COMMISSIONER OF INCOME TAX V. NARESH TEA STORES

ITR/138/1984

AI Insights

The case revolves around the tax assessment of M/s. Naresh Tea Stores, a partnership firm, following the death of one of its partners, Shri Jayantilal Mohanlal. The original partnership deed did not contain provisions for the continuation of the partnership upon the death of a partner. After Jayantilal's death, a new partnership deed was executed with his son, leading to the dispute over whether the original firm continued or a new firm was formed. The Income Tax Officer treated it as a reconstitution of the same firm, leading to a single assessment, which was contested. The Tribunal and subsequently the High Court found that the original partnership was dissolved by the death of Jayantilal, necessitating separate assessments for the periods before and after his death.

• Counselvise Citation: [1998] 140 COUNSELVISE.COM (IT) 718772 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-11-1998
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. G. Dalabhai and Company
• Laws Referred To: Income Tax Act, Partnership Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K C PATEL
• Assessee Lawyers: MANISH BHATT
• Keywords: Assessment; Income Tax; Partnership Dissolution; Legal Constitution Change
• Section: 42; 187(2)

Judgement Text

" IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 138 of 1984 For Approval and Signature: Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? 2. To be referred to the Reporter or not? 3. Whether Their Lordships wish to see the fair copy of the judgement? 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus NARESH TEA STORES -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner MR KC PATEL for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE Date of decision: 19/11/98 ORAL JUDGEMENT 1. Heard learned counsel for the parties. On the application of the Commissioner of Income Tax, the following question of law has been referred to this court for its opinion along with statement of case arising out of Tribunal's appellate order dated 18.4.83, relating to assessment years 1978-79: \"1.Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the death of the partner Shri Jayantilal Mohanlal had not brought the change in the constitution of the firm as contemplated by Section 187(2) of the Act? 2.Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that two separate assessments were required to be made for the two periods on account of the death of the partner of the assessee firm?\" 2. The facts of the case are that assessee M/s. Naresh Tea Stores, Bhavnagar is a firm constituted vide partnership deed dated 2.10.70. It consisted of 7 partners, one of whom Shri Jayantilal Mohanlal died on 16.5.1977 during previous year relevant to the assessment year 1978-79 in question. Another partnership deed was executed on 17.5.1977 between the remaining partner and Shri Arvind Jayantilal, son of Jayantilal and business was carried on in the same name and style. The assessee claimed that on the death of partner Jayantilal, the firm stood dissolved and by the deed of 17.5.77, a new firm has come into existence hence the old firm M/s. Naresh Tea Stores with Jayantilal as once of its partner should be assessed only for the period upto 15.5.67, namely, upto the date of death of Shri Jayantilal and a separate assessment has to be formed for newly constituted partnership under deed dated 17.5.77. for the remainder of the said previous year. The Income Tax Officer was of the opinion that in the facts and circumstances of the case, it was not a dissolution of the firm but it was merely a reconstitution of the firm and Section 187 was applicable to the case and only one assessment for the year in question, was framed. 3. The Tribunal found that there was no such specific provision in the partnership deed dated 2.10.70 for the continuation of the partnership, in the event of death of any partner, nor for that matter, any material has been brought to notice that such a condition exists and further noticed that para 14 of the partnership deed in terms provided that the provisions of Partnership Act would be applicable to the partnership in respect of all matters not spelt out in the deed itself. On this premise, the Tribunal found that provisions of Partnership Act would prevail in the absence of contract to contrary and partnership came to an end on the death of Jayantilal, as provided in Section 42 of the Partnership Act. 4. In our opinion, no exception can be found to the decision of the Tribunal on the question about coming to an end of the existing partnership on the death of partner under the Partnership Act when there was no contract to contrary. If that be so, the consequence would follow that the existing partnership firm of which deceased was a partner would be assessed only upto date upto which it existed and for the period thereafter new firm which has come into existence by dint of a new partnership deed will be assessed for the remainder of the previous year, relating to the said assessment year. 5. This also is the view taken by this Court in Commissioner of Income Tax v. G. Dalabhai and Company 226 ITR 922. As a result of the aforesaid discussion, we answer the questions referred to us in affirmative, that is to say, in favour of the Assessee and against the Revenue. There shall be no order as to costs. (Rajesh Balia, J) (A.R. Dave, J) "