Partnership dissolution on a partner's death requires succession treatment, with separate assessments for pre- and post-dissolution periods.

On the death of a partner, a firm is treated as dissolved in law unless there is an express stipulation that it will continue. Where the surrounding conduct also shows dissolution, the post-dissolution business is treated as succession by a new firm rather than a mere change in the constitution of the existing firm. The pre- and post-dissolution periods cannot be clubbed into one composite assessment. The governing provision is section 188 of the Income-tax Act, 1961, not section 187(2), so separate assessments are required for the two periods.

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Issues: Whether, on the death of a partner and reconstitution of the partnership, the case fell within a mere change in the constitution of the firm under section 187(2) of the Income-tax Act, 1961, so as to justify one composite assessment, or whether the firm stood dissolved and a new firm succeeded to the business under section 188.

Analysis: A firm cannot be treated as continuing for assessment purposes where, on the death of a partner, there is no express stipulation that the firm shall not stand dissolved. In such a situation, the firm stands dissolved in law, and where the conduct of the parties also shows dissolution in fact, the successor concern is a new firm. The periods before and after dissolution cannot be clubbed together for a single assessment; the correct approach is to treat the matter as one of succession rather than mere reconstitution.

Conclusion: The case was governed by section 188 of the Income-tax Act, 1961, and not by section 187(2). One single assessment covering both periods was not justified, and the answer was in favour of the assessee.

Ratio Decidendi: In the absence of an express agreement preserving the firm on the death of a partner, the firm stands dissolved in law, and the post-dissolution business carried on by the continuing persons constitutes succession under section 188, requiring separate assessments for the pre- and post-dissolution periods.

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