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TMI Blog1997 (11) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 187 would not be applicable ?" The material facts of the case relevant for deciding the controversy in the above question, briefly stated, are as follows: By a deed of partnership dated May 12, 1967, Hussainally Sherally and Roshanali Sherali agreed to carry on the business of fire-wood and timber in partnership and share the profits and losses in the ratio of 65 : 35. On June 27, 1977, Hussainally Sherally died. As a result, the firm stood dissolved. On September 5, 1977, the sole surviving partner, Roshanali Sherali, entered into a fresh deed of partnership with the widow of Hussainally Sherally, Smt. Kalsumbai, to carry on the said business in partnership with her. For the assessment year 1978-79, two returns of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the death of one of them, it stood dissolved. The Tribunal also observed that there was no agreement between the partners that the firm would continue after the death of one of them and held that in that view of the matter and also under section 42 of the Partnership Act, the firm stood dissolved on the death of one of the partners. Hence, this reference at the instance of the Revenue. We have heard Dr. Balasubramanian, learned counsel for the Revenue. We have also heard learned counsel Mr. Tripathi, who was requested to assist the court in this matter on behalf of the assessee. We have perused the facts of the case. The uncontroverted factual position is that the partnership firm constituted under the deed of partnership dated May 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a plain reading of the above provision that it applies to a firm of more than two partners. It cannot apply to a firm of two partners because in that case, if one of the two partners dies, the firm automatically comes to an end and thereafter there is no partnership in existence for a third party to be introduced therein. In that view of the matter, it is clear that the Tribunal was right in holding that it was not a case of change of constitution of the firm within the meaning of section 187 of the Income-tax Act. We are supported in our above conclusion by the decision of the Supreme Court in CIT v. Seth Govindram Sugar Mills [1965] 57 ITR 510. That was also a case of partnership comprising two partners who had entered into partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip remains on the death of one of them and, therefore, it is a contradiction in terms to say that there can be a contract between two partners to the effect that on the death of one of them the partnership will not be dissolved but will ..... Partnership is not a matter of status, it is a matter of contract. No heir can be said to become a partner with another person without his own consent, express or implied." The Supreme Court referred with approval to the following observations of Ramachandra Iyer J. in Narayanan v. Umayal, AIR 1959 Mad 283: " ....if one of the partners died, there will not be any partnership existing to which the legal representatives of the deceased partner could be taken in. In such a case the partnership would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the partnership deed provides that death shall not result in the dissolution of the partnership. Such provision is lawful because section 42 of the Partnership Act contemplates it. If there is no such provision and a partner dies, the partnership stands dissolved. The partnership does not then survive upon the death of the partner. The case is not one of a change in the constitution of the partnership. It falls outside the scope of section 187. When the surviving partners in such a case continue the business in partnership, section 188 is attracted for there is a succession of one by another partnership." Reference, may also be made in this connection to the following proviso to section 187, which has been incorporated with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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