Death of a partner dissolves the firm and separate assessments have to be made on the predecessor firm and the successor firm.

SYED SHAH MOHAMMED QUADRI, J.

( 1 ) IN this reference under section 256 (1) of the Income-tax Act, 1961 (for short "the Act"), at the instance of the Revenue, the following question is referred to this court for opinion, viz. ,"whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that consequent on the death of one of the partners, Sri B. V. Satyanarayana, on 28/08/1978, there was dissolution of the firm under section 187 (2) of the Income-tax Act and consequently directing two separate assessments for the assessment year 1979-80-one for the period up to the date of death of the partner and the other for the subsequent period ?"

( 2 ) THE respondent is the assessee. It is a registered firm. In the previous year relevant to the assessment year 1979-80, there were six partners in the firm. Out of them, one partner, Sri B. V. Satyanarayana, died on 28/08/1978. In the partnership deed there was no stipulation that in the event of death of one of the partners, the firm would continue as such. After the death of the said partner, a separate partnership was entered into by the remaining partners and a deed of partnership was executed on 19/09/1978. The assessee-firm filed two returns, the first one for the period from 1/04/1978, to 28/08/1978, and the second one for the period from 29/08/1978, to March 31, 1979. The Income-tax Officer took the view that on the death of the said partner there was a change in the constitution of the firm, consequently, he made a single assessment for the entire previous year, by order of assessment dated 31/10/1981. He also made a protective assessment on the basis of the income returned for the first period. Against the said order of assessment, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals ). The appellate authority took the view that the Income-tax Officer was not justified in making a single assessment for the said two periods and directed the Income-tax Officer to make two separate assessments for the above said two periods. Aggrieved by the said order of the Commissioner of Income-tax (Appeals), the Revenue went in appeal before the Income-tax Appellate Tribunal. The Tribunal held that on the death of the partner, the firm was dissolved and it could not be said that there was a mere change in the constitution of the firm and that the subsequent firm could not be treated as a continuation of the old firm or that the second firm was only a continuation of the old firm with a change in its constitution. In that view of the matter, the Tribunal dismissed the appeal of the Revenue on 1/01/1994. It is from that order of the Tribunal, the above said question has arisen.

( 3 ) IT will be useful to read here the provisions of sections 187 and 188 of the Income-tax Act, 1961, which are as follows :"187. Change in constitution of a firm.- (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 firm, the assessment shall be made on the firm as constituted at the time of making the assessment : Provided that - (i) the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same ; and (II) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment. (2) For the purpose 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

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