Dissolution on death of partner treated as succession, requiring separate income-tax assessments under the Act.

After the retrospective insertion of the proviso to section 187(2) of the Income-tax Act, a firm is not treated as merely changing its constitution where it dissolves on the death of a partner. In the absence of a contract to the contrary, a partner's death causes dissolution under the general law of partnership, and the proviso excludes section 187 in such a situation. The matter is then governed by section 188 as a succession case, requiring separate assessments for the two periods. On that basis, the treatment of the firm as a succession and the making of two separate assessments was justified.

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Issues: Whether the death of a partner resulted in dissolution of the firm so as to require separate assessments for the two periods, or whether the case was merely a change in the constitution of the firm under the Income-tax Act, 1961.

Analysis: After the retrospective insertion of the proviso to section 187(2) by the Taxation Laws (Amendment) Act, 1984, a firm dissolved on the death of any partner cannot be treated as a mere change in the constitution of the firm. In the absence of a contract to the contrary, the death of a partner brings about dissolution under the general law of partnership. The exclusion of section 187 by the proviso makes the case one of succession governed by section 188.

Conclusion: The matter was rightly treated as a succession case and the two separate assessments were justified. The reference was answered against the Revenue and in favour of the assessee.

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