THE COMMISSIONER OF INCOME TAX CENTRAL-I, BOMBAY vs. MESSRS EMPIRE ESTATE, BOMBAY

TAX REFERENCE CASE No. 13/1983Supreme Court[1996] 1 S.C.R. 100429 January 1996Bench: 3 JudgesAuthor: J.S. VERMA, S.P. BHARUCHA, SUJATA V. MANOHAR THE COMMISSIONER OF7 pages
AI SummaryAllowed

What were the facts?

The assessee, a partnership firm, had three partners. One partner died on January 12, 1974. The partnership deed did not contain a provision for the continuance of the partnership upon the death of a partner, leading to its dissolution. The surviving partners executed a fresh partnership deed effective January 13, 1974, acknowledging the dissolution of the earlier partnership. The assessee filed two returns for the relevant previous year: one for June 1, 1973, to January 12, 1974, and another for January 13, 1974, to June 30, 1974. The assessee contended this was a case of succession under Section 188, not reconstitution under Section 187. The Income Tax Officer rejected this, and the Commissioner (Appeals) upheld the decision. The Income Tax Appellate Tribunal, noting High Court conflicts, referred the matter to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held in the affirmative, in favour of the assessee, dismissing the appeal. The Court reasoned that since the partnership deed did not provide for the continuance of the partnership upon the death of a partner, the partnership stood dissolved on January 12, 1974, by operation of Section 42 of the Partnership Act. This dissolution meant it was not a case of a change in the constitution of the firm under Section 187. Consequently, Section 187 was not attracted. When surviving partners continue the business under a fresh partnership deed after dissolution, Section 188, dealing with succession, is attracted, necessitating separate assessments for the predecessor and successor firms. The Court relied on its earlier decision in Wazid Ali Abid Ali v. CIT, Lucknow, and distinguished the cases cited by the revenue where partnership deeds explicitly provided for continuance upon a partner's death.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that there should be two assessments, one for the period from 1.6.1973 to 12.1.1974 and the other for the period from 13.1.1974 to 30.6.1974, as the assessee's case did not fall within the provisions of Section 187(2) of the Income Tax Act, 1961. Assessee's contention: The death of a partner dissolved the partnership, making it a case of succession under Section 188, thus requiring separate assessments for the periods before and after dissolution. Revenue's contention: The death of a partner, with surviving partners continuing the business, constituted a change in the constitution of the firm under Section 187(2), requiring a single assessment for the entire year. The revenue relied on the Allahabad High Court judgments in CIT v. Basant Behari Gopal Behari & Co. and CIT v. Indralok Picture Palace.

Which sections of the Income-tax Act were involved?

Section 187(2),Section 188,Section 42,Section 170,Section 143,Section 144,Section 257

AI-generated summary — verify with the full judgment below

A THE COMMISSIONER OF INCOME TAX CENTRAL-I, BOMBAY v. MESSRS EMPIRE ESTATE, BOMBAY JANUARY 29, 1996 B [J.S. VERMA, S.P. BHARUCHA AND SUJATA V. MANOHAR, JJ.] Income Tax Act, 1961-Sections 187(2) and 188-Assessments- Partnership firm-Partnership deed did not provide that death of a partner ' would not dissolve the partnershi~Death of a partner-Dissolution of C partnershi~W/ien surviving partners continue business under fresh partner- D ship deed-Section 188 attracted-Section 187(2) held not applicable.

The asses see, a partnership firm had three partners. One of partners died on 12.1.1974 and there being no provision in the deed of partnership contemplating the continuance of the partnership in the event of the death ~fa partner, the partnership stood dissolved. No deed of dissolution was ei~cuted but the surviving partners executed a fresh deed of partnership • for carrying on the business on and from 13.1.1974 where it was mentioned that the earlier partnership had stood dissolved on 12.1.1974. The assessee filed two returns of income for the relevant previous year, one for the E period 1.6.1973 to 12.1.1974 and the other for the period 13.1.1974 to 30.6.1974

The order continues below.

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