Partnership reconstitution on a partner's death treated as change in constitution, requiring only one income-tax assessment.

A partnership deed can contract out of dissolution on the death of a partner, and if the business continues with the surviving partners and the deceased partner's heir, the firm is treated as reconstituted rather than succeeded by a new firm. On that basis, the situation falls within section 187(2) of the Income-tax Act, 1961 as a mere change in the constitution of the firm, so only one assessment is required for the entire period and separate broken-period assessments are not justified.

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Issues: Whether, on the death of one partner and continuation of the business with the surviving partners and the deceased partner's heir under the partnership deed, the case was one of dissolution and succession requiring separate assessments for the broken periods, or merely a change in the constitution of the firm attracting a single assessment under section 187(2) of the Income-tax Act, 1961.

Analysis: The partnership deed contained a contract to the contrary within the meaning of section 42(c) of the Partnership Act, 1932, under which the firm was not to dissolve on the death of a partner and was to continue with the remaining partners together with the heir of the deceased partner. Since the firm continued in the same business with reconstituted membership, there was no dissolution and no succession of one firm by another. The situation therefore fell within section 187(2) of the Income-tax Act, 1961 as a mere change in the constitution of the firm. In such circumstances, only one assessment was required for the entire period.

Conclusion: Separate assessments for the broken periods were not justified, and the matter was governed by section 187(2) of the Income-tax Act, 1961. The answer was in favour of the Revenue and against the assessee.

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