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TMI Blog1984 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... even partners. It was constituted under a deed of partnership executed on February 6, 1962. Out of the eleven partners, one partner, K. Subbarao died on September 3, 1971. For the income-tax assessment year 1972-73, the assessee filed two income-tax returns, one for the period January 1, 1971, to September, 3, 1971, relating to the partnership firm of eleven partners and another for the period September 4, 1971, to December 31, 1971, relating to the partnership firm which came into existence after the death of K. Subbarao. It may be mentioned that after the death of Subbarao, a partnership deed was executed on September 29, 1971, between twelve partners. In the place of the deceased partner, Subbarao, his two sons, Kutumba Rao and Purna Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ern. The Appellate Assistant Commissioner rejected the assessee's contention that there was a dissolution on September 3, 1971, when the partner, Subbarao, died. He accordingly upheld the assessment made by the Income-tax Officer. The assessee went in second appeal to the Appellate Tribunal. The Tribunal accepted the assessee's contention that on the death of Subbarao, there was a dissolution of the partnership evidenced by the deed executed on February 6, 1962, and, therefore, a separate assessment should be made on the firm as was in existence till September 3, 1971. The Tribunal held that it was not merely a change in the constitution of the firm under section 187(2) of the Income-tax Act entitling the Income-tax Officer to make one sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the deceased partner as partners. The second aspect to which he invites our attention is clause 14 of the partnership deed which is in the following terms: " 14. The period of this partnership is not specified. However, the partners may continue this partnership as long as they desire and if they decide to discontinue this firm, this deed will be in operation till the transactions relating to this firm are completed, thereafter it is settled that we shall all manage the same." Learned counsel submits that the real effect of clause 14 is that the partners shall continue the partnership without cessation and this intention is not merely the intention of the partnership newly constituted under the deed dated September 29, 1971, but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed of partnership dated February 6, 1962, not to dissolve the partnership on the death of any of the partners. Learned counsel states that the Tribunal failed to consider the impact of the subsequent conduct in arriving at the conclusion that there was a dissolution of the partnership within the terms of section 42(c) of the Indian Partnership Act. In the first place, we are unable to subscribe to the view that the admission of the legal heirs of a deceased partner would by itself establish a conduct to justify the inference that there was an agreement to the effect that the partnership shall not be dissolved on the death of a partner in the original partnership. It may be one of the relevant factors for consideration. But that by itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72. The newly constituted partnership opened separate accounts on September 4, 1971, and closed its accounts on December 31, 1971, and for this period, the profit was Rs. 52,000. The opening of accounts separately for the two periods, the ascertainment of the profits separately for two periods and the division of the profits among the respective partners under the two deeds of partnership referred to above is also conduct relevant for the purpose. In our opinion, the above acts on the part of the first-mentioned partnership firm as well as the second-mentioned partnership firm would point to the conduct that the parties intended to treat that the partnership which came into existence under the deed dated February 6, 1962, was dissolved on S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act unless there is contract to the contrary in the deed of partnership. We may also state that this principle finds acceptance by the Legislature in the Taxation Laws (Amendment) Act, 1984, which effected an amendment to section 187(2) of the Income-tax Act, 1961, to the effect that once a partner died and there is no provision in the deed of partnership to the contrary, there is an automatic dissolution of the partnership and the provisions of section 187(2) of the Income-tax Act do not come into operation. For the reasons aforesaid, the Tribunal was correct in holding that single assessment could not be made on the aggregate of the income for the two periods. We accordingly answer the question referred in the affirmative, that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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