COMMISSIONER OF Income Tax vs BIKANER WOOLLEN PRESS.

This reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the Revenue, is to answer the following question of law, namely :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that on the death of the two partners, the old firm stood dissolved each time and, therefore, separate assessments for the three broken periods were to be made ?

The relevant assessment year is 1975-76. The assessee initially had three partners of whom one died on February 2, 1974, when two new partners were inducted and the business was carried on by the new firm Thereafter, one more partner died on August 8, 1974, as a result of which another new firm was constituted by taking two new partners According to the assessee, on both these occasions, the firm stood dissolved on the. death of the partners and the business was continued by the succeeding firm so that it was a case of succession governed by section 188 of the Income Tax Act, 1961, and not of a mere change in the constitution of the firm governed by section 187(2) of the Act. The Income Tax Officer rejected the contention and so did the Appellate Assistant Commissioner Thereafter the Tribunal has accepted the contention of the assessee on further appeal and hence this reference at the instance of the Revenue.

Admittedly, there was no contract to the contrary in the contract of partnership so as to exclude the application of the general principle contained in section 42(c) of the Indian Partnership Act that a firm was dissolved by the death of a partner. This being so and as the case related to a period subsequent to the insertion of the proviso in sub-section (2) of section 187 of the Act, it is obvious that the Tribunal was justified in holding that the case is not governed by section 187(2) but is, in fact, governed by section 188 of the Act.

Consequently, the reference is answered against the Revenue and in favour of the assessee by holding that the Tribunals view is justified. No costs.