Commissioner of Income-tax Vs. Sagar Mal Shambhoo Nath - Court Judgment

Dilip Gupta, J.

1. The Income Tax Appellate Tribunal, New Delhi has referred the following question of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the '1961 Act') for opinion to this Court:

(i) Whether', on the facts and in the circumstances of the case, the I.T.A. T. was legally correct to direct making of two assessments for the period 8.10.1981 to 31.7.1982 and 1.8.1982 to 26.8.1982 separately?

2. The reference relates to the assessment year 1983-84. The respondent-assessee is a registered firm by the name of M/s. Sagar Mal Shambhoo Nath, Garh Road, Hapur, (hereinafter referred to as the 'firm'). It was constituted by the deed dated 29.10.1974 and originally had three partners namely Sri Raj Kripal (son of Smt. Brahma Devi), Smt. Brahma Devi (mother) and Sri Sunil Kumar (son of Sri Raj Kripal). It was claimed that the firm was dissolved by the deed dated 31.7.1982 and on 1.8.1982 a new partnership deed was drawn consisting of all the three partners of the earlier deed and one new partner Sri Sanjay Kumar who is also the son of Sri Raj Kripal. The profit sharing ratio of Sri Raj Kripal which was 45 % under the old deed was reduced to 40 % under the new deed while in the case of Smt. Brahma Devi it was 35 % under the old deed but 5 % under the new deed. The profit sharing ratio of Sri Sunil Kumar was 20 % under the old deed but 30 % under the new deed and that of the newly added partner Sri Sanjay Kumar was 25 %. The firm filed two returns of Income Tax. The first was for the period 8.10.1981 to 31.7.1982 and the second was for the period 1.8.1982 to 26.10.1982. The Income-Tax Officer came to the conclusion that there was merely a change in the constitution of the firm and, therefore, by virtue of the provisions of Section 187 of the 1961 Act framed one assessment for the aforesaid two periods. This part of the order of the Income-Tax Officer was sustained by the Commissioner of Income Tax (Appeals) Meerut. The assessee then preferred an appeal before the Income Tax Appellate Tribunal, New Delhi. The Appellate Tribunal noticed that the firm, as originally constituted, was dissolved by the deed dated 31.7.1982 but the new firm did not take the entire business and the partners were also not the same in both the deeds, apart from the fact that the profit sharing ratio was also varied. It, accordingly, held that there was no justification for making one assessment and directed that two assessments for the period 8.10.1981 to 31.7.1982 and 1.8.1982 to 26.10.1982 should be made separately.

3. We have heard Sri R.K. Upadhayay learned Counsel for the Revenue and Sri V.B. Upadhayay learned Senior Counsel assisted by Sri Ashish Agarwal appearing for the assessee.

4. Sri R.K. Upadhayay learned Counsel for the Revenue submitted that the facts of the case clearly demonstrate that at the time of making the assessment there was merely a change in the constitution of the firm and, therefore, the assessment was required to be made on the firm as constituted at the time of making the assessment. According to him, the case was clearly covered by the provisions of Section 187(2)(a) of the 1961 Act as in the new firm there was merely an addition of a partner and in support of his contention he placed reliance upon Division Bench judgments of this Court in the case of Commissioner of Income-Tax v. Hindustan Motors Finance Co. reported in : [2005]276ITR382(All) and Commissioner of Income-Tax v. Ratan Lal Garib Das reported in : [2003]261ITR200(All) .

5. Sri V.B. Upadhayay learned Counsel appearing for the respondent-assessee, however, submitted that the earlier firm constituted by the deed dated 29.10.1974 was dissolved on 31.7.1982 and thereafter a new deed was executed on 1.8.1982 in which one more partner was added and so placing reliance upon the decision of the Supreme Court in the case of Wazid Ali Abid Ali v. Commissioner of Income-Tax, Lucknow reported in : [1988]169ITR761(SC) ; the learned Senior Counsel submitted that Section 187 of the 1961 Act has no application where the firm is dissolved. He further submitted that in the present case, the firm, as earlier constituted, was carrying on the business of 'Aarhat' as well as plying of truck but the new firm did not take the entire business and so the provisions of Section 187 of the 1961 Act have no application to the facts of the present case. Elaborating his argument he submitted that the only truck held by the firm was allotted to one of the partner namely Sri Raj Kripal who carried on the truck business in partnership with another gentlemen and the Department had accepted that such business belonged only to that firm namely Saraswati Carriers which had been constituted by the deed dated 1.8.1982 between Raj Kripal and Smt. Anjali Garg wife of Sri Sunil Kumar (grand son of Sri Raj Kripal).

6. The answer to the reference would depend upon the interpretation of the provisions of Sections 187, 188 and 189 of the 1961 Act and for the sake of convenience the said Sections are reproduced below:

Change in Constitution of a firm.

187.(1) Where at the time of making an assessment under Section 143 or Section 144 it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment.

(2) For the purposes of this section, there is a change in the constitution of the firm.

(a)if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances 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

(b) where all the partners continue with a change in their respective shares or in the shares of some of them:

Provided that nothing contained in Clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners. Succession of one firm by another firm.

188. Where a firm carrying on a business or profession is succeeded by another firm and the case is not one covered by Section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of Section 170.

Firm dissolved or business discontinued.

189 (1) Where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Assessing Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be, to such assessment.

(2) Without prejudice to the generality of the foregoing Sub-section, if the Assessing Officer or the Commissioner (Appeals) in the course of any proceeding under this Act in respect of any such firm as is referred to in that Sub-section is satisfied that the firm was guilty of any of the acts specified in Chapter XXI, he may impose or direct the imposition of a penalty in accordance with the provisions of that Chapter.

(3) Every person who was at the time of such discontinuance or dissolution a partner of the firm and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum.

(4) Where such discontinuance' or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against the person referred to in Sub-section (3) from the stage at which the proceedings stood at the time of such discontinuance or dissolution and all the provisions of this Act shall, so far as may be, apply accordingly.

(5) Nothing in this Section shall affect the provisions of Sub-section (6) of Section 159.

7. Before proceeding to analyse the aforesaid Sections of the 1961 Act, it may be useful to examine the relevant provisions of the Indian Partnership Act, 1932 (hereinafter referred to as the 'Partnership Act'). Section 4 defines 'partnership' as the relation between persons who have agreed to share the profit of the business carried by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm' and the name under which the business is carried on is called the 'firm name'. Chapter V of the Partnership Act, containing Sections 31 to 38 deals with incoming and outgoing partners. Section 31 of the Partnership Act provides that subject to contract between the partners and to the provisions of Section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners. It further provides that subject to the provisions of Section 30, a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner. Section 32 of the Partnership Act deals with retirement of a partner and provides that the partner may retire with the consent of all the partners or in accordance with an express agreement by the partners or where the partnership is at will, by giving notice in writing to all other partners of his intention to retire. Section 33 of the Partnership Act deals with the expulsion of a partner and provides that a partner may not be expelled from a firm by any majority of the partners, save in the exercise in good faith of powers conferred by contract between the partners. Section 37 of the Partnership Act deals with the right of outgoing partner in certain cases to share subsequent profits. Chapter VI of the Partnership Act containing Sections 39 to 55 deals with dissolution of a firm. Section 39,of the Partnership Act provides that dissolution of partnership between all the partners of a firm is called 'dissolution of the firm'. Section 40 of the Partnership Act provides that the firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. Section 41 of the Partnership Act deals with compulsory dissolution. It provides that a firm is dissolved by the adjudication of all the partners or of all the partners but one as insolvent or by the happening of any event which makes it unlawful for the business of the firm to be carried or for the partners to carry it on in partnership. Section 42 of the Partnership Act provides for dissolution of the firm on the happening of certain contingencies while Sections 43 and 44 of the Partnership Act provide for dissolution by notice of partnership at will and dissolution by the Court respectively.

8. We find from a perusal of the aforementioned provisions of the Partnership Act that the 'partnership' has not been invested with the status of a 'person' in law. This is what was observed by the Supreme Court in Dulichand Laxminarayan v. Commissioner of Income Tax reported in : [1956]29ITR535(SC) and the relevant portion of the judgment is quoted below:

Nevertheless, the general concept of partnership, firmly established in both systems of law, still is that a firm is not an entity or 'person' in law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute that firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership.

9. However, inroads were made in this conception by certain Statutes including the Income Tax Act by regarding firms as distinct entities. In this regard we may usefully refer to a passage from the aforesaid decision of the Supreme Court in the case of Rao Bahadur Ravulu Subba Rao v. CIT : [1956]30ITR163(SC) which is as follows:

'But, as pointed out by this Court in Dulichand Laxminarayan v. Commissioner of Income-tax, Nagpur, in loads have been made by statutes into this conception and firms have been regarded as distinct entities for the purpose of those statutes. One of those statutes is the Indian Income-tax Act, which treats the firm as a unit for purposes of taxation. Thus under Section 3 of the Act the charge is imposed on the total income of a firm, the partners as such being out of the picture and accordingly under Section 23 of the Act, the assessment will be on the firm on its total profits.

In Commissioner of Income-tax v. A. W. Figgies & Co. : [1953]24ITR405(SC) the Supreme Court held as follows:

it true that under the law of partnership a firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners but it is also equally true that under that law there is no dissolution of the firm by the mere incoming or outgoing of partners. A ' partner can retire with the consent of the other partners and a person can be introduced in the partnership by the consent of the other partners. The reconstituted firm can carry on its business in the same firry's name till dissolution. The law with respect to retiring partners as enacted in the Partnership Act is to a certain extent a compromise between the strict doctrine of English Common Law which refuses to see anything in the firm but a collective name for individuals carrying on business in partnership and the mercantile usage which recognizes the firm as a distinct person or quasi corporation. But under the Income-tax Act the position is somewhat different, A firm can be charged as a distinct assessable entity as distinct from its partners who can also be assessed individually. Section 3 which is the charging section is in these terms:

Where any Central Act enacts that income-tax shall be charged for any year at any rates...tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority and of 'every firm' and other association of persons or 'the partners of the firm' or the members of the association individually, The partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct 1 unit for purposes of assessment. Sections 26, 48 and 55 of the Act fully bear out this position. These provisions of the Act go to show that the technical view of the nature of a partnership under English law or Indian law, cannot be taken in applying the law of income-tax.

9. Under Section 44 of the Predecessor Indian Income-Tax Act, 1922 (hereinafter referred to as the '1922 Act') it was expressly provided that notwithstanding the discontinuance of the business by the firm or upon its dissolution, liability of a firm for payment of tax would continue to exist. The Supreme Court in the case of C.A Abraham v. Income-Tax Officer reported in : [1961]41ITR425(SC) held that this section set up a machinery for assessing the tax liability of the firms which have discontinued their business and provides for three consequences:

(1) that on the discontinuance of the business of a firm, every person who was, at the time of its discontinuance, a partner, is liable, in respect of the income, profits and gains of the firm, to be assessed jointly and severally;

(2) each partner is liable to pay the amount of tax payable by the firm; and

(3) that the provisions of Chapter IV, so far as may be, apply to such assessment.

10. And while interpreting Section 44 of the 1922 Act it was observed:

In effect, the legislature has enacted by Section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV.

11. Thus, the special provisions made in the 1922 Act governed the field even though they ran contrary to the provisions of Partnership Act.

12. In the case of Commissioner of Income-Tax v. S.V. Angidi Chettiar : [1962]44ITR739(SC) , the Supreme Court held that if a registered firm is exposed to liability of paying penalty, by committing any of the defaults contemplated by Clause (a), (b) or (c) of Section 28, by virtue of Section 44, notwithstanding the dissolution of the firm, the assessment proceedings are liable to be continued against the registered firm, as if it has not been dissolved.

13. The fact that under Section 23(5) of the Income-Tax Act, in the case of a registered firm, tax is not payable by the firm itself does not prevent a penalty being imposed on the firm.

14. In State of Punjab v. Jullundur Vegetables Syndicate reported in : [1966]2SCR457 the Supreme Court observed as follows:

Strong reliance was placed upon two judgments of this Court. This Court in C.A. Abraham v. Income-Tax Officer : [1961]41ITR425(SC) , speaking through Shah J., held that Section 44 of the Income-tax Act set up a machinery for assessing the tax liability of firms which have discontinued their business. This was followed by this Court again in Commissioner of Income-tax v. S.V. Angidi Chettiar : [1962]44ITR739(SC) . These two decisions are no help to the revenue in the present case. Indeed, in a sense they are against it. The Income-tax Act contains an expiress provision for assessing a dissolved firm. Indeed, but for that provision no assessment could be made under that Act on dissolved firms.

15. It was also pointed out in Rao Bahadur (supra) that the provisions of the Income Tax Act must be construed as forming a code complete in itself. The relevant portion of the judgment is quoted below:

The Act is, as stated in the preamble, one to consolidate and amend the law relating to income-tax. The rule of construction to be applied to such a statute is thus stated by Lord Herschell in Bank of England v. Vagliano [1891] AC 107 .

I think the proper course is, in the first instance, to examine the language of the statute and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law and not to start with inquiring how the law previously stood and then, assuming that it was probably intended to leave it unaltered.

We must, therefore, construe the provisions of the Indian Income-tax Act as forming a Code complete in itself and exhaustive of the matters dealt with therein and ascertain what their true scope is.... To sum up the Indian Income-tax Act is a self-contained code exhaustive of the matters dealt with therein and its provisions show an intention to depart from the common rule, qui facit per alium facit per se.

16. It is, therefore, clear from the principle enunciated by the Supreme Court in the aforementioned cases, that when a special provision is made in the Income-Tax Act which is contrary to the provisions of the Partnership Act then effect has to be given to the provisions of the Income-tax Act and resort cannot be taken to the provisions of the Partnership Act.

17. We have, therefore, to examine the provisions of the 1961 Act. Section 2(31) of the 1961 Act defines a 'person' to include an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals whether incorporated or not, a local authority and every artificial juridical person, not falling within any of the aforesaid. Thus, the concept under the Partnership Act of a 'partnership' being an association of individuals and a firm being a collective name of such individuals who constitute the firm has been modified and a firm has been equated with a person having a separate entity. It is, therefore, reasonable to infer that a firm, for the purposes of Income-Tax, has a separate personality and exists independent of the partners who constitute it and is taxable as a unit. Section 170 of the 1961 of the Act provides for assessment in cases of succession to business otherwise then on death. Section 182 provides for assessment of the firms registered under the Act while Section 183 provides for assessment of unregistered firms. The provisions relating to change in the Constitution, succession and dissolution of the firm are contained in Section 187, 188 and 189 which have been quoted above.

18. We shall now examine the relevant provisions of the 1922 Act and the case law and then compare them with the corresponding provisions of the 1961 Act.

19. Sections 26 and 44 of the 1922 Act are quoted below:

26. (1) Where, at the time of making an assessment under Section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment shall be made on the firm as constituted at the time of making the assessment:

Provided that the income, profits and gains of the previous year shall, for the purpose of inclusion in the total incomes of the partners, be apportioned between the partners who in such previous year were entitled to receive the same:

Provided further that when the tax assessed upon a partner cannot be recovered from the firm as constituted at the time of making the assessment, (2) Where a person carrying on any business, profession or vocation has been succeeded in such capacity by another person, such person and such other person shall, subject to the provisions of Sub-section (4) of Section 25, each be assessed in respect of his actual share, if any, of the income, profits and gains of the previous year:

Provided that, when the, person succeeded in the business, profession or vocation cannot be found, the assessment of the profits of the year in which the succession took place up to the date of succession and for the year preceding that year shall be made on the person succeeding him in like manner and to the same amount as it would have been made on the person succeeded or when the tax in respect of the assessment made for either of such years assessed on the person succeeded cannot be recovered from him, shall be payable by and recoverable from the person succeeding and such person shall be entitled to recover from the person succeeded the amount of any tax so paid.44. Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.

20. In the case of Shiv Ram Poddar v. Income Tax Officer reported in [1964] 51 ITR 807 the Supreme Court observed as follows:

Under the ordinary law governing partnerships, modification in the constitution of the firm in the absence of a special agreement to the contrary amounts to dissolution ' of the firm and reconstitution thereof a firm at common law being a group of individuals who have agreed to share the profits of a business carried on by all or any of them for all and supersession of the agreement brings about an end of the relation. But the Income-Tax Act recognises a firm for purposes of assessment as a unit independent of the partners constituting ft; it invests the firm with a personality which survives reconstitution. A firm discontinuing its business may be assessed in the manner provided by Section 25(1) in the year of account in which it discontinues its business; it may also be assessed in the year of assessment. In either case, it is the assessment of the income of the firm. Where the firm is dissolved, but the business is not discontinued, there being change in the constitution of the firm, assessment has to be made under Section 26(1) and if there be succession to the business, assessment has to be made under Section 26(2). The provisions relating to assessment on reconstituted or newly constituted firms and on succession to the business are obligatory. Therefore, even when there is a change in the ownership of the business carried on by a firm on reconstitution or because of a new constitution, assessment must still be made upon the firm. When there is succession, the successor and the person succeeded have to be assessed each in respect of his actual share.

21. The same view was reiterated by the Supreme Court in the case of ' Commissioner of Income Tax v. Kirkend Coal Co. : [1969]74ITR67(SC) and the relevant observations are quoted below;-

Section 44, therefore, only applied to those cases in which there had been discontinuance of the business and not to cases if the business continued after reconstitution of the firm, or there was succession to the business. Cases of reconstitution of the firm or succession to the business of the firm are covered by Section 26(1) and (2).... If there is reconstitution of the firm by virtue of Section 26, the Income-tax Officer will, in imposing the penalty, proceed against the firm. If there is discontinuance of the business, penalty will be imposed against the partners of the firm.

22. Sections 187 and 188 of the 1961 Act, we must hasten to add, are not identical to the provisions of Section 26 of the earlier Income Tax Act, 1922 but they intend to cater to similar situation. Section 187(1) of the 1961 Act provides that where at the time of making, an assessment under Section 143 or 144 it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. Section 187(2) provides that for the purposes of this Section, there is a change in the constitution of the firm- (emphasis supplied)

(a) If one or more of the partners cease to be partners or one or more partners are admitted, in such circumstances 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

(b) Where all the partners continue with a change in their respective shares or in the shares of some of them.

23. However, the proviso to Section 187(2) stipulates that nothing contained in Clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners. There is nothing in Section 187(2) which limits the change to a case where the firm is not dissolved. The changes of the nature contemplated under Section 187(2) can arise without the- firm being dissolved or upon dissolution of the firm. Under the Partnership Act, the phrase 'change in the constitution of the firm' has a different meaning then the one given to 'dissolution', but for the purpose of Section 187. of the 1961 Act the Legislature has given a different meaning and made a departure. Section 187(2) creates a legal fiction and such a change, for whatever reason, must be regarded as a change in the constitution of the firm subject to the proviso that it shall not apply where the firm is dissolved by death of any of its partners. Rule of construction clearly requires that a legal fiction created for a specific purpose must be given effect to. Section 188 provides that where a firrn carrying on business or profession is succeeded by another firm and the case is not covered by Section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of Section 70. Thus Section 188 would apply only to such cases which are not covered by Section 187. If a firm is dissolved and succeeded by another firm which has as its partners one or more partners of the old firm, the case will be covered by Section 187, as it would be merely a change in the constitution of the firm but if a firm is dissolved and is succeeded by another firm and none of the partners of the old firm is a partner in the new firm, the case would be covered by Section 188. Section 189 would cover those cases where a firm discontinues business or is dissolved without being succeeded by another firm.

24. The decision of the Supreme Court in the case ofA.W. Figgies and Co. (supra) is absolutely clear that technical view of the nature of a partnership under the Partnership Act cannot be applied to Income Tax Law. Likewise, in the case of Shiv Ram Poddar (supra) the Supreme Court observed that though under the Partnership Act, modification in the constitution of the firm in the absence of an agreement to the contrary amounts to dissolution of the firm, but under the Income Tax Act, where the firm is dissolved, but the business is not discontinued, assessment has to be made under Section 26(1) of the 1922 Act.

25. We are, therefore, of the opinion that when 'change in the constitution of the firm' has been defined in Section 187(2) it has to be construed in that manner alone for the purposes of Section 187 of the 1961 Act.

26. We may, in this context, usefully refer to some decisions of the Supreme Court which hold that where a Statute stipulates that the word or phrase shall mean a particular thing than no other meaning should be assigned.

27. In the case of Feroze N. Dotiwala v. P.M. Wadhwani : (2003)1SCC433 the Supreme Court held as follows:

The language of the definition of the phrase in Explanation 4 to Section 4A is sufficiently clear and unambiguous. This coupled with the use of the word 'means' in the Explanation shows that the definition is exhaustive. As has been observed in Feroze N. Dotiwala v. P.M. Wadhwani : (2003)1SCC433 :

Generally, when the definition of a word begins with 'means ' it is indicative of the fact that the meaning of the word has been restricted; that is to say, it would not mean anything else but what has been indicated in the definition itself....

Therefore, unless there is any vagueness or ambiguity, no occasion will arise to interpret the term in a manner which may add something to the meaning of the word which ordinarily does not so mean by the definition itself, more particularly, where it is a restrictive definition.

28. The Constitution Bench of the Supreme Court in PLD Corporation Ltd. v. Presiding Officer reported in : (1990)IILLJ70SC held that when the statute says that a word or phrase shall mean certain things it is a 'hard and fast definition and no other meaning can be assigned to the expression than is put down. A definition is an explicit statement of the full connotation of a term.'

29. This view was reiterated by the Supreme Court in Commissioner of Trade Tax, U.P. v. Kajaria Ceramics Ltd., reported in AIR 2005 SCW 3450.

30. In fact, Section 187(2) is in the form of an explanation to Section 187(1) of the 1961 Act as it merely seeks to define, for the purposes of this section, the phrase 'change in the constitution of the firm'. The object of an explanation to a statutory provision has been succinctly stated by the Supreme Court in S. Sundaram Pillai etc. v. V.R. Pattabiraman : [1985]2SCR643 as follows:

Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is-

(a) to explain the meaning and intendment of the Act itself

(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,

(c) to provjde an additional support to the dominant object of the Act in order to make it meaningful and purposeful,

(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the court in interpreting the true purport and intendment of the enactment, and

(e) it cannot, however, take away a statutory right,with which any person under a statute has been clothed or set at naught the working of an Act by becoming a hindrance in the interpretation of the same.

31. We will, therefore, not be justified in taking the aid of the provisions of the Partnership Act to construe the meaning of the phrase 'change in the constitution of the firm'. We must, on the other hand, strictly go by the definition given to the said phrase under Section 187(2) of the 1961 Act. Section 187(2) of the 1961 Act, to repeat, begins with 'for the purposes of this Section' and, therefore, we have no manner of doubt that for the purposes of Section 187, the phrase 'change in the constitution of the firm' must mean what has been specifically provided for. Thus, under Section 187 of the 1961 Act, if one or more partners of the old firm continue to be the partners in the new firm, it would be a case of change in the constitution of the firm as defined under Section 187(2)(a) and if it is so construed then the question whether the firm has been dissolved or not has no relevance.

32. The view which we are taking finds support from the proviso to Section 187(2) introduced by the Taxation Laws (Amendment) 1987 w.e.f. Ist April 1975. The proviso stipulates that nothing contained in Section 187(2)(a) shall apply to a case where a firm is dissolved on the death of any of its partners. A firm can be dissolved on account of many factors including the death of any of the partners. The proviso to Section 187(2) clearly stipulates that in case of dissolution on death of any of the partners, there shall not be a change in the constitution of the firm. If the main provision i.e. Section 187(1) did not apply to dissolution of firms then there was no necessity for the Legislature to carve out an exception by taking away such cases of dissolution of firm which arise because of the death of any of the partners. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which, but for the proviso, would be within the purview of the enactment. This position clearly emerges from examining decisions regarding the functions of a proviso.

33. In the case of M. & S.M. Railway Co. Ltd. v. Bezwada Municipality . Lord Macmillan observed thus:

The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case.

34. In Calcutta Tramways Co. Ltd. v. Corporation of Calcutta : [1965]3SCR354 the Supreme Court as follows:

The Second Schedule contains a list of the titles of the various agreements mentioned by us earlier. Under Section 5 of the Act the Government is statutorily substituted for the respondent or its predecessor-in-interest in the various agreements stated supra. The fiction is a well defined one. The Government replaces the Corporation and its predecessors-in-interest as a party to the agreements unless the subject-matter or the context otherwise requires. The natural presumption is that but for the proviso the enacting part of the section would have included the ' subject-matter of the proviso also. The proviso to Section 5 saves from the operation of the substantive section the sums payable under any such agreements to any such bodies mentioned therein: it excludes the operation of the fiction in respect of such sums payable..

A fair construction of the proviso to Section 5 of the Act removes all the anomalies. Further, in the substantive part of Section 5 of the Act the fiction takes effect unless the subject-matter or the context otherwise requires. The proviso in terms as well as by necessary implication brings the subject-matter of the sums payable under the agreements both under the substantive and procedural aspects within the scope of the said exception. The fiction in Section 5 of the Act shall yield to that extent, to the terms of the contract.

35. In Kedarnath Jute . v. Commercial Tax Officer reported in : [1965]3SCR626 , held as follows:

Section 5(2)(a)(ii) of the Act in effect exempts a specified turnover of a dealer from sales tax. The provision prescribing the exemption shall, therefore, be strictly construed. The substantive clause gives the exemption and the proviso qualifies the substantive clause. In effect the proviso says that part of the turnover of the selling dealer covered by the terms of Sub-clause (ii) will be exempted provided a declaration in the form prescribed is furnished.To put it in other words, a dealer cannot get the exemption unless he furnishes the declaration in the prescribed form. It is well settled that ''the effect, of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso within it': see 'Craies on Statute Law', 6' Edn. page 217. If the intention of the legislature was to give exemption if the terms of the substantive part of Sub-clause (ii) alone are complied with, the proviso becomes redundant and otiose. To accept the argument of the learned Counsel for the appellant is to ignore the proviso altogether, for if his contention be correct it will lead to the position that if the declaration form is furnished, well and good; but, if not furnished, other evidence can be produced. That is to rewrite the clause and to omit the proviso. That will defeat the express intention of the Legislature.

36. In Ishverlal Thakorelal Almaula v. Motibhai Nagjibhai reported in : [1966]1SCR367 , it was held that the main object of a proviso is merely to qualify the main enactment.

37. In S. Sundaram Pillai etc. v. V.R. Pattabiraman, (supra) the Supreme Court held as follows:

The well established rule of interpretation of a proviso is that a proviso may have three separate functions. Normally, a proviso is meant to be an exception to something within the main enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. In other words, a proviso cannot be torn apart from the main enactment nor can it be used to nullify or set at naught the real object of the main enactment.

38. The Supreme Court in Laxminarayan R. Bhattad and Ors. v. State of Maharashtra and Anr. reported in : [2003]3SCR409 clearly held that the proviso acted as an exception to the main provision but such an exception must be strictly construed and confined to the intent of the Legislature.

39. In Haryana State Cooperative Land Development Bank Ltd. v. Haryana State Cooperative Land Development Banks, Employees Union and Anr. reported in : (2004)ILLJ583SC the Supreme Court held as follows:

The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As was stated in Mullins v. Treasurer of Surrey (referred to in Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha and Calcutta Tramways Co. Lid. v. Corporation Of Calcutta), when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso. The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as-stating a general rule. 'If the language of the enacting part of the statute does not contain the provisions which are said to occur in it you cannot derive these provisions by implication from a proviso, ' said Lord Watson in West Derby Union v. Metropolitan Life Assurance Co. Normally, a proviso does not travel beyond the provision to which it is a proviso. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other.

40. This view was reiterated by the Supreme Court in the case of Union of India v. Sanjay Kumar Jain reported in : (2004)IIILLJ753SC .

41. The aforesaid decisions clearly lay down that a proviso is added to an enactment to create an exception to what is contained in the main section and so unless the main section included dissolution of the firm, the proviso would not have been introduced. Thus even though the main enactment is absolutely clear in itself, yet the proviso to Section 187(2) of the 1961 Act reinforces the conclusion reached by us. In view of the.aforesaid discussion, the inescapable conclusion is that Section 187(2) of the 1961 Act clearly defines as a 'change in the constitution of the firm' and there is nothing in the Section 187 of the 1961 Act to exclude the cases where the firm is dissolved.

42. The view which we have taken finds support from the recent decisions of this Court in the case of Hindustan Motors Finance Co. (supra) and Ratan Lal Garib Das (supra).

43. In the case of Hindustan Motors Finance Co. (supra) the reference related to the assessment year 1979-80. The firm was dissolved under a deed of dissolution executed on 1st June, 1978 but another partnership was created under a fresh deed of the same date. The assessee filed two returns but the Income Tax Officer made only one assessment treating it to be a case falling under Section 187 of the 1961 Act. The Court after referring to the provisions 'of Sections 187 and 188 of the Act held as follows:

From a reading of the aforesaid provision, it would be seen that if in the newly constituted firm one or more partners continue after the change, it will be considered as a change in the constitution of the firm and where the firm is dissolved on the death of any of its partners and is reconstituted with one or more existing partners, it will not be treated as a change in the constitution of the firm. Further, if a case is covered under Section 187 of the Act, the provisions of Section 188 of the Act dealing with succession of one firm by another firm would not arise..

In the case of CIT v. Ram Jas Rai Askaran Das : [1996]218ITR18(All) this Court has held that where in a partnership firm two of the partners had retired and the firm was reconstituted by the remaining four partners who also admitted some minors to the benefit of the partnership and the partnership was dissolved on March, 31, 1974 and a new partnership came into existence from April, 1, 1974, it was a case of change in the constitution of the firm and not a case of succession and only one assessment has to be made.

From a reading of the provisions of Sections 187 and 188 of the Act, it is absolutely clear that a case which falls under Section 187(2) of the Act, would be treated to be a change in the constitution of the firm and not succession.

We are in respectful agreement with the view in the case of Ram Jas Rai Askaran Das : [1996]218ITR18(All) .

44. The Court, therefore, answered the question in favour of the Revenue and against the assessee.

45. In the case of Ratan Lal Garib Das (supra) this Court held as follows:

The assessee is a firm. The relevant assessment year, in the present case is 1979-80. There were 19 partners in the said firm and one of them Sri Sunder Lal retired. Under the partnership deed the partnership would stand dissolved on the death or retirement of a partner. Hence, the assessee filed two returns, one for the period April I, 1978, to July, 29, 1978 and the other for the period September 21, 1978, to March 31, 1979, alleging that there was dissolution of the firm and hence there should be two assessments in that assessment year. However, the Income-tax Officer, made one assessment, but the Commissioner of Income-tax (Appeals) accepted the plea of the assessee. The Department went in further appeal to the Tribunal. But the Tribunal rejected the appeal following the decision of the Full Bench in Badri Narain Kashi Prasad v. Addl. CIT : [1978]115ITR858(All) .

A perusal of Section 187(2)(a) of the Income-tax Act shows that by legal fiction for the purposes of the Income-tax Act, if even one of the partners continues to remain in the firm then the firm will not be deemed to be dissolved. Hence, even if the partnership deed says that the firm will stand dissolved on the retirement of a partner, for the purposes of the Income-tax Act, it will not be deemed to be dissolved in view of Section 187(2)(a) of the Act.

(Emphasis Supplied)

46. Sri V.B. Upadhayay learned Senior Counsel for the assessee, however, placed strong reliance upon the decision of the Supreme Court in the case of Wazid Ali Abid Ali (supra). In the said case 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 and, therefore, the assessee was not entitled to the continued benefit of registration under Section 184(7) of the 1961 Act. He was of the view that as the firm had failed to file a fresh application for registration it shall be deprived of the benefit of the registration. The Appellate Assistant Commissioner dismissed the appeal holding 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 assessee preferred a further appeal to the Tribunal and urged that the change which had occurred on account of the death of a partner Qamurruddin did not require execution of a new deed of partnership and nor a fresh application for registration. Alternatively, it was contended that the assessee was entitled to the continued benefit of registration at least for that part of the previous year during which the partner Qamurruddin remained alive. The Tribunal was of the view that a fresh deed of partnership should have been executed and the application for registration should also have been filed. However, the Tribunal accepted the alternative contention and observed that the conditions laid down in Section 184(7) of the Act had been satisfied and that the assessee would be entitled to the benefit of registration for part of the previous year. The High Court took the view that the Tribunal was right in holding that the inclusion of Fariduddin as partner upon the death of Qamurruddin resulted in a change in the constitution of the firm and it could no longer be given the continued benefit of the registration on the basis of the original partnership deed. The High Court was of the opinion that by reason of the proviso to Section 184(7) the registration granted in a preceding year could not continue to have effect for the assessment year under consideration and that it was necessary for the assessee by reason of Section 184(8) to apply for fresh registration for the assessment year concerned in accordance with the provisions of Section 184. The real question before the Supreme Court was as to what happens when there is a death of a partner within a previous year in case of a registered firm. The Supreme Court held that the High Court was in error in the view it took and the Tribunal was right. It is, therefore, clear that the decision is in the context of the provisions of Section 184 of the 1961 Act. In the instant case we are concerned with the provisions of Section 187 of the Act and as seen above, for the purposes of this Section, the 'change in the constitution of the firm' has been defined. This apart, the effect of the introduction of the proviso to Section 187(2) of the 1961 Act was not under consideration in this case as it was introduced by the Taxation Laws (Amendment) 1984 w.e.f. 1.4.1975 since the assessment related to the year 1965-66. It may further be pointed out that while interpreting Section 187(2) of the 1961 Act, this Court in the cases of Commissioner of Income Tax v. Basant Bihari, Gopal Bihari and Co. reported in : [1988]172ITR662(All) ; Commissioner of Income Tax v. Indra Lok Picture Palace reported in : [1991]188ITR730(All) distinguished the aforesaid decision of Wazid Ali Abid Ali (supra).

47. Sri V.B. Upadhyay learned Senior counsel for the assessee also placed reliance upon the decision of the Gujarat High Court in the case of Commissioner of Income Tax v. Amritlal Nihalchand reported in : [1992]196ITR346(SC) in which the assessment year in question was 1969-70. The case set up by the assessee was that the old firm was dissolved and the business was taken over by another firm of the same name. The firm filed two returns but the Income Tax Officer was of the view that this was merely a change in the constitution of the firm and made a single assessment. The Appellate Commissioner accepted the contention'of the assessee regarding the dissolution of the old firm and held that the Income Tax Officer erred in clubbing the income. The Income Tax Appellate Tribunal, however, set aside the order of the Assistant Commissioner holding that it was merely a change in the onstitution of the firm as defined under Section 187 of the 1961 Act. The Gujarat High Court held that when a firm is dissolved, the old relationship comes to an end and a new relationship comes into existence and if the succeeding partnership firm continues the old business, then there is succession of one firm by another as contemplated by Section 188. It accordingly, held as follows:

It is true, as has been pointed out before us, that Section 188 mentions that it would apply when the case is not one covered by Section 187 but once it is found that no departure from the provisions of the Indian Partnership Act is contemplated by Section 187 of the Income-tax Act, 1961, it must follow that the instant case would not fall under Section 187 and, therefore, this being a case of succession of the old firm by the new firm, the case would be governed by Section 188.

48. With utmost respect to the learned Judges, we are unable to persuade ourselves to subscribe to this view. We have dealt with this issue and given reasons why such a view is not in consonance with the provisions of the 1961 Act. We are, therefore, unable to accept the contentions advanced by Sri V.B. Upadhayay appearing on behalf of the assessee.

49. Sri V.B. Upadhayay then submitted that in any view of the matter, since the new firm did not continue with the entire business of the earlier firm, the provisions of Section 187 had no application. From the records we find that the earlier firm was carrying on the business of 'Aarhat' and plying of a truck. The new firm indulged in the business of 'Aarhat' only as the only truck, held by the firm was allotted to one of the partner Sri Raj Kripal, who with the wife of his grandson, started the business in partnership of plying of the truck. Thus, if upon dissolution of the earlier firm, some business was given to one of the partner, but the firm carried on with the remaining business, it cannot be contended that a change in the constitution of the firm had not taken place and it was a case of succession of one firm by another so as to be governed by the provisions of Section 188 of the 1961 Act. We are, therefore, unable to accept this contention of the learned Senior Counsel appearing for the assessee.

50. In view of the foregoing discussion, we answer the question of law in the negative in favour of the Revenue and against the assessee. There shall be no order as to costs.