Death of partner and firm dissolution meant separate income-tax assessments for pre- and post-death periods.

On the death of a partner during the accounting year, a firm is treated as dissolved, rather than merely reconstituted, where there is no contract to the contrary. In that situation, section 187(2) of the Income-tax Act, as qualified by the proviso inserted by the Taxation Laws (Amendment) Act, 1984, does not require a single assessment for the whole year. The factual position here showed dissolution on the partner's death and a fresh firm thereafter, so separate assessments for the pre-death and post-death periods were warranted. The assessee's position was upheld and the Revenue's contrary view rejected.

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Issues: Whether, on the death of a partner during the accounting year, the firm stood dissolved so as to require two separate assessments for the periods before and after the death, or whether only one assessment was warranted on the footing of mere reconstitution of the firm.

Analysis: The assessment year was 1979-80. The controlling statutory provision was section 187(2) of the Income-tax Act, 1961, as affected by the proviso inserted by the Taxation Laws (Amendment) Act, 1984. In view of the proviso, the rule in section 187(2)(a) did not apply where the firm was dissolved on the death of a partner in the absence of a contract to the contrary. The factual position showed dissolution on the partner's death and a fresh firm thereafter, justifying distinct assessments for the two periods.

Conclusion: The answer was in the affirmative and against the Revenue. Two separate assessments were rightly directed, and the assessee's position was upheld.

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