COMMISSIONER OF INOCEM TAX vs. M/S. G DALABHAI & COMPANY

ITR/400/1983HC GujaratGJHC24011866198309 December 1996Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE R.BALIA2 pages
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What were the facts?

The assessee, M/s. G Dalabhai & Company, is a partnership firm. For the assessment year 1975-76, one of the partners, Shri Dalabhai Veribhai, died on April 26, 1974. His widow was admitted as a partner from the following day. The assessee contended that a new firm came into existence from April 27, 1974, and therefore, two separate assessments were required: one for the period up to April 26, 1974, and another for the period from April 27, 1974, to March 31, 1975. The Income Tax Officer rejected this claim. However, the Commissioner of Income Tax (Appeals) allowed the assessee's appeal, relying on a High Court decision. The Income Tax Appellate Tribunal confirmed this order. The Commissioner of Income Tax has referred the matter to the High Court.

What did the High Court hold?

The High Court held that the fundamental principle of the Law of Partnership is that, unless there is a contract to the contrary, the death of a partner results in the immediate dissolution of the firm, even though the settlement of accounts may be taken out later. This principle was applied by the High Court in the case of Hargovindas Hathibhai (supra) and subsequently affirmed by the Supreme Court in Wazid Ali Abid Ali vs. CIT, Lucknow (169 ITR 761). Since there was no contract to the contrary found to exist in this case, the High Court answered the referred question in the affirmative, in favour of the assessee and against the Revenue. The reference was disposed of accordingly. The Court also noted with concern the language used by the Income Tax Officer in his assessment order, stating that he did not follow the Gujarat High Court's decision, which was considered unsatisfactory and contrary to the hierarchical system of judicial subordination.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the view taken by the CIT (Appeals) that on the death of Shri Dalabhai Veribhai on 26.4.1974, the old partnership firm was dissolved and consequently two separate assessments were required to be made, first for the period covering up to 26.4.74 and second for the period from 27.4.74 to 31.3.75? (Question of law turning on partnership law and assessment procedures). Assessee's Contention: The assessee argued that the death of a partner leads to the dissolution of the firm, and if a new partner is introduced, a new firm comes into existence, necessitating separate assessments for the periods before and after the change. Revenue's Contention: The Revenue did not dispute the fundamental principle of law regarding the dissolution of a partnership firm upon the death of a partner, as applied by the High Court and confirmed by the Tribunal.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 400 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE R.BALIA. ============================================================

-------------------------------------------------------------- COMMISSIONER OF INOCEM TAX Versus M/S. G DALABHAI & COMPANY -------------------------------------------------------------- Appearance: MR M.J. THAKORE FOR MR MANISH R BHATT for Petitioner MR D.A. MEHTA, MR R.K. PATEL AND MR B.D. KARIA FOR MR KC PATEL for Respondent No. 1

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CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE R.BALIA. Date of decision: 09/12/96

ORAL JUDGEMENT (Per Rajesh Balia,J.)

At the instance of the Commissioner of Income Tax, the Income Tax Appellate Tribunal, Ahmedabad Bench "C" has referred the following questions of law arising out of ITA No.414/Ahd/1982 for assessment year 1975-76. "Whether, on the facts and in the c

The order continues below.

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