmi Dal Factory v. 1TO [1976] 103 ITR 517 (All) [FB]. In Moosa Bhoy Amin's case [1984] 148 ITR 89 (Raj), on behalf of the. assessee, reliance was. placed on CIT v. Sanilal Arvind Kumar [1982] 136 ITR 379 (Delhi), which has taken a contrary view and in which earlier decisions reported as Dahi Laxmi Dal Factory [1976] 103 ITR 517 (All) [FB], CIT v. Kunj Behari Shyam Lal [1977] 109 ITR 154 (All) [FB], Addl. CIT v. Dilsukh Rai Madho Pd. [1977] 108 ITR 299 (All), Kaithari Lungi Stores v. CIT [1976] 104 ITR 160 (Mad), Mavukkarai (N.) Estate Tea Factory v. Addl., CIT [1978], 112 ITR 715 (Mad), Addl. CIT v. Thyagasundara Mudaliar [1981] 127 ITR 520 (Mad), Addl. CIT v. Vinayaka Cinema [1977] 110 ITR 468 (AP) [FB] and Mathurdas Govardhandas v. CIT [1980] 125 ITR 470 (Cal) were relied on and dissent has been expressed from the earlier view of the Punjab High Court in Dharam Pal Sat Dev's case [1974] 97 ITR 302 (P & H), Jupiter Foundry and Machines (Knives) case [1977] 109 ITR 92 (P & H), Visakha Flour Mills' case [1977] 108 ITR 466 (AP) [FB] and Nandlal Sohanlal v. CIT [1977] 110 ITR 170 (P & H) [FB].
12. In CIT v. Satya Deo Omprakash [1982] 136 ITR 720 (All), it was held that where a firm is dissolved either by agreement of partners or by operation of law on ,the death of a partner and another firm takes over the business, Section 187(2) will not come into operation and two separate assessments will have to be made. The same view has been taken by the Madhya Pradesh High Court in Ganesh Dal Mills' case [1982] 136 ITR 762 (MP) in which they have dissented from the view of the Punjab High Court in Nandlal Sohanlal's "case [1977] 110 ITR 170 (P & H) [FB] and relied on the, decisions of the Andhra Pradesh, Allahabad and Madras High Courts. The Orissa High Court in Ramakrishnaiah & Sons v. CIT [1978] 111 ITR 296, has also taken the same view and has agreed with the view expressed by the Delhi and Allahabad High Courts and taken a contrary view from that of the Punjab High Court. In Moosa Bhoy Amin's case [1984] 148 ITR 89 (Raj), the view taken by the Punjab High Court in Nandlal Sohanlal's case [1977] 110 ITR 170 (P & H) [FB] was dissented.
13. The facts in this case are similar to the facts in Ganesh Dal Mills' case, [1982] 136 ITR 762 (MP) and Venkateswara Stone Co.'s case [1978] 115 ITR 236 (AP). The decisions in Venkateswara Stone Co.'s case, Ganesh Dal Mills' case, Moosa Bhoy Amiris case, Hind Agencies' case [1984] 148 ITR 94(Raj) and Addl. CIT v. Emery Stone Mfg. Co. [1985] 153 ITR 150, are applicable to the case on hand and after considering them, we are of the opinion that the firm constituted by the partnership deed dated October 22, 1968, stood dissolved on the death of Fatehlal who died on July 14, 1969, and after that, a new firm by means of the partnership deed dated July 24, 1969, came into existence which was to be operative from July 15, 1969. The new firm constituted by means of the partnership deed dated July 24, 1969, is a successor firm and two assessments will have to be made under Section 188 of the Act.
14. On the facts and in the circumstances of the case, the Tribunal was not eight and justified in holding that the case was covered by the provisions of Section 187(1) read with Section 187(2) of the Act and, therefore, only one assessment should have been framed on the firm for the entire accounting period corresponding to the assessment year 1970-71.
15. The aforesaid question is answered in the negative, i.e., in favour of the assessee and against the Revenue.
16. In the circumstances of the case, we leave the parties to bear their own costs of this reference.
17. Let the answer be returned to the Tribunal in accordance with Section 260(1) of the Act.
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