Partnership deed clause preventing dissolution on death kept the firm alive and triggered section 187 treatment.

A partnership deed may validly provide that the firm will not dissolve on the death of a partner, and such a clause operates as a contract to the contrary under section 42(c) of the Indian Partnership Act, 1932. Where the firm continues despite the death, the proviso to section 187(2) of the Income-tax Act, 1961 does not apply. The arrangement is treated as a change in the constitution of the firm under section 187, not as succession under section 188, so a single assessment is required for the relevant period.

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Issues: Whether the death of a partner dissolved the firm notwithstanding a clause in the partnership deed that the firm would not dissolve on the death of any partner, and whether the case was one of succession requiring separate assessments or merely a change in the constitution of the firm governed by section 187 of the Income-tax Act, 1961.

Analysis: The partnership deed expressly provided that the firm would not stand dissolved on the death of any partner. That stipulation amounted to a contract to the contrary and excluded the general rule of dissolution on death contained in section 42(c) of the Indian Partnership Act. In the absence of dissolution, the proviso inserted in section 187(2) of the Income-tax Act, 1961 had no application. The situation, therefore, fell within section 187 as a change in the constitution of the firm and not within section 188 as a case of succession.

Conclusion: The firm was not automatically dissolved on the death of the partner, the matter was governed by section 187 of the Income-tax Act, 1961, and a single assessment for the entire period was required. The reference was answered in favour of the Revenue.

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