Law:

Section:

Section 187(2) , read with section 188, of the Income-tax Act, 1961 - Firm - Change in constitution of - Assessment year 1967-68 - While two of three partners of assessee-firm continued, third partner 'R' on his death, was replaced by his son 'L' - Assessee firm filed two returns of income, one up to date of death of 'R' and second for remaining period of relevant assessment year - Whether since two partners remaining same and only one partner was replaced by his son, it constituted only a change in constitution of firm within meaning of section 187(2), and therefore, a single assessment to both periods was justified - Held, yes FACTS 'D', 'S' and 'R' entered into a partnership, vide partnership deed dated 12-8-1954, for carrying on the business of wholesale cloth dealers. 'R' died on 6-6-1966. There was no provision in the partnership deed for the continuance of the partnership in the event of death of any partner and, therefore, it was pleaded by the assessee that, in view of the provisions of section 42(c) of the Indian Partnership Act, the firm stood dissolved on 6-6-1966. On 9-6-1966, a new partnership was formed between 'S' and 'D', partners of the dissolved firm, and 'L', son of the deceased partner, 'R'. Two returns were filed for the relevant assessment year, the first for the period from 18-12-1965, to 8-6-1966, and the second for the period from 9-6-1966, to 31-3-1967. The ITO however clubbed the income of the two firms and passed a single assessment order holding that it was a change in constitution of the firm. On second appeal, the Tribunal upheld the assessment. On reference: HELD The provisions of the Partnership Act can only be referred to if it is found that a particular situation is not covered by the provisions of the Income-tax Act. In the instant case, only one partner, namely, 'R' ceased to be a member of the firm on account of his death and his son 'L' was entered as a new partner in his place. The other two partners, 'S' and 'D' remained the same. Therefore, the two partners remaining the same and there being only a change in one partner, as one partner ceasing to be a partner on account of his death and another partner entering into…

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