1. The Income-tax Appellate Tribunal referred a batch of cases concerning the interpretation of the provision of section 187 of the Income-tax Act, 1961.
2. The assessee is a partnership firm. One of the partners died during the accounting year relevant to the assessment year under consideration. The assessee claimed that on the death of the partner, there is a dissolution of the partnership firm under section 42(c) of the Indian Partnership Act, inasmuch as the partnership deed executed between the partners did not contain an agreement to the contrary. The assessee, therefore, claimed that two separate assessments should be made - one relating to the period up to the death of the partner and the other relating to the period commencing after the death of the partner to the end of the accounting year.
3. Incomes for the two periods were separately ascertained and two separate returns were filed for the two periods. The Revenue rejected the contention that there was a dissolution by reason of the death of one of the partners taking into consideration the fact that after the death of the partner, the surviving partners continued to carry on the same business with a change in the constitution. The Revenue's contention was that the provisions of section 187 are clearly applicable to the present case and, consequently, one single assessment has to be made treating that there was merely a change in the constitution of the firm under section 187(2) of the Income-tax Act, 1961.
4. When the matter was carried in appeal by the assessee, the Income-tax Appellate Tribunal allowed the assessee's contention that on the death of a partner, dissolution had taken place within the meaning of section 42(c) of the Indian Partnership Act. Accordingly, the assessee's claim for two separate assessments was upheld. Being aggrieved against the order of the Tribunal, the Commissioner has come up in reference.
5. This question has been settled by a decision of this court in Addl. CIT v.Vinayaka Cinema : 110ITR468(AP) wherein the contention that in the absence of an agreement to the contrary, firm stands automatically dissolved under section 42(c) of the Indian Partnership Act was accepted. Pursuant to that decision. the Income-tax Appellate Tribunal was justified in coming to the conclusion that two separate assessments should be made for the two periods, one up to the date of death of the partner and the other for the period subsequent to the death till the end of the accounting year relevant to the assessment year under consideration.
6. That apart, we may refer to the amendment of section 187 by section 33 of the Taxation Laws (Amendment) Act, 1984. A proviso was newly inserted to sub-section (2) of section 187 to the following effect :
'Provided that nothing contained in clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners.'
7. The above proviso which has come into force from the assessment year 1975-76 recognises the principle enunciated by this court earlier in Addl. CIT v. Vinayaka Cinema : 110ITR468(AP)
8. Having regard to the above, we consider that the Tribunal was correct in coming to the conclusion that two separate assessments should be made on the assessee-firm for the two broken periods - one up to the date of death of the partner and the other for the period subsequent to the death till the end of the accounting year relevant to the assessment year under consideration.
9. We accordingly answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs. Advocate's fee Rs. 300.