Partnership dissolution on death of a partner required separate income-tax assessments for the pre-death and post-death periods.

Death of a partner was treated as dissolving the firm, so a fresh partnership deed created a new firm for income-tax purposes. On that view, separate assessments were required for the period up to the partner's death and for the period thereafter. The analysis noted that this approach was consistent with earlier High Court decisions and was later recognised by the Legislature through the proviso to section 187(2), inserted retrospectively with effect from 1 April 1975.

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Issues: Whether the firm stood dissolved on the death of a partner and, consequently, whether two separate assessments were required for the periods before and after the death.

Analysis: The question turned on the effect of the death of a partner on the continuance of the firm under section 187(2) of the Income-tax Act, 1961. The Court noted that its earlier decisions had taken the view that a firm stands dissolved on the death of a partner and that, where a fresh partnership deed is executed, a new firm comes into existence, warranting separate assessments for the old and new firms. It also noticed that the Legislature had given recognition to that view by inserting the proviso to section 187(2) with retrospective effect from 1 April 1975 by section 33 of the Taxation Laws (Amendment) Act, 1984.

Conclusion: The firm was dissolved on the death of the partner and two separate assessments were required, one for the period prior to death and another for the period after death.

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