1996 (1) TMI 6 - SC - Income Tax

Death of parter - surviving partners executed a fresh deed of partnership for carrying on the business on and from January 13, 1974, and it mentioned that the earlier partnership had stood dissolved on January 12, 1974 - Tribunal was justified in holding that there should be two assessments as the assessee s case did not fall within the provisions of section 187(2)

Summary

Issues:
1. Interpretation of provisions under section 187 and 188 of the Income-tax Act, 1961 regarding the assessment of a partnership firm after the death of a partner.
2. Determination of whether the partnership stood dissolved upon the death of a partner or continued with a change in its constitution.
3. Resolution of conflicting decisions of various High Courts on the application of section 187 and 188 in similar cases.

Detailed Analysis:
The Supreme Court addressed a conflict in decisions of High Courts regarding the assessment of a partnership firm under the Income-tax Act, 1961 after the death of a partner. The case involved the dissolution of a partnership firm due to the death of a partner and subsequent reconstitution by the surviving partners. The main question was whether separate assessments should be made for different periods post the dissolution. The Tribunal held that the case did not fall under the provisions of section 187(2) and directed the Income-tax Officer to make assessments for the two distinct periods of the relevant previous year.

The Court analyzed the relevant sections of the Income-tax Act, specifically section 187 and 188, which deal with changes in the constitution of a firm and succession of one firm by another, respectively. It emphasized that if a partnership deed does not provide for the continuation of the partnership upon the death of a partner, the partnership stands dissolved as per the Indian Partnership Act, and there is no change in the constitution of the firm. In such cases, section 188 applies for separate assessments on the predecessor and successor firms.

The Court referred to its previous judgment in Wazid Ali Abid Ali v. CIT, where it was held that in cases where the partnership is dissolved upon the death of a partner, there should be two separate assessments. The Court distinguished cases where the partnership deed explicitly states that the death of a partner will not dissolve the partnership, leading to a reconstitution of the partnership rather than a dissolution. Such cases fall under section 187 for a single assessment.

Additionally, the Court discussed judgments from the Allahabad High Court, highlighting cases where partnerships continued post the death of a partner due to specific provisions in the partnership deeds. In such instances, the High Court upheld the view that there was a change in the constitution of the partnership, warranting a single assessment for the entire period.

Ultimately, the Supreme Court ruled in favor of the assessee, affirming that the partnership stood dissolved upon the death of a partner, and separate assessments should be conducted for the distinct periods post the dissolution. The Court resolved the conflicting interpretations of the High Courts and concluded that there should be no order as to costs in this matter.