The death of a partner in the eye of law leads to the total dissolution of the firm unless partners have expressly provided to the contrary by their agreement.

M.R.SHARMA, J.

1. A copy of the partnership deed dated May 16, 1964, Annexure- A shows that the assessee-firm had the following partners with their respective shares denoted against their names:-

Nandlal party of first part 7/40

Sohanlal party of second part 7/40

Mukandlal party of third part 7/40

Hardial party of fourth part 7/40

Ramlal party of fifth part 5/40

Harbanslal party of sixth part 7/40

2 On Oct. 20, 1967, Shri Mukand Lal one of the partners died. A new partnership deed dated Oct. 26, 1967, was executed whereby Rajinder Kumar, the minor son of the deceased partner Sh. Mukand Lal, was admitted to the benefits of the partnership with effect from Oct. 21, 1967. The assessee-firm filed two returns for the period April 13, 1967 to Oct. 20, 1967, and Oct. 21, 1967, to April 12, 1968. In the new partnership deed, it has been specifically provided that the death of any of the partners shall not dissolve the partnership and either the legal heir or the nominee of the deceased partner shall take his place. However, there was no such stipulation in the original partnership deed.

3. The Income Tax Officer relying upon S. 187 (2) of the Income Tax Act, 1961 (hereinafter called the Act), made one single assessment for both the periods as he was of the view that the case was, one of change in the constitution of the firm in contradistinction with succession thereto, which is covered by Section 188 of the Act. The appeals filed by the assessee-firm were dismissed by the learned Appellate Assistant Commissioner and the Income Tax Appellate Tribunal, Chandigarh Bench (hereinafter referred to as the Tribunal).

4. Before the learned Tribunal, it was urged on behalf of the assessee-firm that S.187 of the Act did not apply in the case of a dissolved firm and this provision applied only where the firm continued to exist. It was also submitted that the dissolution and re-constitution of the firm are two different and distinct legal concepts. Since the original partnership deed did not make any express stipulation that the death of any of the partners shall not dissolve the partnership, the latter remained dissolved by operation of law and was succeeded by a new firm which was retrospectively brought into existence with effect from October 21, 1967, vide partnership deed dated October 26, 1967. These contentions were repelled by the learned Tribunal and at the instance of the assessee-firm it has referred the following question of law to this Court for its opinion:-

" Whether on the facts and in the circumstances of the case, one assessment nor both the periods was justified in view of the provisions of S. 187 (2) of the Income Tax Act 1961?"

5. The Reference came up before Mahajan, J. (as the learned Chief Justice then was) and Pattar, J. Before the Bench it was contended on behalf of the Revenue that the matter was concluded against the, assessee-firm by a Division Bench judgment of this Court in M/s. Dharam Pal Sat Dev V/s. Commr. of Income Tax, Punjab, J. and K. and Chandigarh, Patiala, Income Tax Reference No. 11 of 1972, decided on January 4, 1978 : (1974) 97 ITR 302 (Punj). The Bench noticed that the view taken by the Bombay High Court in Bhausa Ganusa Pawar and Co. V/s. Commr. of Income-tax. Poona, 1966 62 ITR(Bom) 75, was not brought to the notice of the Division Bench which decided M/s. Dharam Pal Sat Dev s case (supra) and observed that in the latter case certain assumption had been made regarding the non-application of the provisions of the Indian Partnership Act to the cases arising under the Income-Tax Act to which the Bench did not subscribe. It was of the view that the latter case needed reconsideration. Since the matter was considered to be of importance and a number of Division Bench judgments of various High Courts and the judgments of the Supreme Court had to be considered, it was recommended that the case should be decided by a Bench of five judges. Under orders of Hon ble the Chief Justice this case has accordi