Death of a partner dissolves the firm and prevents single assessment under the change-in-constitution rule.

In the absence of an agreement to the contrary, the death of a partner dissolves the firm under partnership law, so the case is not treated as a mere change in the constitution of the firm for a single assessment under section 187 of the Income-tax Act, 1961. The later proviso to section 187(2), inserted by the Taxation Laws (Amendment) Act, 1984, was noted as legislative recognition of that principle. Accordingly, separate income-tax assessments were required for the broken periods, one up to the date of death and another for the period thereafter.

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Issues: Whether the death of a partner, in the absence of an agreement to the contrary, dissolved the firm under the partnership law so as to require two separate income-tax assessments for the broken periods rather than a single assessment under section 187 of the Income-tax Act, 1961.

Analysis: The assessee-firm's partner died during the accounting year, and the question was whether the surviving partners' continuance of the business merely amounted to a change in the constitution of the firm. The Court held that the legal position had already been settled that, absent a contrary agreement, death of a partner brings about dissolution under section 42(c) of the Indian Partnership Act. The later insertion of the proviso to section 187(2) by section 33 of the Taxation Laws (Amendment) Act, 1984 was noticed as legislative recognition of that principle, supporting the view that the case did not fall within the single-assessment rule for a mere change in constitution.

Conclusion: The death of the partner resulted in dissolution of the firm and two separate assessments were required, one up to the date of death and the other for the subsequent period; the answer was therefore in favour of the assessee.

Final Conclusion: The reference was answered by holding that the assessee-firm was assessable in two broken periods and not as a continuing firm under section 187 on the facts found.

Ratio Decidendi: In the absence of an agreement to the contrary, the death of a partner dissolves the firm, and such a case does not constitute a mere change in the constitution of the firm for the purpose of a single assessment under section 187 of the Income-tax Act, 1961.

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