JUDGMENT
BIMAL CHANDRA BASAK J. – This appeal arises out of a judgment and order passed by Mr. Justice Sabyasachi Mukharji on the 23rd of December, 1971 [Sandersons & Morgans v. Income-tax Officer [1973] 87 ITR 270 (Cal)] in an application under article 226 of the Constitution of India. By the said judgment and order the writ petition was dismissed and the rule discharged.
The facts of this case have been set out in detail in the judgment appealed from and it is not necessary to set out all these facts herein. For the purpose of our decision herein it would be sufficient to set out only some of the material facts of this case.
The appellant before us is a firm of solicitors. This is a partnership firm registered under the Indian Partnership Act. This firm has been continuously carrying on profession as solicitors for a number of years. Usually, from time to time, a partnership agreement was executed by and between these partners. We are concerned with the accounting year/previous year 1963, and assessment year 1964-65. In respect of this period there was an agreement of partnership in writing between seven persons which was executed on 17th day of July, 1961. As most of the arguments centred around some of the clauses of this agreement, we set out hereinbelow some of the relevant clauses :
Clause 3 :
“The partnership commenced on the first day of January one thousand nine hundred and sixty-one and shall continue for a period of three years subject to the provisions hereinafter contained provided that if the business shall continue to be carried on after the expiration of the said period without any break, either by the parties hereto or by some one or more of them, the partnership shall not be deemed to have been dissolved at the expiration of the said period.”
Clause 4 :
“The death or retirement of any partner shall not dissolve the partnership as to the other partners.”
Clause 8 :
“On the retirement or death of a partner the amount at credit of such account on the thirty-first day of December preceding the date of his retirement or death (if he retires or dies on or before the thirtieth day of June in any year) or on the thirty-first day of December of the year of his retirement or death (if he retires or dies after the thirtieth day of June in any year) shall be taken into account as hereinafter provided in ascertaining the value of his interest in the firm.”
The firm was duly registered under the provisions of section 184 of the Income-tax Act, 1961 (hereinafter referred to as the “said Act”) so far as the accounting year 1961 is concerned on the basis of the said partnership agreement in writing. By virtue of the provisions of section 184(7) of the said Act, this registration continued for 1962, and the firm was assessed in respect of this year also accordingly. In the year 1963, one of the partners, namely, Mr. Heramba Nath Bhattacharjee, died on the 7th day of December, 1963. In respect of the accounting year 1963, during the assessment proceedings, on behalf of the petitioner-firm it was contended that in view of the provisions of section 184(7) of the said Act this firm was entitled to be assessed as a registered firm within the meaning of the said Act. This contention was rejected by the Income-tax Officer on the ground that by the death of Sri Bhattacharjee on the 7th December, 1963, there has been a change in the constitution of the firm and accordingly the registration could not be continued in respect of this year in view of the proviso to section 184(7) of the said Act. Accordingly, the assessment in respect of the said year was made on the basis that the firm was not a registered firm within the meaning of the said Act. There were certain other proceedings thereafter, which need not be referred to. Being aggrieved by this decision of the income-tax authorities this writ petition was filed. Two contentions were raised before his Lordship on behalf of the petitioner-firm which was rejected by his Lordship. The very some contentions were raised before us by Mr. Das on behalf of the appellant. Mr. Das, firstly, submitted that in view of section 184(7) of the said Act this firm was entitled to be assessed as a registered firm in respect of the year 1963 also irrespective of the death of Mr. Bhattacharjee on 7th day of December, 1963. With regard to proviso (i) of section 184(7) of the said Act he submitted that having regard to the relevant partnership agreement and the provisions made thereunder, it could not be said that there was any change in the constitution of the firm merely because of the death of Mr. Bhattacharjee. The main contention of Mr. Das was that upon the death of Mr. Bhattacharjee, in that particular year nobody was brought in as a new partner in the place and stead of Mr. Bhattacharjee. Further, he submitted that it was provided in the partnership deed itself that in the case of a partner dying after 1st of July of a particular year the accounting was to be made on the basis of the accounts for the period up to 31st of December of that particular year. In this context Mr. Das referred to clause 8 which we have quoted hereinabove. According to Mr. Das, in ascertaining the value of Mr. Bhattacharjees interest in the firm the accounts for the period up to 31st of December, 1963, have got to be taken into account. Under clause 4 of the agreement the death of Mr. Bhattacharjee did not dissolve the said partnership firm. No other person was brought in the firm upon the death of Sri Bhattacharjee in respect of the year 1963 and, accordingly, there could not be any change in the constitution of the firm.
The second contention of Mr. Das was that the finding of th learned judge that the application of the petitioners before the income-tax authorities was defective and not in proper form could not be sustained.
Before we deal with the contentions of Mr. Das, it is proper to set out the relevant provision of the said Act and the Rules framed thereunder :
Section 184 :
“(1) An application for registration of a firm for the purposes of this Act may be made to the Income-tax Officer on behalf of any firm, if –
(i) the partnership is evidenced by an instrument; and
(ii) the individual shares of the partners are specified in that instrument.
(2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution.
(3) The application shall be made to the Income-tax Officer having jurisdiction to assess the firm, and shall be signed –
(a) by all the partners (not being minors) personally; or
(b) in the case of a dissolved firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased.
Explanation. – In the case of any partner who is absent from India or is a lunatic or an idiot, the application may be singed by any person duly authorised by him in this behalf, or, as the case may be, by a person entitled under law to represent him.
(4) The application shall be made before the end of the previous year for the assessment year in respect of which registration is sought :
Provided that the Income-tax Officer may entertain an application 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.
(5) The application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof :
Provided that if the Income-tax Officer is satisfied that for sufficient reason the original instrument cannot conveniently be produced, he may accept a copy of it certified in writing by all the partners (not being minors), or, where the application is made after the dissolution of the firm, by all the persons referred to in clause (6) of sub-section (3), to be a correct copy or a certified copy of the instrument; and in such cases the application shall be accompanied by a duplicate copy of the original instrument.
(6) The application shall be made in the prescribed form and shall contain the prescribed particulars.
(7) Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year :
Provided that –
(i) 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
(ii) the firm furnishes, along with its return of income for the assessment year concerned, a declaration to that effect, in the prescribed form and verified in the prescribed manner.
(8) Where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section.”
Rule 22(5) of the Income-tax Rules, 1962 :
“The application shall be signed personally by all the partners (not being minors) in the firm as constituted at the date of the application and, in the case of a dissolved firm, personally by all the persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased so, however, that in the case of any partner who is absent from India or is a lunatic or an idiot, the application may be singed by any person duly authorised by him in this behalf, or, as the case may be, by a person entitled under law to represent him.”
Rule 24 of the Income-tax Rules, 1962 :
“24. Declaration for continuation of registrations. – The declaration to be furnished under sub-section (7) of section 184 shall be in Form No. 12 and shall be verified in the manner indicated therein and shall be signed by the person concerned in accordance with sub-rule (5) of rule 22.”
The main question before us is whether there has been any change in the constitution of the firm upon the death of Mr. Bhattacharjee. It is made quite clear by sub-section (7) of section 184 that once a registration is granted to any firm under the said Act, it shall have effect for every subsequent assessment year. There is no question of making any fresh application in each and every year as it was required under the old Act. But this right conferred is subject to the proviso contained in sub-section (7) itself. One of the conditions of such continuation of registration is that there has been no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership. In the case before us we are not concerned with the question of change in the share of the partners but we are concerned with the question of the change in the constitution of the firm. The proviso itself makes it clear that there can be a change in the constitution of the firm even if there is no change in the shares of the partners. In this particular case what could utmost be said is that there has been no change in the share of the partners as evidenced by the instrument of partnership having regard to the fact that the accounting has to be made for the period up to 31st December, 1963, irrespective of the fact that Mr. Bhattacharjee had died on 7th December, 1963. But merely because there has been no change in the share of the partners it does not necessarily follow that there has been no change in the constitution of the firm. In our opinion, if one of the partners dies, there is certainly a change in the constitution or the composition of the firm. If there were 7 partners as evidenced by the partnership agreement and if one of them dies, it cannot certainly be said that the partnership still consists of 7 partners. After his death, Mr. Bhattacharjee ceased to be a partner. There is one partner less in the partnership. Accordingly, there has been a change in the constitution of the firm. It is immaterial that no one was taken as a partner in the place of Mr. Bhattacharjee at the relevant time. It is also not relevant in this connection that the estate of the deceased partner got the benefit of the partnership up to the end of the relevant year.
Mr. Das has relied on two decisions in support of his contention on this point. The first case cited by Mr. Das is the case of Dahi Laxmi Dal Factory v. Income-tax Officer [1976] 103 ITR 517 (All) [FB]. In our opinion, this case is of no assistance to Mr. Das. On the contrary, there are certain observations therein which go against his contention. In this case the effect of sections 31 and 32 of the Partnership Act and the effect of retirement of the partners was considered and after referring to various decisions it was observed that the legal position that emerges is that section 187 of the said Act applies only where a firm is reconstituted in accordance with sections 31 and 32 of the Indian Partnership Act, namely, when a new partner is taken or an existing partner retires with the consent of all the partners or without their consent if the contract of partnership so provides. From this it is clear that in the case of the retirement of a partner there is a change in the constitution of the firm. We see no reason why any different principle should be followed in the case of death of a partner instead of his retirement. If is true that in the present case there has been no dissolution of the firm as a result of the death of Mr. Bhattacharjee in view of a clause in the agreement to that effect. But even if there has been no dissolution, there may be a change in the constitution.
The next case cited by Mr. Das is the case of Giridharilal Seetaram and Bros. v. Commissioner of Income-tax [1949] 17 ITR 282 (Orissa). The question of reconstitution of a firm was not involved in this case. It is to be pointed out that this is a case under the old Act and not under the new Act.
On behalf of the respondents, Mr. Balai Pal relied on two decisions, In re Makerwal Colliery [1942] 10 ITR 422 (Lah) and Ram Narain Laxman Prasad v. Income-tax Officer [1972] 84 ITR 233 (All). There is an observation in Ram Narain Laxman Prasads case [1972] 84 ITR 233, 235 (All), which is set out hereinbelow on which reliance has been placed by Mr. Pal :
“A firm consists of the partners related to each other in contract and the constitution of a firm is determined by the number and identity of the partners. There is a change in the constitution of the firm when there is a change in the number and identity of the partners. Generally, such a change takes place when a person is introduced as a partner into an already existing firm or a partner retires or is expelled or ceases to be a partner on his becoming insolvent or dies, provided that the partners are agreed to the admission of a new partner or the contract of partnership stipulates that the firm will not dissolve on one of the partners ceasing to be so by reason of any of the events mentioned above. A change in the constitution of the firm must be distinguished from the dissolution of the firm. The former assumes that the firm continues in existence, and that there is merely a change in the personnel of the firm. The latter contemplates the end of the contractual relationship between all the partners.”
In the facts and circumstances of this case, we have no hesitation in holding that though there was no dissolution of the firm on the death of Mr. Bhattacharjee and though for the purpose of accounting the relevant period was up to 31st December, 1963, there has been a change in the constitution of the partnership upon the death of Mr. Bhattacharjee on 7th December, 1963. In that view of the matter, proviso (i) to section 184(7) of the said Act was not satisfied and, accordingly, the appellants were not entitled to claim that the registration made in respect of the firm earlier should be continued or should have been treated as existing in respect of the year 1963. They cannot claim to be assessed as registered firm for the year 1963 merely on the basis of the prior registration.
In view of the conclusion we have arrived at on the first submission of Mr. Das, it is not necessary for us to go into the second question, i.e., the question whether the application was defective or not. As we have held that there has been a change in the constitution of the firm, there was no question of filing of any declaration under rule 24 of the said Rules inasmuch as the firm was not entitled to the benefit of section 184(7).
Contentions raised in support of the appeal fail. Accordingly, we dismiss the appeal. There will be no order as to costs.
Upon prayers made on behalf of the appellants, the operation of this order is stayed for three weeks.
A. N. SEN J. – I agree.