Partnership dissolution on death of partner leads to succession of firm under income tax law, not mere change in constitution.

A partnership deed that does not contract out of section 42(c) of the Indian Partnership Act leaves the firm dissolved on the death of a partner. Where deaths of partners occur after insertion of the proviso to section 187(2) of the Income-tax Act, 1961, the situation is treated as succession of one firm by another under section 188, not as a mere change in constitution under section 187(2). The Tribunal's view that the old firm stood dissolved on each death and that separate assessments were required for the broken periods was upheld, and the matter was decided in favour of the assessee.

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Issues: Whether, on the death of the partners, the old firm stood dissolved each time so that separate assessments were required for the three broken periods, or whether the case fell under a mere change in the constitution of the firm.

Analysis: There was no contract to the contrary in the partnership deed excluding the general rule under section 42(c) of the Indian Partnership Act that a firm is dissolved by the death of a partner. The relevant period was after insertion of the proviso to section 187(2) of the Income-tax Act, 1961. In these circumstances, the case was not governed by section 187(2) but by section 188, which applies to succession of one firm by another.

Conclusion: The Tribunal was right in holding that the old firm stood dissolved on each death and that the matter was governed by section 188 of the Income-tax Act, 1961. The reference was answered against the Revenue and in favour of the assessee.

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