JUDGMENT
1. The Income-tax Appellate Tribunal, New Delhi, has referred the following questions of law under Section 256(1) of the Income-tax Act, 1961, (hereinafter referred to as "the Act"), for the opinion of this court:
1. Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the unpaid liability towards payment to employees' provident fund, family pension, employees' State insurance and employees deposit linked insurance was not covered by the provisions of Section 43B of the Act?
2. Whether, on the facts and circumstances of the case, the Tribunal was legally justified in confirming the Commissioner of Income-tax (Appeals)'s finding that the proviso to Section 187(2) of the Act was applicable and there was a dissolution of the firm on the death of one of its partners on June 23, 1985, in spite of the fact that clause 10 of the partnership deed dated April 27, 1985, specifically provided that in the event of the death of any partner the firm would not be dissolved?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in coming to the conclusion that the partners of the firm decided to dissolve the firm on June 23, 1985?
2. The reference relates to the assessment years 1986-87 and 1987-88.
3. Briefly stated the facts giving rise to the present reference are as follows:
4. The Income-tax Officer by applying the provisions of Section 43B of the Act added to the returned income the unpaid liabilities on account of employees' provident fund, family pension fund, employees' State insurance and employees' deposit linked insurance amounting to Rs. 558 in the assessment year 1986-87 and Rs. 2,851 in the assessment year 1987-88. The aforesaid action on the part of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). On further appeal by the assessee, the Tribunal opined that the provisions of Section 43B were not applicable in respect of the aforesaid items. The assessee-firm had filed two returns, one for the period from April 1, 1985, to June 23, 1985, and the other for the period from June 24, 1985, to December 31, 1985, for the reason that one of its partners had died on June 23, 1985, whereupon the assessee-firm had stood dissolved. The Assessing Officer treated the case as that of succession particularly for the reason that condition No. 10 in the partnership deed required continuation of the business of the assessee without dissolving the partnership even in the case of death of a partner. The Commissioner of Income-tax (Appeals), however, took the view that it was a case of dissolution of the old partnership on the death of the partner on June 23,1985, as per the proviso to Section 187(2) of the Act and, therefore, he directed the Assessing Officer to frame two assessments for each of the accounting periods, referred to above. Being aggrieved with the order passed by the Commissioner of Income-tax (Appeals), the Revenue came up in appeal before the Tribunal and before whom it was submitted that in view of the specific condition of the old partnership deed, the partnership could not be deemed to have been dissolved on the death of the partner on June 23, 1985, and the business of the assessee-firm should be deemed to have been continued by surviving partners and, therefore, there should be only one assessment in the case. The Tribunal, however, rejected the aforesaid argument by taking specific note of the proviso to Section 187(2) of the Act which laid down that the death of a partner resulted in the dissolution of the firm. Note was also taken of the fact that the aforesaid provision was inserted with retrospective effect from April 1, 1976. In the ultimate analysis, the Tribunal came to the conclusion that the firm stood dissolved on the death of one of its partners notwithstanding that there was a clause to the contrary in the partnership deed.
5. We have heard Sri Shambhu Chopra, learned standing counsel appearing for the Revenue, and perused the impugned order of the Tribunal.
6. We find that under Section 43B of the Act during the relevant assessment year there is no prohibition for disallowance of deduction in respect of any sum paid by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees and, therefore, the Tribunal was justified in holding that the unpaid liabilities for payment of employees' provident fund, family pension, employees' State insurance and employees' deposit linked insurance could not have been disallowed.
7. We, accordingly, answer the first question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.
8. So far as the remaining two questions are concerned, it is not in dispute that Clause 10 of the partnership deed dated April 27, 1985, specifically contains a clause that in the event of death of a partner the firm would not be dissolved. Thus, even on the death of one of the partners on June 23, 1985, the legal effect of the partnership firm would be that it should be deemed to have been continued by the surviving partners and did not stand dissolved. It would be a case of Section 187 and not Section 188 of the Act. We are fortified in our view by the decision of the apex court in the case of CIT v. Empire Estate [1996] 218 ITR 355, wherein the apex court had held that if there is no such provision in the partnership deed for continuance of partnership in the event of death of a partner in that event when surviving partners continue the business in partnership Section 188 is attracted for there is a succession of one by another partnership.
9. We, accordingly, answer the remaining questions referred to us in the negative, i.e., in favour of the Revenue and against the assessee. There will be no order as to costs.