COMMISSIONER OF INCOME TAX vs GUMANMAL SUSHILCHAND.

By the Court - This reference under s. 256(1) of the IT Act, 1961, is at the instance of the Revenue to answer the following question of law, namely :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justifies in law in holding that as soon as Shri Indramal, partner died on 5-11-1976 the assessee firm was automatically dissolved meaning there by that it was a case of succession and no a change in constitution and that s. 187 of the IT Act, 1961 does not govern the cases of this type ?"

The assessee firm consisted of three partners constituted by a deed of partnership dt. 14-5-1965. One of the terms of the deed was that the partnership would not stand dissolved on the death of any of its partners. One of the partners Indramal died on 5-11-1976 during the accounting period of the relevant asst. yr. 1978-79. The remaining partners continued the business of the firm admitting some more partners therein. The assessee claimed the making of two assessments, one for the period upto 5-11-1976, date of death of Indramal and other for the subsequent period. The ITO rejected the contention and made one assessment for both the periods. The assessees contention was accepted on appeal by the AAC. The Revenues appeal to the Tribunal has failed. The Tribunal held that on the death of one of the partners of firm, it stood dissolved by operation of law according to s. 42 of the Indian Partnership Act, and therefore, it was a case of succession governed by s. 188 of the Act and not of a mere change in the constitution of the firm governed by s. 187. This view of the Tribunal has given rise to this reference at the instance of the Revenue.

As already stated, there was a specific term in the partnership deed dt. 14-5-1965 mentioning that the firm would not be dissolved on the death of any of its partners. This was, accordingly, a contract to the contrary excluding the applicability of the general principle of dissolution of a firm on the death of a partner contained in s. 42(c) of the Indian Partnership Act. For the same reason, the proviso inserted in sub-s. (2) of s. 187 of the IT Act, 1961 retrospectively w.e.f. 1-4-1975 has no application for the reasons given by us in D.B. IT Ref. No. 15/84, decided on 29-7-1987. Obviously, in a case like the present where there is no dissolution of the firm on the death of any of its partners on account of contract to the contrary in the partnership deed, the said proviso inserted in sub-s. (2) of s. 187 of the Act not being applicable, it is a case governed by s. 187 since it is merely a case of change in the constitution of the firm as contemplated by s. 187(2) of the Act. Accordingly, one assessment for the entire period was required to be made and the Tribunals view to the contrary is unjustified.

Consequently, the reference is answered in favour of the Revenue and against the assessee as under :

"The Tribunal was not justified in holding that the assessee firm was automatically dissolved on the death of one of the partners in spite of a contract to the contrary in the deed of partnership and, therefore, it was also not justified in holding that it is a case of succession and not merely of a change in constitution of the firm governed by s. 187 of the IT Act, 1961."

No costs.