1973 (11) TMI 20 - HC - Income Tax

Summary

Issues:
1. Dissolution of partnership on the date of death of a partner and separate assessment till the date of death.
2. Applicability of section 187(2) of the Income-tax Act to the facts of the case.

Analysis:

Issue 1: Dissolution of Partnership and Separate Assessment
The case involved determining whether there was a dissolution of a partnership on the date of a partner's death and if separate assessment should be done till that date. The partnership firm consisted of five partners, including the deceased partner, who died on March 9, 1963. The firm's major business was executing contracts with railways. Following the partner's death, the books related to railway contracts were closed, and profits were credited to respective accounts. The Tribunal concluded that the firm was dissolved on the partner's death based on various circumstances, including the closure of major business accounts and no new business activities post the death. The Tribunal found that the partners intended to dissolve the firm, as evidenced by their conduct of not entering into new contracts after the partner's death. The court upheld the Tribunal's decision, stating that the partners mutually agreed to dissolve the firm, justifying separate assessment till the date of the partner's death.

Issue 2: Applicability of Section 187(2)
Regarding the applicability of section 187(2) of the Income-tax Act, which deals with changes in the constitution of a firm, the court found that since the firm was dissolved after the partner's death, the requirements of section 187(2) were not met. The court noted that there was no continuation of the same firm with changes in partners' shares, as the deceased partner's share was not transferred to a new partner but credited to the estate of the deceased partner's wife. Therefore, the court ruled that section 187(2) did not apply to the case due to the dissolution of the firm and the absence of a new partner replacing the deceased partner.

In conclusion, the court answered both questions in favor of the assessee, affirming the dissolution of the partnership on the partner's death and rejecting the application of section 187(2) to the case. The assessee was awarded costs for the reference.