Commissioner of Income Tax vs K. Wadhumal and Sons

This is an Income Tax reference u/s 256(1) of the Income Tax Act in which the following question has been referred to us for our opinion :

"Whether the Tribunal was justified in holding that there should be two separate assessments for the two periods in the case ?"

The relevant assessment year is 1980-81. During this assessment year one of the partners Kewal Bai died and thereafter a new partnership deed was entered into by which a new partner was indicated. The question is whether it was a case of dissolution or reconstitution of the firm.

it is settled law that ordinarily on the death of a partner, the partnership firm is automatically dissolved vide section 42 of the Indian Partnership Act. The only exception is where in the partnership deed it is mentioned that on death of a partner the firm will not dissolve. In this case there is nothing to show that there is any mention in the partnership deed that the firm shall not automatically dissolve on the death of a partner.

Hence, in view of the decision of the Supreme Court in COMMISSIONER OF INCOME TAX Vs. EMPIRE ESTATE., this reference is decided in the affirmative, that is, in favour of the assessee and against the department.