Firm dissolution on a partner's death required separate tax assessments, treating the case as succession rather than constitution change.

On the death of a partner during the relevant accounting period, and in the absence of any contract to the contrary, the firm stood dissolved under section 42(c) of the Partnership Act. The matter was therefore treated as a succession governed by section 188 of the Income-tax Act, 1961, rather than a mere change in the constitution of the firm under section 187(2). The proviso inserted in section 187(2) by the Taxation Laws (Amendment) Act, 1984, with effect from 1 April 1975, was noted in relation to the assessment year 1975-76. Two separate assessments were accordingly required for the two periods, and the Tribunal's view was upheld.

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Issues: Whether, on the death of a partner during the relevant accounting period, the firm stood dissolved so as to require two separate assessments for the two periods instead of a single assessment under section 187(2) of the Income-tax Act, 1961.

Analysis: The relevant assessment year was 1975-76. The death of one partner attracted the proviso inserted in section 187(2) of the Income-tax Act, 1961, by the Taxation Laws (Amendment) Act, 1984, with effect from 1 April 1975. In the absence of any contract to the contrary, section 42(c) of the Partnership Act operated to dissolve the firm on the death of a partner. On that footing, the case was one of succession governed by section 188 of the Income-tax Act, 1961, and not a mere change in the constitution of the firm under section 187(2).

Conclusion: The Tribunal was justified in holding that the firm was dissolved on the partner's death and that two separate assessments were required for the two periods, in favour of the assessee and against the Revenue.

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