Case Law Details

Case Name : Arun Khanna Vs The ICAI & ANR (Delhi High Court)
Appeal Number : Writ Petition (c) No. 9698 of 2015
Date of Judgement/Order : 14/10/2015
Related Assessment Year :
Courts : All High Courts (4379) Delhi High Court (1312)
Brief of the Case

Delhi High Court held In the case of Arun Khanna vs. The ICAI & ANR that the notice issued to the ICAI for demerger of the firms was as per the notified rules in this regard. As per these rules it is clear that no concurrence / acceptance from all partners is required and can be effected at the option of 75% or more partners of one of the erstwhile firms. Here, all the partners of one of the two merging firms opted to demerge. Upon such demerger, the other merging firm viz. Arun Khanna & Associates stood revived.

Facts of the Case

The assessee is a practising Chartered Accountant and was working in the name and style of M/s Arun Khanna & Associates. w.e.f. 14th October, 2013, he merged his firm with another firm named M/s Sawhney Verma & Co. having six partners and intimation of the same was given to the ICAI in accordance with Rules of Merger and De-merger of the institiute. A Partnership Deed dated 14th October, 2013 was also executed between the parties that under the said merger, M/s Arun Khanna & Associates ceased to exist and merged with M/s Sawhney Verma & Co. and of which the petitioner besides its six original partners, became partners.

Later on the assessee on 7th July, 2015 and 13th July, 2015 gave notices to all the banks for freezing thereof, owing to the dispute which had arisen between them. The original partners of M/s Sawhney Verma & Co. gave notice dated 20th / 22nd July, 2015 of meeting of all the partners of the firms for resolution of the disputes and it was held that though the original partners of M/s Sawhney Verma & Co. had so admitted the assessee to be a partner till 20th July, 2015 but on 24th July, 2015 gave a notice to the ICAI of de-merger w.e.f. 1st July, 2015 of M/s Arun Khanna Associates from M/s Sawhney Verma & Co. This notice was confirmed by the ICAI vide letter dated 10th August, 2015 by stating that de-merger meets the rules of merger / de-merger and satisfies the criteria laid down by the Council.

Contention of the Assessee

The ld counsel of the assessee submitted that the original partners of respondent no.2 M/s Sawhney Verma & Co., could have given notice of their own de-merger and not of the de-merger of M/s Arun Khanna & Associates which was the sole proprietary of the assessee. Further it was submitted that the petitioner had taken his work under the name of M/s Arun Khanna & Associates to respondent no.2 M/s Sawhney Verma & Co. and his work and clients have been appropriated by respondent no.2 M/s Sawhney Verma & Co.

The ld counsel of the assessee has also contended that respondent no.2 M/s Sawhney Verma & Co. has indulged in forgery by de-merging w.e.f. 1st July, 2015.

.Held by High Court

In the present case, only two firms namely that of which the petitioner was the sole proprietor and M/s Sawhney Verma & Co. of which there were six partners had merged. It is not in dispute that within five years of the said merger, the Rules permitted de-merger in the manner provided therein. All the partners of M/s Sawhney Verma & Co. which was one of the merging firms, within the said period of five years opted to de-merge, resulting in uncoupling of the two merging firms.

It is not in dispute that notice given by the original partners of M/s Sawhney Verma & Co. to the Institute is dated 24th July, 2015. By the said notice, they intimated of the de-merger w.e.f. 1st July, 2015. In the Rule quoted by the petitioner in the paper book, there is nothing prohibiting the same. No case of forgery can thus be said to have been made out. There is nothing to show that the original partners of M/s Sawhney Verma & Co. on 24th July, 2015 were not entitled to notify of the de-merger w.e.f. 1st July, 2015.

The challenge in this writ petition, in so far as to the action of the respondent no.1 Institute of accepting the de-merger, therefore has no merit.

A perusal of the complete Rules “Rules of Network and Merger – Demerger amongst the firms registered with The Institute Of Chartered Accountants Of India” clarifies the position beyond doubt and negates the contentions urged before this Court. As per these rules it is clear that no concurrence / acceptance from the partners is required and can be effected at the option of 75% or more partners of one of the erstwhile firms. Here, all the partners of one of the two merging firms opted to demerge. Upon such demerger, the other merging firm viz. Arun Khanna & Associates stood revived.

Accordingly, appeal of the assessee dismissed.

Download Judgment/Order

More Under Income Tax

Posted Under

Category : Income Tax (28213)
Type : Judiciary (12512)

Leave a Reply

Your email address will not be published. Required fields are marked *