Death of partner and firm dissolution require separate assessments, not a composite one, absent a contract to the contrary.

The proviso inserted in section 187(2) of the Income-tax Act, 1961, with retrospective effect from 1 April 1975, means that where a firm is dissolved on the death of a partner and there is no contract to the contrary, section 187 does not apply. The firm must then be assessed separately for the period before the partner's death and the period after the new partnership deed is executed, rather than through one composite assessment. On that basis, the direction to make two separate assessments was held correct, and the reference was answered against the Revenue.

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Issues: Whether, on the death of a partner and execution of a new partnership deed thereafter, the firm was required to be assessed in two separate periods instead of one composite assessment.

Analysis: The reference turned on the effect of the proviso inserted in section 187(2) of the Income-tax Act, 1961 by the Taxation Laws (Amendment) Act, 1984 with retrospective effect from 1 April 1975. In view of the binding precedent holding that, after the insertion of the proviso, section 187 does not apply where a firm is dissolved on the death of a partner in the absence of a contract to the contrary, the assessment for the period before death and the period after death had to be treated separately.

Conclusion: The direction to make two separate assessments was correct, and the question referred was answered in the affirmative, against the Revenue.

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