Section 189\nof the Income Tax Act deals with the Dissolution of a Partnership Firm in\nIndia. Any partner of the firm has the right to dissolve the firm at any time.\nThe value of the partnership firm at the time of the dissolution shall be\nassessed by an Assessing Officer and the value would be ascertained as if no\nsuch dissolution has been taken place. <\/p>\n\n\n\n
Every partner\nof the firm to be dissolved, including the legal representative of the deceased\npartner, if any, shall be held liable for any outstanding tax or penalty in the\nname of the firm.<\/p>\n\n\n\n
The\ndissolution of a partnership firm can be done in one of the various ways\npresented below:<\/p>\n\n\n\n
This is an\neasiest way of dissolving a partnership. This is done with the mutual consent\nof all the partners by the way of a contract between the partners. Therefore, we\ncan say that a partnership can be established as well as dissolved by the means\nof an agreement.<\/p>\n\n\n\n
The\ndissolution clause of the partnership agreement mentions the procedure of\ndissolution through agreement.<\/p>\n\n\n\n
In case of partnership\nat will, the firm may be dissolved by the way of a notice sent by any of the\npartners of the firm, in written form, addressed to all other partners about\nhis intentions to dissolve the partnership. This notice, of the dissolution,\nonce served cannot be revoked without the approval of all other partners.<\/p>\n\n\n\n
There may be\na bunch of conditions wherein the partnership can be dissolved. They may be\nenumerated as below:<\/p>\n\n\n\n
Sometimes,\ndue to the occurrence of certain events, it becomes impossible to continue with\nthe designated tenure of the partnership firm. This happens in the following\nconditions:<\/p>\n\n\n\n
A partnership firm involves the association of various person at some particular point of time. When different individuals are involved, there could be situations where one or more of the partners may find it difficult to continue with the partnership due to personal or professional reasons. In such cases, the court has the right to dissolve the partnership firm. In the following specified cases, a partnership firm can be dissolved though the court<\/strong>[1]<\/strong><\/a><\/sup> of law:<\/p>\n\n\n\n a. On account of mental instability of one or more of the partners<\/strong><\/p>\n\n\n\n In case on or\nmore partners become mentally instable or mentally incapacitated, it would not\nbe possible for the firm to run its activities in an efficient manner. It would\nbe difficult for the partner to deal with the pressure of the job. Therefore,\nthe best possible option would be to dissolve the firm by the court of the law.\nThe remaining partners shall be open to enter into any new agreement and shall\nform a new partnership firm.<\/p>\n\n\n\n b. On account of a misconduct <\/strong><\/p>\n\n\n\n In case one\nor more of the partners of the firm or whole of the partnership firm engages\nitself in certain kind of misconduct, which is outside the routine task of the\npartnership firm, it may seem feasible in the interest of public at large, to\ndissolve the firm at the earliest. The partnership agreement is the major\ndocument which binds the partners to route their activities for a particular\ncause of action. In case any partner deviates from the activities as mentioned\nin the agreement, then, its accounts towards the misconduct and shall be\nconcluded through the dissolution of the firm.<\/p>\n\n\n\n In case any\none or more partner of the firm transfers his share of the equity in the firm\nin the favour of a third party without the consultation of the other partners\nof the firm, then it may also lead to the dissolution of the partnership.<\/p>\n\n\n\n It shall be\nfurther noted that the dissolution of the partnership is different from the\ndissolution of the firm. In case of partnership dissolution, the relation\nbetween the partners goes through a change, while in case of dissolution of the\nfirm, it means the complete closure of the activities of the firm. This happens\nin case where any partner dies, retires or leaves the firm but the remaining\npartners carry on the activities through a fresh set of agreement in place, it\nwould be called as dissolution of the partnership, not the dissolution of the\nfirm.<\/p>\n\n\n\n Apart from\nthe above, the partnership firm may also be dissolved in the following two cases:<\/p>\n\n\n\n (1)<\/strong> In the process of settling the accounts of the partnership firm after dissolution, the goodwill of the firm shall, in accordance with the contract between the partners, be included in the assets, and it shall either be sold separately or along with rest of the property of the firm.<\/p>\n\n\n\n (2) Rights\nof buyers and sellers of goodwill of the partnership firm-<\/strong>In case the goodwill of the firm is sold after the dissolution, any\npartner of the firm may carry on a business similar to that of the buyer in\naccordance with the agreement between him and the buyer, but shall not-<\/p>\n\n\n\n (a) use the\nfirm name at any place of his business,<\/p>\n\n\n\n (b) represent\nhimself as being the part of the firm whose goodwill is being sold, or<\/p>\n\n\n\n (c) Reach out\nto the customers of partners who were dealing with the firm before its\ndissolution.<\/p>\n\n\n\n (3) Execution of Agreement in restraint of trade\u2014<\/strong>One or more partners can, upon the sale of the goodwill of a firm, make an agreement with the buyer that they will not carry on any similar business to that of the firm within a specified period of time or within specified local limits.<\/p>\n\n\n\nProcedure\nof Sale of goodwill after dissolution of the firm<\/strong><\/h2>\n\n\n\n