IMPORTANT POINT
The question is answered in the affirmative i.e. the Tribunal was justified in holding that in this case there should be two assessments on the death of a partner of the firm.

JUDGMENT

Bharucha, J.-There being a conflict in the decisions of the High Courts, the Income Tax Appellate Tribunal has referred to this Court, under Section 257 of the Income Tax Act, 1961, the following question :

"Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that there should be two assessments, one for the period from 1.6.1973 to 12.1.1974 and the other for the period from 13.1.1974 to 30.6.1974, as the assessee s case did not fall within the provisions of Section 187(2) of the Income Tax Act, 1961."

2. The relevant assessment year is A.Y. 1975-76. The relevant accounting year ended on 30th June, 1974.

3. The assessee is a partnership firm. It was constituted under a deed of partnership dated 18th July, 1968. Its three partners were Mrs. Ellen Keki Modi, Mr. Rustom Keki Modi and Ms. Maneck Keki Modi. Mrs. Ellen Modi died on 12th January, 1974. There being no provision in the deed of partnership contemplating the continuance of the partnership in the event of the death of a partner, the partnership stood dissolved. No deed of dissolution was executed but the surviving partners executed a fresh deed of partnership for carrying on the business on and from 13th January, 1974, and it mentioned that the earlier partnership had stood dissolved on 12th January, 1974.

4. The assessee filed two returns of income for the relevant previous year, one for the period 1st June, 1973 to 12th January, 1974 and the other for the period 13th January, 1974 to 30th June, 1974. It contended that the earlier partnership had stood dissolved on the death of Mrs. Ellen Modi on 12th January, 1974 and that, therefore, this was a case of succession contemplated by Section 188 of the Act and not a case of reconstitution of the partnership within the meaning of Section 187. The Income Tax Officer rejected the contention. The appeal to the Commissioner of Income-tax (Appeals) failed. The assessee thereupon appealed to the Tribunal. The Tribunal noted that there was a difference of opinion between the Allahabad High Court [Commissioner of Income-tax v. Kunji Behari Shyam Lal1], the Andhra Pradesh High Court [Addl. Commissioner of Income-tax v. Vinayaka Cinema2], the Gujarat High Court [Addl. Commissioner of Income-tax v. Harjivandas Hathibhai3] and the Calcutta High Court [Mathuradas Govardhandas v. Commissioner of Income-tax4] on the one hand and the Punjab High Court [Nandlal Sohanlal v. Commissioner of Income-tax5] and the Karnataka High Court [Sangam Silks v. Commissioner of Income-tax6] on the other hand. The Tribunal followed the view of the High Courts earlier mentioned. It held that the case of the assessee did not fall within the expression "change in the constitution of the firm" under Section 187 and directed the I.T.O. to make assessments for the two aforementioned periods of the relevant previous year.

5. Section 187, so far as is relevant, reads thus :

"187.(1) Where at the time of making an assessment under Section 143 or Section 144 it is found that a change has occurred in the constitution of a film, the assessment shall be made on the firm as constituted at the time of making the assessment.

(2) For the purposes of this Section, there is a change in the constitution of the firm -

(a) if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change; or

(b) where all the partners continue with a change in their respective shares or in the shares of some of them."

Section 188 reads thus :

"188. Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by Section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of Section 170."

It needs to be noted that a proviso was inserted in Section 187 by