Commissioner of Income Tax vs Sardar Cloth House

This is an Income Tax reference u/s 256(1) of the Income Tax Act, 1961 by which following questions have been referred to US for our opinion :

"1. Whether, on the facts and in the circumstances of the case, the provisions of section 187(2) were not applicable to the facts of the instant case?

Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in upholding the Appellate Assistant Commissioner''s order that two separate assessments be made in respect of the two returns filed?"

The relevant assessment year is 1975-76. During this assessment year one of the partners of the assessee-firm Harbir Singh died on 10-8-1974. In the original partnership deed there is no mention that on the death of a partner the firm will continue in existence. Hence in view of section 42(c) of the Partnership Act, the firm stood automatically dissolved on the death of a partner. Hence, it is a case of dissolution of the firm and not reconstitution, and therefore, there have to be two assessments and not one assessment in view of the Supreme Court decision in COMMISSIONER OF INCOME TAX Vs. EMPIRE ESTATE., . We, therefore, answer the first question referred to us in the affirmative, i.e., in favour of the assessee and against the department in view of our answer to the first question we decide the second question by holding that there was dissolution of the firm and not mere change of its constitution and hence two separate assessments have to be made for the relevant assessment year. The reference is answered accordingly.