Partnership death and fresh deed: business treated as succession by a new firm, not reconstitution under tax law.

Where a partnership deed does not exclude dissolution on a partner's death, the firm is treated as dissolved on that event. If the deed describes the business as being at will and the remaining partners execute a fresh partnership deed after the death, the later arrangement constitutes succession by a new firm rather than a mere reconstitution under section 187(2) of the Income-tax Act, 1961. On these facts, the business was held to have passed from the old firm to a newly constituted firm, not to have continued with only a change in constitution.

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Issues: Whether, on the death of a partner and execution of a fresh partnership deed by the remaining partners, the business was to be treated as succession of one firm by another or merely a reconstitution of the firm within the meaning of section 187(2) of the Income-tax Act, 1961.

Analysis: In the absence of a partnership clause providing that death would not dissolve the firm, the death of a partner brought about dissolution. The deed described the business as being "at will", and a fresh partnership deed was executed after the partner's death by the remaining partners. On these facts, the arrangement was not a mere change in constitution but the coming into existence of a new firm succeeding the old one.

Conclusion: The reference was answered in favour of the assessee and against the Revenue; the case was one of succession and not reconstitution.

Ratio Decidendi: Where a partnership deed does not exclude dissolution on death and a fresh deed is executed after a partner's death, the firm is dissolved and the subsequent business is treated as succession by a new firm, not as a reconstitution under section 187(2) of the Income-tax Act, 1961.

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