1. SALAHUDDIN AHMED, J.----This appeal by special leave is from an order of the then High Court of West Pakistan, Karachi Bench, refusing to interfere with certain orders of the Income-tax authorities.
2. The appellants are a firm carrying on the business of exhibit--ing cinematographic films at Karachi and their accounting year ends on the 31st of March. During the accounting year ending on the 31st of March 1960, the firm consisted of seven partners and for the assessment year 1960-61 it was assessed to income-tax as an unregistered firm showing a loss of Rs. 267,757. On the 27th June 1960, one of the partners, Zulekha Hasham died. It has been claimed, however, that the same business was continued as a partnership business by the remaining six partners, by virtue of a clause in the agreement of partnership which entitled them to do so. On the 21st of July 1960, another partner, Yousuf Mitha, retired from the partnership and on the 22nd of July 1:60, a new partnership deed was executed between the remaining five partners and three new partners, namely ; Haji Umar Razzak and Muhammad. To the benefits of this partnership two minors, namely ; Iqbal and Salim were also admitted. This deed was registered.
3. For the assessm ent year 1961-62 the appellants filed a return showing no income, after having adjusted the unabsorbed depreciation of Rs. 2,67,757 brought forward from the previous assessm ent year. The Income-tax Officer, however, split up the account year 1960-61 into three separate periods : -
(i) from 1-4-60 to 27-6-1960 (the aforesaid Zulekha Hasham died on 27-6-1960)
(ii) from 27-6-60 to 21-7-1960 (the period during which there was no partnership deed) and
(iii) from 22-7-60 to 31-3-1961 (the period covered by the new partnership deed dated 22-7-1960).
4. While making these assessm ents, the Income-tax Officer held that the firm should be treated merely as an association of persons for the period from 27-6-60 to 21-7-1960; that it was not a case of mere change in the constitution of the firm but that of taking over of or succession to a business as an unregistered firm by this associa--tion of persons, and that, therefore, the unabsorbed depreciation of the unregistered firm - brought forward from assessment year 1960-61 could not be set off against the income of this association of persons. He further held that when the partner, Yousuf Mitha, retired and new partners were taken in, it was not a case of mere change in the constitution of the firm but again there was a taking over of or succession to the business of association of persons by the registered firm. These findings were challenged by a revision petition before the Income-tax Commissioner but the latter agreed with the findings of the Income-tax Officer and dismissed the petition. The appellants then moved a petition under Article 98 of the Constitution in the High Court and challenged the legality of the Income-tax authorities in making assess--ment as they did, but the petition was dismissed. The appellant then obtained special leave to appeal from this Court.
5. The dispute is in respect of the Assessment year 1961-62 and relates to the appellants' claim for unadjusted unabsorbed depreciation of the previous year.
6. Mr. Ali Athar, learned Advocate appearing on behalf of the appellants has contended that in accordance with the terms of the contract the partnership continued to function in spite of the death of one of the partners, namely ; Zulekha Hasham. The learned Advocate has pointed out , that the Income-tax Officer in fact took notice of this fact in his order when he said "subject to contract the remaining six partners decided not to dissolve the partnership and agreed to continue the business by the remain--ing partners." It has, therefore, been argued that the Income-- tax authorities were not right in treating this as a .Case of taking over or succession to the old business but that it amounted to continuation of the old business, and therefore, the benefit of depreciation of the previous year had to be given to the firm in the following year.
7. We agree with this contention in so far as it relates to the period from the 27th June 1960, to the 21st of July 1960. Under section 42 of the Partnership Act, 1932 (IX of 1932), "subject to contract between the partners a firm is dissolved :-
(c) by the death of a partner."
8. It is not disputed that the original partnership agreement provided for continuing the partnership on the death of a partner if the surviving partners so decided. That being so, it is evident that the same assessable entity continued to function even after the death of Zulekha Hasham until the 22nd of July 1960, when another partner had retired and three new partners had been taken in and a new partnership deed was executed and registered. The Income-tax Officer having held that the unregistered firm of the first period was entitled to unabsorbed depreciation, this depreciation was available to the firm or the partners during the second period, namely ; from 27-6-1960 to 21-7- 1960.
9. As regards the availability of the unabsorbed depreciation for the period from 27-7-1960 to 31-3- 1961 it depends upon a con--sideration of the question whether the appellants are the same assessable entity as the original unregistered firm. It is, of course, not disputed that if the identity remains the same, the appellants are entitled to get the unabsorbed depreciation of the previous year carried forward to the Assessm ent year 1961-62.
10. Mr. Ali Athar has contended that the aforesaid changes were mere changes in the constitution of the original firm and as such notwithstanding the various changes the firm has remained the same. In support of this contention he has cited before us the following cases :-
(i) Muhammad Zaman Khan v. Jumani Brothers PLD 1961 Kar. 19.
(ii) Commissioner of Income-tax v. Amin Match Works, Dacca PLD 1964 SC 377.
(iii) Commissioner of Income-tax, West Bengal v. A. W. Figgies & Co. And others (1953) 24 I T R 405.
(iv) Commissioner of Income-tax v. Yousuf & Co., (1967) 15 Taxation 4: The last mentioned case affords no assistance as it only says that the mere fact that an unregistered firm is subsequently registered makes no change in its legal entity as the assessee for the purpose of its entitlement to the benefits under section 24 of the Income-tax Act.
11. The case Commissioner of Income-tax v. Amin Match Works, Dacca is also of little help since the questions that were considered and decided were whether the minors could be admitted to the benefit of a partnership firm under the same instrument which constituted the firm, and whether if the minors were so admitted the firm was lawfully registerable under section 26-A, Income --tax Act. Both the questions were answered in the affirmative.
12. The case reported in (1953) 24 I T R 405 related to relief claimed under section 25(4) of the Income- tax Act on the ground that the partnership was succeeded by a private limited Company. On a consideration of the language of section 25(4) of the said Act it was held that the section did not regard a mere change in the personnel of the partners as amounting to succession and that it disregarded such a change. The decision has proceeded to observe thus : "It is 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 . . . 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 . . .
13. The partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purposes of assess--ment . . . . The true question to decide is one of identity of the unit."
14. This case recognises the fact that the position is somewhat different under the Income-tax Act. The facts do not, in our opinion, apply to the facts of the present case.
15. In the case reported in PLD 1961 Kar. 19, the question for consideration was whether under section 69 of the Partnership Act the firm had locus standi to sue. Two new partners had been taken in and the name of the firm also had been changed on 1-4-1956, and intimation of these were given to the Registrar on 8-3-1957. In the meantime, however, the suit was filed on 2-1-1957. It was held that merely because the name of the firm had been changed or some of the members of the firm had left and some new members taken in, it did not necessarily mean that the firm was dissolved and that a new firm was set up. It may be mentioned here that the person who filed the suit, viz. Shabbir Ahmed, was a partner of the firm both before and after the change. It is thus evident that the decision was given in circum--stances different from the present case, and while considering a different question.
16. Mr. S. A. Nusrat, learned Advocate appearing on behalf of the respondents, on the contrary has contended that upon the retirement of one of the original partners, namely Yousuf Mitha, and the taking in of three new partners by a fresh deed of partnership, the personality of the original firm has changed, and consequently the appellants are an entirely different assessable entity. He has argued that whenever the constitution of a firm is changed by the addition of new members as partners, there is a break in the identity of the firm. In support of his con--tentions the learned counsel has cited before us the following cases :-
(i) Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Limited and others PLD 1948 P C 73,
(ii) Gouri Sankar Sherof and others v. Central Hindusthan Bank Limited and others AIR 1959 Cal.
17. 262, and
(iii) Firm of Manghoomal Jethanand v. Firm of Messrs Aratmal Satnam Das AIR 1922 Sind 13.
18. In the first mentioned case the Privy Council has observed as follows :- "It is true that the Indian Partnership Act goes further than the English Partnership Act, 1890, in recognising that a firm may possess a personality distinct from the persons constituting it; the law in India in that respect being more in accordance with the law of Scotland, than with that of England. But the fact that a firm possesses a distinct personality does not involve that the personality continues unchanged so long as the business of the firm continues. The Indian Act, like the English Act, avoids making a firm a corporate body enjoying the right of perpetual succession."
19. This is a clear indication that the personality of the firm is liable to change even though the business of the firm continues.
20. In the second case a Division Bench of the Calcutta High Court has observed that whenever the constitution of a firm changes by the addition of new members as partners, there is a break in the identity of the firm whether or not the name con--tinues to be the same. After a change in the constitution of the firm by the addition of new partners what formerly was the property of the old firm does not continue to be the property of the old firm.
21. In the third case an Additional Judicial Commissioner, Sind, held that a firm newly constituted by the retirement of one partner and joining in of another changed the identity of the firm. It was observed therein that a firm was not a legal entity and that the procedure which allowed a suit to be brought in the name of a firm was merely a convenient way of allowing all the partners in that firm to sue, and that the cause of action vested in all the partners jointly.
22. It is thus evident that the findings of the Income-tax authorities, who clearly had full jurisdiction to decide the matter, received full support from the observations made in the aforesaid three cases.
23. The High Court was, therefore, right in refusing interfere with the impugned findings of the Income- tax authorities in the said petition under Article 98 of the Constitution.
24. We appreciate and agree with the reasons that led to the decisions in the aforesaid three cases.
25. We accordingly hold that the registered firm created on 22-7-1960 is an entirely different assessable entity, and as such not entitled to avail of the unabsorb--ed depreciation of the previous year which accrued to a different person.
26. Having regard to our findings we are not called upon to express any opinion on the contention that even if it was a case of succession to a new business, the stocks taken over by the new business had to be valued after taking into account any deprecia--tion not allowed during the previous year inasmuch as section 10(5)(b) of the Income-tax Act speaks about "Depreciation actually allowed" to an assessee under the Act.
27. This appeal is, accordingly, partly allowed. We direct that so far as the period from 27-6-1960 to 21- 7-1960 is concerned, the original firm of partnership is entitled to the unabsorbed depreciation for the previous year, and such depreciation shall, accordingly, be allowed to the firm. As regards the rest of the claim of the appellants, the appeal is dismissed. There will be no order as to costs.