Law:

Section:

Section 187, read with section 188, of the Income-tax Act, 1961 - Firm - Registration - Change in constitution of - Partnership deed of assessee provided that the firm shall not be dissolved by death, retirement or insolvency of any of its partners; and on death of any partner the surviving partners will include the heir or legal representative of deceased partner as a partner - Whether, in view of this provision to the contrary, firm would not stand dissolved on death of partner in terms of section 42(c) of Indian Partnership Act, 1932 and firm's reconstitution by taking legal heirs of deceased partner would be a case of change in constitution governed by section 187(2) and not a case of succession governed by section 188 - Held, yes FACTS The assessee-firm had six partners. The partnership deed provided that the firm shall not be dissolved by death, retirement or insolvency of a partner and that on the death of a partner Ms legal heir or representative was to be inducted as partner in his place. On the death of two of the partners, their legal heirs were taken in as partners and a new partnership deed was drawn. The assessee asked for two assessments for the relevant assessment year 1974-75. The ITO rejected the assessee's claim holding that there was only a reconstitution and no dissolution of the firm and, therefore, only one assessment was necessary. The AAC confirmed the ITO's order. The Tribunal, however, upheld the assessee's claim for two assessments. On reference: HELD The partnership deed specifically provided for non-dissolution of firm on death, retirement or insolvency of partner and provided for continuation of firm by the surviving partners together with heirs of the deceased partner. At the time of death of the partners it was this term which governed the partnership deed. Section 42(c) which lays down the general principle of dissolution of a firm on the death of a partner is subject to a contract to the contrary in the partnership deed. Therefore, in this case, because of the specific term the general principle of dissolution was not attracted. Moreover, the new deed mentioned that it was a reconstitution of the firm. Thus, the Tribunal's…

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