Per Shri T. V. Rajagopala Rao, Judicial Member - This is an assessee’s appeal directed against the orders dated 18-12-1987 passed by the Commissioner of Income-tax, AP-III, Hyderabad under section 263 and it relates to assessment year 1985-86.

2. The assessee is a registered firm of 20 partners. The assessment year involved is 1985-86 for which the previous year is the calendar year 1984. The original governing partnership deed appears to be dated 6-1-1983. Clause 15 of the said partnership deed envisages that in case of the death of any one of the partners the legal representative of the deceased partner shall be admitted as a partner in his place. One Shri N. Venkatareddy who is admittedly a partner to the partnership deed dated 6-1-1983 happened to die on 22-2-1984 and in his place his eldest son Shri Sanjeevareddy was admitted as a partner. The assessee-firm filed two returns of income-one for the period from 1-1-1984 to 22-2-1984 under which it had admitted of income of Rs. 35,000, whereas under the return covering the period from 23-2-1984 to 31-12-1984, it had a returned income of Rs. 84,007. The Income-tax Officer completed two assessments separately for the two periods mentioned above, holding during the course of assessment proceedings, there was dissolution of the firm occurred on the event of death of the partner. The learned CIT while going through the records of the Income-tax proceedings felt that the ITO went wrong in making the two assessments for the two different periods within the same accounting year inasmuch as clause 15 envisaged that the legal representative of the deceased partner should replace the deceased and therefore the partnership will continue even on the death of a partner and the place of the deceased partner was taken over by his legal representative. In such a situation there was only a change in the constitution of the partnership but not a dissolution. He gave a notice to the assessee to file its objections for the proposed action. The assessee filed its written arguments on 25-11-1987. While submitting that the ITO’s action is perfectly justified and correct the assessee-firm, contended that the decision of the CIT(A) in the case of the assessee for assessment year 1-1986-87 went in favour of the assessee and therefore ultimately the assessee requested to drop the proceedings under sec. 263. However, the learned CIT did not agree with the written submissions. According to him from the facts of the case there was only a change in the constitution but not a dissolution which took place on 22-2-1984. As regards assessment year 1986-87 it is stated in the impugned orders that the revenue did not accept the CIT(A)’s orders but brought the matter in second appeal before this Tribunal. Consistent stand was taken by the revenue. The learned CIT held that the assessment orders separately passed, dated 26-12-1985 under sec. 143(3) assessing the income for the two periods are erroneous in so far as they are prejudicial to the interest of revenue and therefore he set aside the same with directions to recompute the total income with a single assessment covering the entire period from 1-1-1984 to 31-12-1984.

3. Aggrieved against the order of the CIT the assessee came up in second appeal before this Tribunal. Thus the matter stands for our consideration. We summoned the income-tax records, saw the partnership deed dated 6-1-1983. Clause 15 of the said partner ship deed reads as follows:

"In case of death of any partner it has been agreed that the legal representative of the deceased partner shall be admitted as a partner in the place of the deceased partner."

According to the learned Departmental Representative the above clause prevents the dissolution of the firm on the death of N. Venkatareddy. On the other hand there is a reconstitution of the firm with the son of the deceased Venkata Reddy (Shri Sajeeva reddy) automatically becoming a partner in the firm and the firm being continued thereon. There