JUDGMENT
S.P. Bharucha, J.
1. The reference is made at the instance of the Revenue. There is no proof of service of the reference on the assessee. However, in response to an intimation given by the office of this court, the assessee has stated that it would be unable to remain present at the hearing and has requested that the reference be decided on merits.
2. The questions that are posed read thus :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that section 187(1) of the Income-tax Act, 1961, is not attracted in the matter of assessing the assessee-partnership ?
2. Whether the Tribunal misinterpreted the effect of the partnership deed and erred in law in coming to the conclusion that the retirement of Shri G. V. Bhatia from the firm on January 31, 1971, amounted to a dissolution of the partnership ?
3. Whether the Tribunal erred in law in not holding that a change had occurred in the constitution of the firm on account of the retirement of Shri Bhatia and the continuance of the other partners of the assessee firm, Ajantha Lodge ?”
3. The relevant assessment year is 1971-72, the previous year whereof ended on March 31, 1971.
4. The assessee was a registered partnership with four partners. The terms and conditions of the partnership were governed by a deed dated January 7, 1971. Clause 4 of the deed read thus :
“Shri Vijaykumar, the party of the first part, shall have the exclusive right to terminate the partnership as against any one or all of the rest of the partners without assigning any reason for the same. In case of any such action taken by the party of the first part, the outgoing party or parties shall have no claim whatsoever over the assets and the goodwill of the firm except to the extent of the credit balance that may stand to the credit of such outgoing party or parties.”
5. On the strength of this clause, Vijaykumar terminated the partnership on December 31, 1970. The Registrar of Firms was informed that the old firm had become defunct and that a new firm had been formed. It consisted of Vijaykumar and two of his original three partners. The books of account of the old firm were closed on December 31, 1970, and new books of account were started from January 1, 1971. The Income-tax Officer accepted the submission on behalf of the assessee that the old firm had been dissolved and made separate assessments for the two broken periods ended December 31, 1970, and March 31, 1971. The Additional Commissioner of Income-tax overturned the Income-tax Officer’s order in exercise of his jurisdiction under section 263 and directed that a single assessment be made on the income earned during the previous year ended March 31, 1971. He did so on the basis that one partner had retired from the firm and that there was merely a change in its constitution. In appeal, the Income-tax Appellate Tribunal found that the firm had stood dissolved consequent upon the invocation by Vijaykumar of the power vested in him by clause 4 of the deed. It allowed the appeal.
6. It was the submission of Dr. Balasubramanian, learned counsel for the Revenue before us, that the firm which had four partners had continued with three partners and that, therefore, there was a continuation of the old firm to which the provisions of section 187 were attracted.
7. Upon the facts found it would appear that there was a dissolution. The Registrar of Firms was so informed. The old books of account were closed and new books were started. The Tribunal was, therefore, justified in concluding that the new firm had succeeded the old firm and that, by virtue of the provisions of section 188, separate assessments for the broken periods had to be made.
8. The questions are, accordingly, answered in the negative and in favour of the assessee.
9. No order as to costs.
