Holding

A death of a partner does not automatically dissolve a registered firm if the partnership deed provides otherwise; it creates a change in constitution requiring fresh registration, with registration benefits available up to the date of death, whereas a firm that is actually dissolved on a partner's death must be assessed separately and section 187(2) does not apply.

Summary

The case concerned two registered partnership firms in which a partner died during the previous year. In the first firm, the partnership deed expressly provided that the firm would not dissolve on a partner's death, and the deceased partner's son was admitted as a new partner without executing a fresh deed. The Supreme Court held that this constituted a change in the constitution of the firm, requiring a fresh registration, but the firm could retain the benefit of registration up to the date of death and the income for that period should be assessed as a registered firm, with the remainder as an unregistered firm. In the second firm, the partners mutually agreed to dissolve the firm after a partner's death and wound up the business; the Court held that the firm was dissolved, so two separate assessments were proper and the provisions of section 187(2) did not apply. Accordingly, the appeal by the assessee in the first case was allowed, while the revenue's appeal in the second case was dismissed. The decision clarified the effect of a partner's death on registration and assessment under the Income‑Tax Act, 1961.

Issues considered

The effect of a partner's death on the continuation or dissolution of a registered partnership firm under the partnership deed and the Indian Partnership Act.
Whether a change in the constitution of a firm due to death of a partner requires a fresh application for registration under section 184(7) of the Income‑Tax Act, 1961.
Whether the firm is entitled to the benefit of registration for the period up to the date of death when the deed provides for continuation.
Whether separate assessments are required when the firm is dissolved on a partner's death.

Legislation cited

Income Tax Act, 1961s. 170, s. 182, s. 183, s. 184, s. 184(7), s. 185, s. 186, s. 187(1), s. 187(2), s. 188, s. 189, s. 39, s. 4, s. 42(c)
Indian Partnership Act, 1932s. 39, s. 4, s. 42(c)

Subjects

registered partnershipdeath of partnerchange in constitutionfresh registrationsection 184(7)section 187(2)assessment yearpartnership deeddissolutionincome apportionment

Judgment

WAZID ALI ABID ALI, ETC.
A -
v.
COMMISSIONER OF INCOME TAX, LUCKNOW, ETC.

NOVEMBER 10, 1987

[SABYASACHI MUKHARJI AND G.L. OZA, JJ.] B

Income Tax Acr, 1961-Effect of death of one of the partners of a
registered firm during the assessment year on the continued benefit of
registration under section 184(7) thereof-Whether a fresh application
for registration with partnership deed embodying change in constitution
of firm, required.
c
Two appeals were filed before this Court one (Civil Appeal
No. 1792 (NT) of 1974) by the assessee from the Allahabad High Court,
and the second (Civil Appeal No. 609 (NT) of 1975) by certificate, at the
instance of the revenue, from the Gujarat High Court. Both the appeals
dealt with a common situation, namely, the position of the registered D
firm during the assessment year if one of the partners died or retired.

In. the assessee's case above-mentioned, the assessee was a part-
nership firm styled as Messrs. Wazid Ali Abid Ali, constituted under a
deed of partnershlp, which, inter alia provided "that where the deed is
, silent, it shall be governed by the Indian Fartnership Act save and E
except that on the death or demise of any partner the firm shall not be
dissolved but shall be carried on with the remaining partners and that
heir and representative of the deceased partner who resides in India on
such terms and conditions to which they mutually agree."

On June 4, 1964, one of the partners, Qamaruddin, died and his F
son, Fariduddin, joined the firm as a partner. New deed of partnership
evidencing the change in the constitution of the firm was not executed
(before November 4, 1964). The assessee filed a declaration in Form No.
XII for the relevant assessment year 1965-66 under section 184(7) of the
Act, signed by all the partners and Fariduddin taken in as a partner in
place of his father, Qamaruddin. The Income Tax Officer held that the G
admission of a new partner in place of the deceased partners amounted
to a change in the constitution of the firm and as the firm had failed to
file a fresh application for registration, the assessee was not entitled to
the continued benefit of registration under section 184(7) of the Act. An
appeal filed by the assessee before the Appellate Assistant Commis-
sioner was dismissed. The assessee preferred an appeal to the Income H
917
918 SUPREME COURT REPORTS [1988) l S.C.R.

Tax Appellate Tribunal. The Tribunal held that the death of Qamarud-
A din and the inclusion of Fariduddin involved a change in the constitu-
tion of the firm and a fresh deed of partnership should have been
executed and a fresh application for registration, filed. The Tribunal,
however, also held that the conditions laid down in sub-section (7) of
section 184 of the Act had been satisfied and the assessee would be
B entitled to the benefit of registration upto June 4, 1964; that is, a part
of the previous year, and that the Income Tax Officer should have made
a single assessment only on the assessee and apportioned the total in-
come between the partners who were entitled to receive the profits
accordingly as they were entitled to share the profits, the firm being
assessed as a registered firm in respect of the profits for the remaining ·>--"'\
part of the previous year. And the question "whether, on the facts and I '
c in the circumstances of the case, the Tribunal was justified in holding
that for the period covered by the old constitution the income was
assessable in the hands of the assessee as a registered firm?" was refer-
red to the High Court, which answered the question in favour of the
revenue and in the negative. The assessee appealed to this court for
D relief, as aforementioned.

In the second appeal afore-mentioned at the instance of the re-
venue, the assessee, a registered firm, consisted of five partners, out of
whom, one partner, Sarabhai Chimanlal died on March 9, 1963. The
assessee firm filed two returns for the assessment year in question-<me
E for the period ending on March 9, 1963, and the other, for the rest of
the accounting period. A declaration under section 184(2) of the Act
was enclosed along with the return for the first period. The two returns
were filed on the basis that according to the assessee there was a dissolu-
tion of the firm on the death of the partner Sarabhai Chimanlal, and,
therefore, the subsequent continuance of business was only for the purpose
--
F of winding up the firm. The Income Tax Officer held that there was a
change in the constitution of the firm within the meaning of section
187(2), and the assessee should have applied for registration and should
not have remained content with the filing of the declaration under
section 187(2) of the Act. The assessee filed an appeal before the Appel-
late Assistant Commissioner, who dismissed the same. The assessee then
G appealed to the Income Tax Appellate Tribunal, which came to the
conclusion that there was a dissolution of the partnership on March 9, ,
1963, and at the instance of the revenue the Tribunal referred to the
High Court, two questions "(I) Whether, in the facts and circum-
stances of the case, there was any dissolution of the partnership on the
date of death of Shri Sarabhai Chimanlal and that, therefore, there
H should be separate assessment till the date of his death? and (2)
\

WAZID ALI v. COMMR. OF INCOME TAX LUCKNOW 919

Whether in the facts and circumstances of the case, provisions of section A
187(2) apply to the facts of the case? The High Court answered the first
question in both parts in the affirmative and in favour of the assessee,
and the second question, in the negative and in favour of the assessee,
and granted certificate to the revenue to appeal to this court as afore-
mentioned. B

i Allowing ·the assessee's appeal (the Allahabad case) and dismis-
sing the appeal by the revenue (the Gujarat case), the Court,

HELD: The real question in both these appeals is when there is a
death of a partner within a previous year in the case of a registered
firm, what happens. [930B-C] c

In the context of the relevant statutory ·provisions of the Income
Tax Act, 1961, the question arises whether on the death of the partners
in the situations of the two appeals, the firm was dissolved or whether
two assessments should be made. [932H; 933A] D

It is well to reiterate that in all cases, dissolution does not take
place by death if there is a contract to the contrary. If that is so, then, in
such a situation, the next question is whether there was any contract to
the contrary in the situations of the two cases. [933A-B]
E
There was a rontract to the contrary in the Allahabad case, where
the deed of partnership provided, inter alii; that where the deed is silent,
it shall be governed by the Indian Partnership Act save and except that
on the dea:h or demise of any partner, the firm shall not be dissolved
bnt shall be carried on with the remaining partners and that heir and
representative of the deceased partner who resides in India on such · F
terms and conditions as they mutually agree to. Therefore on the death
of the partner, there is no dissolution by the expressed terms of the
contract between the parties but the partnership is deemed to be carried
on with the remaining partners and that heir and representative of the
deceased partner, who was in India. The terms and conditions of the
partnership, however, had to be mutually agreed upon. In this G
(Allahabad) case, Qamaruddin, one of the partners, died on June 4,
1964. Within the relevant time, his son, Fariduddin joined the firm as a
partner. Before the expiry of November 4, 1964, that is, the assessment
year which expired on November 4, 1964, the assessee had filed a decla-
ration in Form XII for the relevant assessment year 1965-66 under
section 184(7) of the Act. [933B-E] H
I

920 SUPREME COURT REPORTS [ 1988) I S.C.R.

In this case, on the death of Qamaruddin and the inclnsion of
A Fariduddin, there was a change in the constitution of the firm, but the
firm was not dissolved. Fresh deed had to be executed under sub-section
(7) of section 187. The application was not filed for the whole of the
assessment year; so, for a part of the assessment year, the firm was
registered and for the rest, the firm was not registered. The Tribunal
B held that (1) the assessee would be entitled to the benefit of registration
upto June 4, 1964, that is, a part of the previous year and (2) the total
income would be apportioned between the partners who were entitled to
receive the profits accordingly as they were entitled to share the profits,
the firm being assessed as a registered firm in respect of the profits
ending on June 4, 1964, and as an unregistered firm in respect of the
profits for the remaining part of the previous year. This conclusion of
C the Tribunal is correct. An analysis of the different sections of the Act
lead to that conclusion and there is no contrary provision in the Act.
Such a conclusion is logical and equitable and would do justice to both,
the revenue and the assessee. In the circumstances of the case, the
course open was to seek registration to execute a new deed of partner-
D ship and apply for the registration of that deed, as rightly held by the
High Court, but failure to do so, does not make the registration upto the
date of the death of the partner Qamaruddin invalid, and in the absence
of any express prohibition indicating the same, the firm was entitled to
the benefit of such registration. [933E-H; 934A-E)

E In the Allahabad case, the Tribunal took the correct view and the
High Court was in error in the view it took. Judgment and order of the
High Court set aside. The view of the Tribunal upheld. [934G)

In the second appeal (Gujarat case), the question is whether in the
facts and circumstances of the case, there was any dissolution of the
F partnership on the date of the death of Shri Sarabhai Chimanlal and
whether there should be two separate assessments till the death or
whether in the facts and circumstances of the case, provisions of section
187(2) of the Act apply to the facts of this case. The High Court found
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
G remaining parties in the course of the winding up and for the realisation .
of its dues. The High Court, accordingly, answered rightly in the
affirmative and in favou~ of the assessee. There was in fact a dissolu-
tion, as found by the Tribunal, and in the facts and circumstances of the
case, after the dissolution, the firm ceased to exist and there should be
two separate assessments. The High Court was right in answering the
H question as it did. The High Court was also right in answering the
WAZID ALI v. COMMR. OF INCOME TAX LUCKNOW [MUKHARJI, J.] 921

question in view of the fact that there was a death and as such dissolu-
tion of the firm by the manner jn which the parties acted, there was no A
question of the same firm being continued and the pr.ovisions of section
187(2) could not be said to apply in the light of the facts. [939E-H]

In re. Hakerwal Colliery, [1942] 10 ITR 422, Girdharilal
Seetaram & Bros. v. C.I. T, (1949] 17 I.T.R. 282; Pannalal Babula/ v. B
C.I. T., (1969] 73 I.T.R. 503; Rex v. General Commissioners for the
City of London, 24 Reports of Tax Cases 221; Commissioner of
Income-Tax v. Shiv Shankar Lal Ram Nath, 106 I.T.R. 342; Vishwa-
nath Seth v. Commissioner of Income Tax, U.P., 146 I.T.R. 249; Badri
Narain Kashi Prasad v. Additional Commissioner of Income Tax, 115
I.T.R. 858; Sandersons Morgans v. Income Tax 'A' ward, District III
(I), Calcutta, and others, 87 I.T.R. 270; Joshi & Co. v. Commissioner C
of Income-Tax, 162 I. T.R. 268; Girdharilal Nannelal v. Commissioner
of Income-Tax, 147 I.T.R. 529; Commissioner of Income-Tax,
'Delhi-IV v. Sant Lal Arv ind Kumar, 136 I. T .R. 379; Dungarsidas
Kaluram v. Additional Commissioner of Income-tax, M.P., 132 I.T.R.
526; Ganesh Dal Mills v. Commissioner of Income-Tax, 136 I.T.R. D
762; Dahi Laxmi Lal Factory v. Income-Tax Officer, Sitapur, and
another, '13 I.T.R. 517; Additional Commissioner of Income-tax,
Gujarat v. Harjivandas Hathibhai, 108 I.T.R. 517; I. Ramakrishnaiah
& Sons. v. Commissioner of Income-tax Orissa, 111 I.T.R. 296;
Tyresoles (India), Calcutta v. Commissioner of Income-tax, Coimba-
tore, 49 I. T.R. 515 and Mayukkaria (N) Estate Tea Factory v. Addi- E
tional Commissioner of Income-tax, Madras II, 112 I.T.R. 715,
referred to.

CIVIL APPELLATE JURISDICTION· Civil Appeal No.
1792(NT) of 1974 etc.
F
From the Judgment and Order dated 22.2.1972 of the Allahabad
High Court in I. T. Reference No. 163 of 1970.

Dr. Gauri Shankar, Amicus Curiae, Manoj Arora and S.
Rajappa for the Appellant.
G
S.C. Manchanda, K.C. Dua and Miss A. Subhashini for the
"'( Respondents.

The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, J. By this judgment we will dis- H
922 SUPREME COURT REPORTS [ 1988] I S.C.R.

pose of two appeals-first one at the instance of the assessee and
A second one at the instance of the revenue-but both these appeals deal
with one common situation namely the position of the registered firm
during the assessment year if one of the partners dies or retires. Civil
Appeal No. 1792(NT) of 1974 is an appeal by the assessee from the
judgment and order of the Allahabad High Court dated 22nd
B February, 1972 answering the following question referred to it under
section 256(1) of the Income-tax Act, 1961, hereinafter referred to as
the Act, for the assessment year 1965-66 in favour of the revenue and
in the negative:-

"Whether, on the facts and in the circumstances of
the case the Tribunal was justified in holding that for the
c period covered by the old constitution the income was as-
sessable in the hands of the assessee as a registered firm?

For the assessment year 1965-66 the relevant previous year com-
menced on 17th November, 1963 and ended on 4th November, 1964.
D The assessee was a partnership firm styled as Messrs Wazid Ali Abid
Ali of Phnlpur in the district of Azamgarh. It was constituted under a
deed of partnership dated 17th March, 1959 with 17 members. The
said deed provided, inter alia, as follows:

"That where the 4eed is silent, it shall be governed by the
E Indian Partnership Act save and except that on the death or
demise of any partner the firm shall not be dissolved but
shall be carried on with the remaining partners and that
heir and representative of the deceased partner who resides
in India on such terms and conditions to which they mutu-
ally agree."
F
On June 4, 1964, one of the partners, Qamaruddin died and his
son, Fariduddin joined the firm as a partner. New deed of partnership ''
evidencing the change in the constitution of the firm was not executed
before 4th November, 1964. The assessee filed a declaration in Form
No. XII for the relevant assessment year 1965-66 under section 184(7)
G of the Act. The declaration was signed by the 16 members who had
continued all along and also by Fariduddin who had become a partner
in place of his deceased father. The Income Tax Officer held that the
admission of a new partner in place of the deceased partner amounted
to a change in the constitution of the firm. He, therefore, held that the
assessee was not entitled to the continued benefit of registration under
H section 184(7) of the Act. He was of the opinion that the firm had
W AZID ALI v. COMMR. OF INCOME TAX LUCKNOW [MUKHARJI, J. [ 923

failed to file a fresh application for registration and therefore he disal-
A
lowed the benefit of registration to the firm. On appeal the Appellate
Assistant Commissioner held that the assessee should have filed a
fresh application for registration along with the partnership deed
embodying the change in the constitution of the firm. The appeal was
accordingly dismissed by him. The assessee preferred further appeal to
the Tribunal and urged that the change which occurred on the death of B
Qamaruddin did not require the execution of a new deed of partner-

-
ship nor a fresh application for registration. Alternatively, it was con-
tended that the assessee was entitled to the continued benefit of regis-
tration at least for that part of the previous year during which
Qamaruddin had remained alive. The Tribunal was of the view that
the death of Qamaruddin and the inclusion of Fariduddin involved a C
change in the constitution of the firm. It was, therefore, necessary that
a fresh deed of partnership should have been executed as well as a
fresh application for registration filed. The Tribunal, however,
accepted the alternative contention and observed that the conditions
laid down in sub-section (7) of section 184 of the Act had been satisfied
and that the assessee would be entitled to the benefit of registration D
upto 4th June, 1964, that is to say, a part of the previous year. In view
of section 187(2) of the Act, it was obligatory according to the
Tribunal and the Income Tax Officer to make single assessment only
on the assessee and to apportion the total income between the partners
who were entitled to receive the profits accordingly as they were
entitled to share the profits, the firm being assessed as a registered E
firm in respect of the profits ending 4th June, 1964 and as an unre-

-- gistered firm in respect of the profits for the remaining part of the
previous year. Thereupon the aforesaid question was referred to the
High Court.

The High Court was of the view that on the death of Qamaruddin F
on 4th June, 1964 and on the entry of Fariduddin, there was a change
in the constitution of the fir1n. According to the High Court, by virtue
of section 42(c) of the Indian Partnership Act, 1932 a firm was dissol-
ved by the death of the partner but as the section provided that was
subject to the contract between the partners. The High Court was of
the view that clause 7 of the partnership deed dated 17th March, 1959 G
specifically stipulated that the firm would not be dissolved on the
death of a partner but it would be carried on with remaining partners
and such heir of the deceased partner who resides in India on terms
and conditions to which they mutually agree. The High Court was of
the view that if there was any heir of the deceased partner who resides
in India and agrees with the surviving partners on the terms and condi- H
924 SUPREME COURT REPORTS [l988] l S.C.R.

tions on which he could be admitted to the partnership, the firm would
..,,
A not be dissolved. The High Court was further of the view that the
condition that there shonld be mutual agreement between the surviv-
ing partners and the incoming partner indicated that the inclusion of
the heir of the deceased partner was not automatic one but rested on
agreement.
B
The High Court referred to the decision in In re Makerwal Col- ,.
/eiry, [l942], 10 ITR. 422, where Monir, J. observed that under the
partnership constituted by a deed of partnership, the legal representa-
tives of a deceased partner, who by reason of a provision in the deed
was entitled but not bound to become a partner for a period which
might be the same or different from the period fixed under the deed he
c was to continue in the partnership for the unexpired portion of the
period, the constitution of the firm is altered and, therefore, the new
--.
firm could not apply for the renewal of registration nor can in such a
case the new firm apply for registration of the original partnership as
ex hypothesi, the applicants for registration were not parties to the
D deed of partnership. There the learned Judge had further observed
that the only course open to seek registration was to execute a new
deed of partnership and to apply for the registration of that deed.

Reference was made by the High Court to the decision of the
Orissa High Court in Giridharilal Seetaram & Bros, v. C.I. T., [1949] )--
E 17 ITR. 282. The Orissa High Court held that in case where the part-
nership deed provided that on the death of a partner his legal re-
presentative was entitled to join the partnership and the partnership
would be continued without dissolution, an application for registration
signed by the surviving partners and the son of the deceased partner
was not defective and should not be rejected on the ground that the
F original partnership deed without any alteration had been produced.
The learned Judge observed: \
"It may be that ordinarily on the death of any of the part-
ners the firm gets dissolved automatically but it does not so
dissolve where the deceased partner's heir automatically,
by virtue of the terms of the deed, becomes a partner with-
G out any fresh agreement."
According to the High Court the aforesaid observation of the learned
Judge had not been endorsed by the Allahabad High Court in Pannalal
r'
Babula/ v. C.I.T., [1969] 73 ITR 503. While agreeing to the observa-
tions in Makerwal Colliery (supra) Oak, C.J., and T.P. Mukherjee J.
H found themselves unable to adopt the view taken in Giridharilal
WAZIDAL!v. COMMR. OF INCOME TAX LUCKNOW [MUKHARJl,J.) 925
"'>('
Seetaram & Bros. (supra) that on the death of a partner his successor
A
would become a partner of the firm automatically. It was open to the
heir, according to their decision, to join or not to join the partnership.
He was not bound to do so. In that view, application for renewal of
registration signed by the surviving partners and the son of the
deceased partner could be rejected because the constitution of the firm
was no longer reflected in the instrument of partnership. The High B
Court in the instant case was of the view that the Tribunal was right in
holding that the inclusion of Fariduddin as a partner upon the death of
Quamaruddin resulted in a change in the constitution of the firm and it
could be no longer be given the continued benefit of registration on
( the basis of original partnership deed. The High Court was of the view
A' that the next question was whether the Tribunal was also right in hold-
c
ing that the assessee was entitled to the continued benefit of registra-
tion in respect of the profits after 4th June, 1964 that is to say the
period during which Quamaruddin remained alive. According to the
High Court it was clear that continued benefit of registration must be
in respect of the entire assessment year, and therefore it must affect
the profits of the entire year relating to the assessment year. If the firm D
had dissolved on 4th June, 1964 with the death of Quamaruddin the
relevant previous year would have been the period commencing from
17th November, 1963 to 4th June 1964 and the profits for that period
-{ would have been treated for the assessment as in case of a registered
firm. The firm was, however, not dissolved and continued in existence
throughout the previous year that is to say from 17th November, !963 E
to 4th November, 1964. The High Court was, therefore, ·of the view
that there was merely a change in the constitution of the firm. The
High Court was of the opinion that by reason of the proviso to sub-
section (7) of section 184 of the Act the registration granted in a
preceding year could not continue to have effect for the assessment
{ ' year under consideration. The High Court was of the view that it was F
necessary for the assessee by reason of section 164(8) of the Act to
apply for fresh registration for the assessment year concerned in accor-
dance with the provisions of section 184. That required an instrument
evidencing the partnership and specifying the individual shares of the
partners. The declaration in Form No. XII was misconceived, accord-
ing to the High Court. The view taken by the Tribunal that the profits G
upto 4th June, 1964 should be treated as in case of a registered firm
and the profits for the rest of the previous year should be treated as in
case of an unregistered firm, according to the High Court, found no
support in the statute. The High Court was of the view that dividing
the profits of the previous year in this fashion amounted to treating the
firm as a registered firm for a part of the assessment year and an H
926 SUPREME COURT REPORTS [1988] I S.C.R.

unregistered for the remaining part. The High Court found it difficult
A to conceive such a case under the Act. The High Court was, therefore,
of the view that the Tribunal was not right in holding that during the
period covered by the constitution of the original partnership deed the
income was assessable in the hands of the assessee as a registered firm.
The High Court accordingly answered the question in the negative. In
B consequence, the revenue succeeded. The validity of this answer to the
l
question has been challenged in this appeal by the assessee. Indeed, on
this question divergent views have been taken by different High
Courts as we shall presently notice.

Civil Appeal No. 609(NT) of 1975 is an appeal by certificate

c
granted by the High Court of Gujarat and admitted by this Court. This '1
is an appeal from the High Court of Gujarat at the instance of the
revenue for the assessment year 1964-65. The following two questions
were referred to the High Court of Gujarat:

"(1) Whether, in the facts and circumstances of the case,
D there was any dissolution of the partnership on the date of
death of Shri Sarabhai Chimanlal and that therefore there
should be separate assessment till the date of his death?

(2) Whether in the facts and circumstances, of the ~
case, provisions of section 187(2) apply to the facts of the
E case?"

The facts involved in the said appeal were that the assessee was a
partnership firm. The firm was granted registration in the preceding
year 1963-64 under the Act. Originally the firm consisted of five part-
ners and one of the partners was Sarabhai Chimanlal. Sarabhai died on
F 9th March, 1963. The business of the firm was of executing eontracts .-...:
entered into with the Railways for handling of goods at various
Stations and also some business in respect of coal, dealing in coal on
commission etc. The major part of the work was that of handling
contacts entered into with the Railways for handling goods at
Sabarmati Railway Station in Gujarat. On the death of Sarabhai
G Chimanlal, the books of the partnership firm dealing the contracts
with the Railways were closed. The firm was maintaining its accounts

~
in three separate sets of books. Set No. I dealt with the contracts of
Railways. In accounts maintained in Set No. II and Set III books of
accounts were continued but in accounts of Set No. I balances were
struck after preparing profit and loss upto June, 1963, and the profits
H were credited to the respective partners' account including the
WAZID ALI v. COMMR. OF INCOME TAX LUCKNOW !MUKHARJI, J.] . 927

receipts. Thereafter the account of the deceased was carried forward A
in different books. In respect of the other businesses, the books were
closed but at the end of the period of account, profits were determined
and bifurcated between periods, the first period till the date of death
of the deceased partner and the second period being after his death.
The previous year was Samvat Year 2019. Samvat Year 2019 com-
menced from 28th October, 1962 and ended on 27th October, 1963. B
The profits were credited in the account of Sarabhai along with the
accounts of other partners for both the periods so far as Set No. JI and
Set No. III were concerned. The assessee firm filed two returns for the
assessment year in question-one for the period ending on 9th March,
1963 and the other for the rest of the accounting period. A declaration
under section 184(2) was enclosed along with the return for the first C
period. The basis on which these two returns were filed was that
according to the assessee tn"ere was dissolution of the firm on the death
of Sarabhai Chimanlal and, therefore, the subsequent continuance of
business was only for the purpose of winding up the firm. The Income-
Tax Officer refused to accept the contentions of the assessee and his
main ground was that there was a change in the constitution of the firm D
within the meaning of section 187(2). Therefore, the assesee should
have applied for registration and should not have remained content
with the filing of the declaration under section 187(2) of the Act.
Against the said decision, the assessee appealed and the Appellate
Assistant Commissioner agreed with the conclusion of the Income-
Tax Officer and dismissed the appeal. The assessee appealed to the E

-
Appellate Tribunal. The Tribunal came to the conclusion that there
was a dissolution of the partnership on 9th March, 1963 and that conc-
lusion was drawn from the various circumstances which the Tribunal
took into consideration. Then at the instance of the revenue, reference
was made to the High Court on the aforesaid two questions mentioned
hereinbefore. F

The Tribunal had negatived the contention that section 187(2) of
the Act, applied to the facts and circumstances of the case. The High
Court took into account two clauses in the background of the partner-
ship deed. According to the Tribunal that the balances were comp-
letely struck and carried to a new set of books was an important G
circumstance and evidence to find out whether the parties did want to
bring about dissolution. The Tribunal was of the view that by virtue of
clause 8 of the Partnership Deed the death of a partner would not bring
about a dissolution automatically, yet by mutual consent of the parties
which could be inferred from the facts the firm has been dissolved. The
High Court, however, noted that the primary circumstance was that H
928 SUPREME COURT REPORTS [1988] 1 S.C.R.

the books of accounts in Set No. I, which was in respect of major
A business, were closed on the death of the Sarabhai Chimanlal. The
Tribunal, however, had noted that the contract in respect of the
Sabarmati Railway Station was to expire on 3 lst March, 1963 but the
contract was deemed to have been extended till 30th April, 1963. As
soon as Sarabhai died, books of accounts of the firm were closed and
B necessary entries were effected in respect of other Railway Stations
also, since the contracts were terminated, that is, in September, 1963
books of other Railway Stations were also closed. The High Court
noted that another major circumstance in support of its conclusion was
mutual consent for dissolution of the firm and the fact that the partner-
ship firm did not enter into new business activities and did not under-
take any new contract. The High Court noted that if the surviving
c partners of the firm wanted the firm should continue as it could have
continued under clause 8 of the Partnership Deed then surely they
would have taken new contracts or entered into new activities because
a firm like the assessee firm surely would have come to a halt if there
were no business activities or no new business contracts. The Tribunal
D had found considerable substance in the contention of the assessee
that after the death of Sarabhai, the partners wanted to close the
business. Another circumstance which had appealed to the Tribunal
was that the profits earned subsequent to the death of Sarabhai were
also credited to the account of the deceased proportionately and even
in respect of profit earned for the subsequent period the deceased
E partner was given profit. The High Court noted that these, according
to the assessee, indicated that the firm was dissolved but in the course
of winding up whatever was realised was proportionately distributed
and amount coming to the share of the deceased was credited in his
account even though he had expired on 9th March, 1963. The High
Court noted that the Tribunal was of the view that the conduct Of the
F partner clearly indicated that firm had agreed not to carry on business
and whatever was done after death of Sarabhai was merely by realisa- \
tion of certain outstanding dues in the course of dissolution of the firm
in discharging certain obligations by completing the contracts entered
into prior to the death of Sarabhai.

G The High Court noted that there were two other circumstances
which were pointed out. One was that no new deed of partnership was
executed· after Sarabhai's death nor was any application made for re-
gistration by the surviving partners. The application contemplated by
Section 184(7) of the Act was filed in connection with the period uptil
March 9, 1963 and it was also pointed out before the High Court that
H the major source of profits was of the business mentioned in Set No. I,
WAZIDAL!v. COMMR. OF INCOME TAX LUCKNOW [MUKHARJI,J.] 929

)< that is, Sabarmati Railway contract and actually in other accounts
A
losses were being incurred or not much profit was being incurred in the
business set out in Set II and Set Ill. After noting these facts, the High
Court was of the view that the important thing was the intention of the
partners and referring to the different clauses the High Court was of
the view that the conclusion of the Tribunal that the partners had by
mutual agreement decided to dissolve the firm with effect from March B
-\ 9, 1963 was a correct and justified one and, therefore, the Tribunal

-
was also justified in holding that the rest of the activities between
March 9, 1963 and the end of the accounting period, that is, till the end
of Samvat Year 2019 were in the course of the dissolution of the firm.
The Tribunal was, therefore, right in holding that there should be
~' separate assessment till the date of death of Sarabhai Chimanlal. So
far as the second question was concerned the High Court was of the
c
view that where at the time of making an assessment under Section 143
or section 144 of the Act, it was found that there was a change which
had occurred in the constitution of the firm, the assessment should be
made on the firm as constituted at the time of the making of the
assessment and one of the consequences of a change occurring in the D
constitution of the firm was that if there was any change in the previ-
ous year the firm had to apply for fresh registration for the assessment
year concerned in accordance with the provisions of Section 184.
Under sub'section (2) of section 187, for the purposes of section 187,
'~ there was a change in the constitution of the firm if one or more of the
partners ceased to be a partner or one or more new partners were E

-
admitted, in such circumstances where one or more of the persons who
were partners of the firm before the change had continued as partner
or partners after the change; or where all the partners continued with a
change in their respective shares or in the shares of some of them. In
'
those circumstances, according to the High Court, since there was
dissolution of the firm with effect from March 9, 1963 there was no F
r question of the same firm being continued with change in the constitu-
tion of the firm and the requirements of clause (a) of sub-section (2) of
Section 187 were not at all satisfied. The High Court was further of the
view that in any event, so far as clause (b) was concerned all the
partners did not continue with some change in their respective shares
or in the shares of some of them since Sarabhai who held thirty per G

,, cent share in the profits of the firm had died on March 9, 1963 and
thereafter there was no new partner in his place. Of course, the estate
of Sarabhai as represented by his wife Kanchanben who was also a
partner got the benefit of the profits which went to the share of
Sarabhai but Kanchanben got that amount as representing the estate
of Sarabhai and not in her capacity as a partner of the firm. Under H
930 SUPREME COURT REPORTS I 1988] l S.C.R.
these circumstances the provisions of section 187(2) of the Act could )'('
A not be said to apply to the facts of the present case. In the premises the
High Court answered the first question both parts in the affirmative
and in favour of the assessee. As to second the High Court answered it
in the negative and in favour of the asscssee. The High Court granted
the certificate as mentioned hereinbefore to appeal to this Court.
B
The real question with which we are concerned in both these ,...
appeals is, therefore, when there is death of a partner within a previ-
ous year in case of a registered firm what happens.

In order to appreciate the controversy in this case, it is necessary
--
c
to have a perspective of the scheme of the Act of the assessment of r~
firms. Under the scheme of the Act assessment of firm has been pro-
vided in Chapter XVI and it can be found in sections 182 to 189 of the
Act. Section 170 of the Act which is relevant in this connection pro-
vides succession to business or profession and stipulates that where a
person carrying on any business or profession or such person herein-
D after in that section being referred to as the predecessor has been
succeeded therein by any other person who continues to carry on that
business or profession, the predecessor sh'all be assessed in respect of
the income of the previous year in which the succession took place up
to the date of succession; and the successor shall be assessed in respect .,.._,
of the income of the previous year after the date of succession. The '
E other sub-sections of section 170 deal with certain contingencies with
which we are not concerned. The expressions "firm" and "partner-
ship" have the same meaning as given in the Indian Partnership Act,
1932. "Partnership" is defined by section 4 of the said Act as the
relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all. It is further
F stated that the relation of partnership arises from contract and not
from status. Section 39 of the said Act provides dissolution of partner-
ship between all the partners of a firm called the "Dissolution of the
firm". A firm may be dissolved with the consent of all the partners or
'
in accordance with a contract between the partners. Section 42 pro-
vides that subject to contract between the partners a firm is dissolved,
G inter alia see clause (c) by the death of a partner. It is necessary to
bear in mind that section 143 deals with regular assessment and section
144 deals with best judgment assessment. Section 182 of the Act which y
is in Chapter XVI as mentioned hereinbefore provides for assessment
of firm and stipulates that notwithstanding anything contained in sec-
tions 143 and 144 and subject to the provisions of sub-section (3), in
H the case of a registered firm the income of the firm shall be distributed
WAZID ALI v. COMMR. OF INCOME TAX LUCKNOW [MUKHARJI. J.] 931

in the manner indicated therein. Sub-section (3) of Section 182 is not A
material for our purpose. Section 183 of the Act deals with assessment
of unregistered firms. Group of sections under heading B contained in
section 184 to section 186 deal witb registration of firm. Section 184 of
the Act deals with the application for registration of the firms under
the said Act. It is not necessary for the present purpose to set out in
extenso all the provisions of this sub-section. It may, however, be B
borne in mind that an application for registration of a firm must be
made which is evidenced by an instrument and such application may
be made during the existence of the firm or after its dissolution. Sub-
section (3) of section 184 stipulates that the application shall be made
to the Income-tax Officer having jurisdiction to assess the firm, and
shall be signed by all the partners and in case of dissolution by all C
persons (not being minors) who were partners in the firm immediately
before its dissolution and by the legal representative of any such part-
ner who is deceased. It further stipulates that the application shall be
made before the end of the previous year for the assessment year in
respect of which registration is sought. The proviso to sub-section (4)
also provides that the Income-tax Officer may entertain an application D
made after the end of the previous year, if he is satisfied that the firm
was prevented by sufficient cause from making the application before
the end of the previous year. The other requirements of the applica-
tion, the mode and manner of making it as set out in other sub-sections
are not relevant for the present purpose except sub-section (7) of
section 184 which provides that where registration is granted to any E

- firm for any assessment year, it shall have effect for every subsequent
assessment year: Provided that there is no change in the constitution of
the firm or the shares of the partners as evidenced by the instrument of
partnership on the basis of which the registration was granted and the
firm furnishes, before the expiry of the time allowed under sub-section
(1) or sub-section (2) of section 139 (whether fixed originally or on F
extension) for furnishing the return of income for such subsequent
assessment year, a declaration to that effect, in the prescribed form
and verified in the prescribed manner, so, however, that where the
Income-tax Officer is satisfied that the firm was prevented by sufficient
cause from furnishing the declaration within the time so allowed, he
may allow the firm to furnish the declaration at any time before the G
assessment is made. Sub-section 8 of section 184 provides that where
any·-such ..change has taken place in the previous year, the firm shall
apply for fresh registration for the assessment year concerned in accor-
dance with the provisions of this section. So, therefore, normally
where registration is granted for any firm for any assessment year, it
should have effect for every subsequent assessment year unless there is H
932 SUPREME COURT REPORTS [ 1988] I S.C.R.

A any change in the constitution of the firm or the share of the partners.
If there is a change in the constitution of the firm then in such a case
the registration will not be continued for subsequent years but will
have to be applied afresh. Section 185 deals with the procedure on
receipt of the application. It is not necessary for the present purpose to
deal with the provisions of the said section in the instant case. Section
B
186 deals with the cancellation of registration. It is also not necessary
to set out the provisions of the said section. The sections under the
heading Clause C are Sections 187, 188 and 189 of the Act and deal
with changes in constitution, succession and dissolution. Sub-section
(1) of section 187 provides that where at the time of making an assess-
ment under section 143 or section 144 of the Act it is found that a
c change has occurred in the constitution of a firm, the assessment shall ··-/\
be made on the firrn as constituted at the time of making the assess-
ment. The said sub-section further provides that the income of the
previous year shall, for the purposes of inclusion in the total incomes
of the partners, be apportioned between the partners who, in such
previous year, were entiled to receive the same; and when the tax
D
assessed upon a partner cannot be recovered from him. it shall be
recovered from the firm as constituted at the time of making the as-
sessment. Sub-section (2) of section 187 provides that for the purpose
of this section, that is to say, section 187, there is a change in the
constitution of the firm, if one or more of the partners cease to be
partners or one or more new partners are admitted, in such circumst-
E

--
ances 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
where all the partners continue with a change in their respective shares
or in the shares of some of them. Section 188 deals with succession of
one firm by another firm. It provides that where a firm carrying on a
business or profession is succeeded by another firm, and the case is not
F one covered by section 187, separate assessments shall be made on the
predecessor firm and the successor firm in accordance with the provi-
sions of section 170. It may be mentioned that a proviso to sub-section
(2) of section 187 had been inserted by the Taxation Laws (Amend-
ment) Act, 1984 with retrospective effect from Ist of April, 1975. It
provides that nothing contained in clause (a) that is to say, indicating
G where the change in the constitution of the firm is supposed to have
taken place, shall apply to a case where the firm is dissolved on the
death of any of its partners. Section 189 deals with firm dissolved or
business discontinued. In the context of the above statutory provi-
sions, the question in the instant case is whether on the death of the
partners in the two situations mentioned in the above two decisions
H
out of which these appeals have arisen, whether the firm was dissolved
WAZIDAL!v. COMMR. OFJNCOMETAXLUCKNOW[MUKHARJI,J.] 933

";>( or whether two assessments should be made. Now it is well to reiterate
A
that in all cases dissolution does not take place by death if there is a
contract to the contrary. If that is so then in such a situation, the next
question is whether there was any contract to the contrary in the two
situations as contemplated in the decisions with which we are con-
cerned, one of the Allahabad High Court and the other of the Gujarat
High Court. B
-\
There was contract to the contrary, in our opm10n, in the
,.. Allahabad High Court's decision, where the deed provided, inter alia,
that where the deed is silent, it shall be governed by the Indian Part-
nership Act save and except that on the death or demise of any partner

'~ the firm shall not be dissolved but shall be carried on with the remain-
ing partners and that the heir and representative of the deceased part- c
ner who resides in India on such terms and conditions to which they
mutually agree. Therefore, on the death of the partner, there is no
dissolution by the expressed terms of the contract between the parties
but the partnership is deemed to be carried on with the remaining
partners and that heir and representative of the deceased partner. The D
terms and conditions, however, of such carrying on had to be mutually
agreed. In that case as mentioned hereinbefore that Qamaruddin one
of the partners died on 4th of June, 1964 being within the relevant time
his son, Fariduddin joined the firm as a partner. Before the expiry of
~ 4th November, 1964, that is to say, the assessment year which expired
on 4th November, 1964, the assessee had filed a declaration in Form E
No. XII for the relevant assessment year 1965-66 under section 184(7)
of the Act. We are of the opinion that in this case on the death of
Qamaruddin and the inclusion of Fariduddin there was a change in the
constitution of the firm. It did not dissolve the firm but brought about
a change in the constitution of the firm. Fresluleed had to be executed
under sub-section (7) of Section 187. This follows from the analysis of F
r- the different sections of the Act. The application was not filed for the
whole of the assessment year so for part of the assessment year the
firm was registered and the rest the firm was not registered. The Tri-
bunal held that the assessee would be entitled to the benefit of regist-
ration upto 4th June, 1964, that is to say, a part of the previous year.
The Tribunal further held that to apportion the total income between G
the partners who were entitled to receive the profits accordingly as they
,., were entitled to share the profits, the firm being assessed as a re-
gistered firm in respect of the profits ending ,on 4th of June, 1964 and
as an unregistered firm in respect of the profit for the remaining part of
the previous year. In our opinion this conclusion is correct. The High
Court has held that there is no warrant for this view. We are unable to H
934
I SUPREME COURT REPORTS [1988] I S.C.R.

A agree. As a matter of fact an analysis of the different sections of the
Act lead to that conclusion and there is no contrary provision in the
Act. Such a conclusion is logical and equitable and would do justice to
' , both the revenue as well as to the assessee. Our attention was not
. drawn to any decision of this Court which is against that view, though
there is certain amount of divergence of views amongst the High Courts
B ori this aspect. According to the High Court, by virtue of section 42(c)
of the Indian Partnership Act, a firm was dissolved by the death of the
partner but as the section provided that was subject to the contract
between the parties. The High Court was right in the view that clause
(7) of the partnership deed dated 17th of March, 1959 specifically
stipulated that the firm would not be dissolved on the death of a
·partner but it would be carried on with remaining partners and such
C heir of the deceased partner who resides in India on terms and condi-
tions to which they mutually agreed. The High Court was of the view,
in our opinion, rightly that if there was an heir of the deceased partner
who resides in India and agrees with the surviving partners on the
terms and conditions on which he could be admitted to the partner-
D ship, thel firm would not be dissolved. The High Court was further of
the view that the inclusion of such partner depended upon the mutual
agreement between the surviving partners and was not automatic one,
on the death of the deceased partner. In the background of the facts of
this case, we are of the opinion that the High Court was right that in
such circumstances the course open was to seek registration to execute
E a new deed of partnership and to apply for the regisration of that deed.
But that does not make the registration upto the date of the death of
the deceased partner invalid and in our opinion, subject of any express
prohibition indicating the same, the flfill is entitled to the benefit of
such registration. We have found no such express prohibition, as the
analysis of the various sections indicate. On the other, it would be just
•. F ·and equitable and that the assessee should have that limited benefit .
We are of the opinion that the Tribunal took the correct view in the
first case. . .

· In the aforesaid view of the matter it must be held that the
Allahabad High Court was in error in the view it took. The Tribunal
G ·was right. The appeal must be allowed, and the judgment and order of
the High Court must be set aside. ·
··.·.
A large n~mber of authorities were ~ited before us but we shall
note some of these. But we are of the opinion that for answering the
particular question in view of'the clear consequences th~t flow from
H the analysis of the sections, it is not necessary to be bogged by deci-
WAZID ALI v. COMMR. OF INCOME TAX LUCKNOW !MUKHARJI, l.I 935

sion. We may, however, refer to Stroud's Judicial Dictionary, Fourth A
Edition, pages 412-414 where the meaning of the expression "cease"
has been analysed from different angles. When and how does a partner
cease to be a partner has, however, to be determined in the context of
particular set of facts. It is not necessary to refer to the decision in Rex
v. General Commissioner of Income Tax for the City of London, 24 B
Reports of Tax Cases 221 where the shares of erstwhile partnership
business were apportioned in a particular manner. These though
throwing light, however, are non-sequitur for the issue before us.

Commissioner of Income-tax v. Shiv Shankar Lal Ram Nath, 106
I.T.R. 342 is a Bench decision of the Allahabad High Court which held
that in case where a firm is reconstituted the old firm ceases to exist. It c
was observed by the court that section 187 of the Act even by implica-
tion does not create a fiction that the income derived by the old firm
becomes the income of the reconstituted firm. The High Court held
that the Tribunal was right in holding that after reconstitution it
becomes a separate assessable unit. The same High Court in a Full 0
Bench decision of 5 Judges held that it was well settled that on the
death of a partner the constitution of the firm changes. It observed
that if a partner dies and is replaced by a legal representative there is a
change in the constitution of the firm and the new firm will be liable in
respect of the income derived from the old firm. The Full Bench sug-
gested that after the reconstitution the firm becomes a distinct assess- E
able entity, different from the firm before its reconstitution. It

- observed that two d:fferent assessment orders had to be passed, one in
respect of income derived by it before reconstitution and the other in
respect of income derived after its reconstitution. The decision under
appeal here was overruled by the said Full Bench decision. But the
Full Bench of the Allahabad High Court consisting of 5 learned Judges F

r in Vishwanath Seth v. Commissioner of Income-tax, U.P. 146 l.T.R.
249 overruled the previous decision of that court in Commissioner of
Income-tax v. Shiv Shanker Lal Ram Nath, (supra) and Badri Narain
Kashi Prasad v. Addi. Commissioner of Income-tax, 115 l.T.R. 858.
This Full Bench ruled that under the general law of partnership under
the Indian Partnership Act as well as under section 187 of the Act in G
case of reconstitution of a firm it retains its identity and is assessable in
respect of the entire previous year. In view, however, under the
scheme of Chapter XVI of the Act, we are unable to agree; if we were
left with general position under the Indian Partnership Act, we might
have agreed. That decision of the High Court, however did not deal
with the controversy in issue. H
936 SUPREME COURT REPORTS [ 1988] I S.C.R.

It was held by one of us (Sabyasachi Mukharji) sitting singly in
A the Calcutta High Court in Sandersons & Morgans v. Income-tax, "A"
Ward, District III(I), Calcutta, and others, 87 (I.T.R. 270), that a
"change in the constitution of a firm" normally and ordinarily would
mean every alteration in the set up of the firm, that is to say, death,
retirement, incapacity of partners, alteration in the shares of the part-
B ners in the firm etc. It was so mentioned in the Maxwell on the
Interpretation of Statutes, 10th edition and observations appearing at
page 76 of the said book. The said decision of the single Judge was
confirmed by Bench decision of that court and is reported in 108
I. T. R. 954 and it was reiterated that if one of the partners dies or retires
there is change in the constitution of the firm even if there is no
dissolution. This decision was also noted in Bench decision of the
'~
! \
c Calcutta High Court in Joshi and Co. v. Commisioner of Income-tax,
1621.T.R. 268atpage280.

The Full Bench of the Madhya Pradesh High Court in Girdhari-
lal Nannelal v. Commissioner of Income-tax 147 I.T.R. 529 held that
D any matter for which a provision was made in the Income-tax Act,
1961, was to be governed by it, notwithstanding anything different or to
the contrary contained in the general law relating to that matter. It was
further held that in the case of a change in the constitution of a firm
during the accounting year, the income earned by the firm before such
dispute was to be clubbed with the income earned after such change
E and a single assessment had to be made on the firm for the entire

--
accounting period. On the analysis of the different sections of the Act
we are unable to agree with this conclusion.

The Delhi High Court, however, held in the case of Commis-
sioner of Income-tax, Delhi-IV v. Sant Lal Arvind Kumar (136 I.T.R.
F 379), that Section 187 of the Income-tax Act came into operation and -'"'(
applied only when there was in the eye of law a firm with continued j,
existence and not to a case where under the law one firm had ceased to
exist and another came into existence. The High Court observed that
the purpose of sub-section (2) of section 187 was not one of expansion
of the normal concept of a change in the constitution of a firm but was
G really one of limitation; the purpose was not to say that a firm would
continue in spite of dissolution but rather to say that, even in a case
where there was only a change in the constitution, sub-section (I) Y
. would not apply if the partners before or after the change were not
common. It is not correct, according to the High Court, to say that
section 187(2) contemplated a change in all cases where the business
H continued though in the hands of a different firm provided there were
WAZIDALI v. COMMR. OF INCOME TAX LUCKNOW (MUKHARJl,J.] 937

common partners. The High Court was of the view that though creat-
i1 ing a mild ambiguity, the language of section 188 is not only inconsis-
A
tent or contradictory but in a way is to clarify the meaning of section
187 and to exclude the possibility of the common law doctrine regard-
ing the possibility of a firm even in case of a mere change in the
constitution. The concept of partnership, it was held, is one of the
agreement between the partners. If the partners agreed, not that one B
partner should go out and another should come in, but that on a
1

-
particular event happening the firm should be treated as dissolved,
they are entitled to say so, and what the partners have disrupted and it
is not for the department to unite unless there is specific authorisation
in the Act. Where there is, however, no agreement to treat the firm as

/~' continuing notwithstanding the death of a partner, the partners have
no option to treat the firm as continuing under the Indian Partnership
c
Act, 1932, the firm gets dissolved and the Income Tax Officer is not
entitled to ignore this consequence. There is nothing in the language of
sections 187, 188 or 189, according to High Court, which precludes the
application of the partnership law principles even under the Income-tax
Act. It was accordingly, held by the High Court that where the part- D
nership deed of a firm did not contain any provision that the death of a
partner would not dissolve the firm, one of the partners of the firm
died in the middle of the accounting period and thereafter a fresh deed
was executed under which the surviving partners took a fresh partner
"'~ in the place of the deceased and continued to carry on the business, the
case was one of succession and not change in the constitution and E
separate assessments had to be made in regard to the incomes. With

-- respect we agree that where in a case, there is a change in the constitu-
tion of the firm by taking of a new partner and an aid firm succeeded
by a new firm then in such a case, there might be succession and there
could be two assessments as contemplated under section 188 of the
Act. We accept the reasoning of that decision. F
y-
A large number of decisions were referred to us as indicating
divergent views. The view which found favour with the Tribunal in the
instant case was accepted more or less by the Madhya Pradesh High
Court in Dungarsidas Kaluram v. Addi. Commissioner of Income-tax
M.P., 132 I.T.R. 526; Ganesh Dal Mills v. Commissioner of Income- G
tax, 136 l.T.R. 762, by the Allahabad High Court in Dahi Laxmi Dal

-· "'( Factory, v. Income-tax Officer, Sitapur, and another, 13 I.T.R. 517, by
the Gujarat High Court in Addi. Commissioner of Income-tax, Gujarat
v. Harjivandas Hathibhai, 108 l.T.R. 517, by the Orissa High Court in
I. Ramakrishnaiah & Sons v. Commissioner of Income-tax, Orissa, 111
I.T.R. 296, by the Madras High Court in Tyresoles (India), Calcutta v. H
938 SUPREME COURT REPORTS [1988] 1 S.C.R.

Commissioner of Income-tax, Coimbatore, 49 I.T.R. 515; Mavukkarai
A (N) Estate Tea Factory v. Additional Commissioner of Income-tax,
Madras-II, 112 I.T.R. 715.

Our attention was, ho.wever, drawn to a decision of the Calcutta
High Court in the case of Joshi and Co. v. Commissioner of Income-
B tax, (supra). The court held in that case that on the construction of the
relevant sections and the rules framed under the Act of 1961, it
appears that under the Income-tax Act, 1961, all that an assesee-firm
was required to submit is an instrument of partnership as documentary
evidence of partnership. It was not stated in the Act that evidence
must be contemporaneous nor was it laid down that the instrument of
partnership must be executed within the accounting year. On the other
C hand, it had been left open to the Income-tax Officer to accept an -~
application after the end of the accounting year and a duty was cast on
the assessee to submit to the Income-tax Officer all subsequent instru-
ments, if any, which may be in existence, right upto the date of the
application showing the changes in the constitution of the firm. Under
D rule 23, all changes in the constitution even after the date of the
application, are required to be intimated to the Income-tax Officer.
The duty cast on the Income-tax Officer under the Act of 1961 is to
ascertain the genuineness of the firm and its constitution as specified in
the instrument. The Income-tax Officer may entertain an application
made even after the end of the accounting year if he is satisfied that the
E firm was prevented by sufficient cause from making the application
before the end of such period. In commercial practice, the terms of a
partnership constituted initially under an oral agreement are often
subsequently recorded in writing in an instrument. It was held that this
was not prohibited in law. The instrument showed that the partnership
had come into existence from the date other than that of the execution
F of the instrument and also the terms and conditions on which the
partnership had been and was being carried on. The Indian Income-tax
Act, 1922, required the Income-tax Officer to certify the register the
deed itself and the registration of the firm would follow. That is not so
under the Income-tax Act of 1961. The High Court referred to the
proviso to section 187(2) and observed that it could not be interpreted
G to mean that in every case where one of the partners died, the firm was
and must be held to be dissolved for the purpose of registration under
the Incoine-tax Act. The language of the proviso was clear and it
stated that nothing in clause (a) of section 187(2) of the Act should
apply to a case where a firm was dissolved on the death of any of its
partners. In the facts of this case before the High Court, it was held by
H the High Court that the assessee firm was not dissolved on the death of
WAZID ALI v. COMMR. OF INCOME TAX LUCKNOW !MUKHARJI, J.] 939

B, one of its partners. Under the terms of the deed, one of the heirs of A
the deceased partner was inducted as a partner in the firm in respect
and to the extent of the share and interest of the deceased partner.
Hence, there had been a change in the constitution of the firm. It was
held that the assessee was entitled to registration for the assessment
year 1976-77 on the strength of its application made in Forms Nos. II
and IIA and on the strength of the new deed of partnership executed B
after the end of the accounting year. We are in agreement with the
views expressed in the said decision. It may, however, be mentioned
that so far as the High Court had held that the assessee firm was not
dissolved from the death of one of the partners in view of the terms of
the partnership deed, but there is a change in the constitution of the
/~' firm, the High Court was right. Whether the assessee was entitled to
registration in the facts of that case on the strength of its application in C
Forms Nos. II and IIA would, however, require closer examination
when the facts of that case are re-examined.

In the aforesaid view of the matter, we are of the opinion as
indicated earlier the High Court of Allahabad in Civil Appeal D
No. 1792 of 1974 was in error in the view it took . .The appeal must be
allowed and the judgment and order of the High Court must be set
aside. The view of the Tribunal must be upheld.

So far as Civil Appeal No. 609 is concerned the question is
whether in the facts and circumstances of the case, there was any E

- dissolution of the partnership on the date of death of Shri Sarabhai
Chimanlal and there should be two seprarate assessments till the death
or whether in the facts and circumstances of the case 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 dissol- F
ved and the transacti!JnS were carried on with the remaining parties in
the course of the winding up and for realisation 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 in the facts and circumstances of that case and after the dissolution
the firm ceased to exist there should be two separate assessments. G
The High Court was right in answering the question as it dicj. It ap-
pears to us that the High Court was also right in answering the record
question in view of the fact that there was a death and as such dissolu-
tion 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. H
940 SUPREME COURT REPORTS [ !988) I S.C.R.

A In the view we have taken of the matter, in this appeal, the Civil
Appeal No. 609 (NT) of 1975, must fail and is accordingly dismissed.

In the facts and circumstances of the case the parties in both the
appeals will bear their own costs.
B
S.L. C.A. No. 1792/74 is allowed and
C.A. No. 609(NT}/75 is dismissed.

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