1983 (3) TMI 140 - AT - Income Tax

Summary

Issues:
- Whether there was a dissolution of the firm on the death of a partner or a change in the constitution of the firm.
- Whether the income of both periods should be clubbed for a single assessment or not.

Analysis:

1. The appeal involved a dispute regarding the assessment year 1980-81 for a partnership firm, Mariappa Stores, after the death of a partner. The Commissioner set aside the separate assessment orders made by the ITO and directed to club the income of both periods for a single assessment under section 187 of the Income-tax Act, 1961.

2. The key issue was whether the death of a partner led to the dissolution of the firm or a change in its constitution. The Commissioner argued that there was no explicit provision in the deed of partnership regarding the dissolution on the death of a partner, but implied intention could be inferred from subsequent actions and conduct. The Commissioner directed the ITO to make a single assessment based on the original return and application for registration filed by the firm.

3. The Tribunal considered the arguments and relevant legal precedents. It noted that in the absence of an explicit agreement among all partners, including the deceased partner, the conduct of the remaining partners did not indicate a contrary intention to avoid dissolution on the death of a partner. The Tribunal disagreed with the Commissioner's reasoning and held that there was dissolution of the firm and succession to a new firm after the death of the partner.

4. The Tribunal referred to the decision of the Madras High Court in similar cases, emphasizing the importance of explicit clauses in partnership deeds regarding dissolution and succession. It concluded that in this case, without a specific provision against dissolution on the death of a partner, the firm was dissolved, and there was a succession of a new firm, warranting separate assessments for the two periods.

5. Ultimately, the Tribunal allowed the appeal, overturning the Commissioner's order and restoring the ITO's decision to make separate assessments for the two periods. The Tribunal held that the Commissioner's direction to club the income of both periods for a single assessment was not justified, based on the lack of explicit agreement among the partners regarding dissolution on the death of a partner.