Commissioner of Income Tax vs Dhanalakshmi Finance Corporation

A. Subeulakshmy, J.—At the instance of the Revenue, the following question has been referred to us :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of Section 187(2) of the Income Tax Act, 1961,

the Appellate Tribunal is justified in holding that there has been dissolution of the firm on August 11, 1975, when one of the partners, Shri L.

Sriramulu, died and hence two separate assessments have to be made for the period up to August 11, 1975, and the other for the subsequent

period for the assessment year 1976-77 ?

The assessment year involved is 1976-77. The assessee was a firm consisting of 11 partners. One of the partners was Shri L. Sriramulu, who died

on August 11, 1975. Even though the accounts of the firm were regularly closed on March 31, they were closed on the date of Shri Sriramulu''s

passing away. The business continued to be carried on by the surviving partners ostensibly under a fresh agreement of partnership which was

effective from August 12, 1975, and the accounts were closed on March 31, 1976. The Income Tax Officer held that there was no dissolution on

August 11, 1975, when one of the partners died and made a single assessment.

On appeal, the Commissioner of Income Tax agreed with the Income Tax Officer that there was only a change in the constitution of the firm as

envisaged in Section 187 of the Income Tax Act and that the Income Tax Officer was justified in making a single assessment for the entire period.

On appeal, the Tribunal held that consequent to the death of the partner, the old firm got dissolved and the firm which came into existence

subsequently was entirely a new firm and that separate assessment has to be made for the earlier period. The Tribunal allowed the appeal filed by

the assessee.

The proviso to Sub-section (2) of Section 187 of the Income Tax Act had been added in the Income Tax Act by Section 33 of the Taxation

Laws (Amendment) Act, 1984, with effect from April 1, 1975. This amendment, though in the year 1984 was retrospective. The assessment year

under consideration is 1976-77 and the effect of this retrospective amendment would be that the provisions of Section 187 of the said Act would

not apply to the facts of the present case.

The Tribunal has correctly held that on the death of the partner, Sri Sriramulu, the old firm got dissolved and separate assessment has to be

made. The view taken by the Tribunal is perfectly justified. Accordingly, we answer the question in favour of the assessee and against the Revenue.