Death of a partner dissolves the firm absent contrary agreement, requiring separate assessments for pre-death and post-death income.

In the absence of an agreement to the contrary, the death of a partner dissolves the firm under section 42(c) of the Partnership Act. Once dissolution occurs, the income for the periods before and after death cannot be clubbed into one assessment unit; separate assessments are required for each period. The Tribunal's view that the pre-death and post-death profits had to be assessed separately was therefore upheld, and the application of section 188 of the Income-tax Act was rejected on these facts.

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Issues: (i) Whether, on the death of a partner, the firm stood dissolved so as to require separate assessments for the periods before and after death; (ii) Whether the income of the two periods could be clubbed and section 188 of the Income-tax Act, 1961 applied.

Issue (i): Whether, on the death of a partner, the firm stood dissolved so as to require separate assessments for the periods before and after death.

Analysis: The partnership deed contained no agreement to the contrary preventing dissolution on the death of a partner. In the absence of such stipulation, section 42(c) of the Partnership Act operated and the firm stood dissolved on the death of the partner. Once dissolution occurred, the assessment had to be split into two distinct periods, namely, the period anterior to death and the period posterior to death.

Conclusion: This issue was answered in favour of the assessee and against the Department.

Issue (ii): Whether the income of the two periods could be clubbed and section 188 of the Income-tax Act, 1961 applied.

Analysis: Since the firm was held to have dissolved on the death of the partner, the income accruing before and after that event could not be treated as a single assessment unit. The Tribunal's view that two separate assessments were necessary followed from the legal consequence of dissolution.

Conclusion: This issue was answered in favour of the assessee and against the Department.

Final Conclusion: The reference was disposed of by upholding the Tribunal's view that the firm dissolved on the death of the partner and that two separate assessments were required for the two periods.

Ratio Decidendi: In the absence of an agreement to the contrary, the death of a partner dissolves the firm, and the income of the pre-death and post-death periods must be assessed separately rather than clubbed together.

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