Law: Income Tax Act, 1961

Section: 187

Income-tax---Firm---Assessment---Change in constitution of . firm or succession---No provision in partnership deed that firm would not be dissolved on death of a partner---Firm consisting of two partners---Death of a partner---New firm constituted by fresh deed of partnership between sole surviving partner of old firm and widow of deceased partner---Resulted in dissolution of old firm and emergence of new firm---Two assessments to be made, one for period before dissolution of firm and one for period after dissolution of firm---Indian Income Tax Act, 1961, Ss. 187 & 188. A partnership firm was constituted under a deed of partnership, dated May 12, 1967, comprising two partners. One of the partners died on June 27, 1977, and a new firm was constituted by a fresh deed of partnership, dated September 5, 1977, between the sole surviving partner of the old firm and the widow of the deceased partner. For the assessment year 1978-79 two returns were filed in respect of the two firms, one for the period from October 24, 1976 to June 27, 1977, and the other for the period from June, 28, 1977, to November 11, 1977, as according to the assessee two different firms existed during these two periods. The Income-tax Officer rejected the contention of the assessee on the grounds that the firm did not stand dissolved on the death of one of the two partners and the old partnership firm continued to exist, that it was a case of mere change in the constitution of the firm as contemplated under section 187 of the Income Tax Act, 1961, and accordingly passed one assessment order in respect of the income of the entire period. On appeal, the Appellate Assistant Commissioner held that it was a case of dissolution of the old firm and the emergence of a new firm and hence directed the Income-tax Officer to pass two separate assessment orders for each of the two periods. On further appeal, the Tribunal affirmed the order of the Appellate Assistant Commissioner and observed that firm as constituted under the partnership deed, dated May 12, 1967, consisted of two partners and on the death of one of them, the firm stood dissolved in accordance with section 42 of the Partnership Act, 1932,…

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