1. By this reference under Section 256(1) of the I.T. Act, 1961, hereinafter called 'the Act', the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law to this court for its opinion:
'(i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that only a single assessment could be made on the firm, M/s. Dungarsidas Kaluram, for the assessment year 1971-72 in regard to its income of the whole period Diwali 1969 to Diwali 1970 when out the two partners one partner expired on 4th August, 1970, i.e., between Diwali 1969 to Diwali 1970, and the firm stood dissolved on the said date ?
(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the case comes under the ambit of Section 187 and one assessment of the income of the whole period be made ?
(iii) Whether the provisions of Section 187(2)(a) of the Income-tax Act, 1961, is applicable if there is a dissolution of partnership in the eye of law as provided under section 42 of the Indian Partnership Act ?'
2. The material facts giving rise to this reference briefly are as follows : The assessee is M/s. Dungarsidas Kaluram and the assessment year in question is 1971-72. The assessee filed two returns of income--the first up to 4th August, 1970, when one of the two partners of the firm, namely, Chhaganlal, died and the other from 5th August, 1970, onwards, when the surviving partner formed another partnership with Smt. Rukmanibai, widow of Chhaganlal, and one Sureshchandra. The ITO made only one assessment for the entire accounting, period. On appeal, the AAC found that after the death of Chhaganlal, one of the two partners of the firm, the firm ceased to exist and another firm came into existence. The AAC, therefore, held that two separate assessments had to be made. Against the order of the AAC the department preferred an appeal before the Tribunal. The Tribunal held that by virtue of the provisions of Section 187(2)(a) of the Act there was a change in the constitution of the firm and only one assessment had to be made for the entire accounting period. In this view of the matter, the Tribunal set aside the order of the AAC and resorted to the order passed by the ITO. On an application made in that behalf, the Tribunal has referred the aforesaid questions of law to this court for its opinion.
3. Now, in the case of a partnership consisting of only two partners, no partnership remains on the death of one of them. As held by the Supreme Court in CIT v. Seth Govindram Sugar Mills : 57ITR510(SC) , in such a case, the firm automatically comes to an end. Section 187 of the Act is attracted when at the time of making an assessment under Section 143 or Section 144 it is found that a change has occurred in the constitution of a firm. Sub-section (2) of Section 187 of the Act indicates what is meant by a change in the constitution of a firm. But a change in the constitution of a firm presupposes the continued existence of the firm. Learned counsel for the department contended that Section 2(31) of the Act defines a 'person' to include a firm and, therefore, for the purpose of the I.T: Act, a firm has a separate personality and existence independent of the partners who constitute it. It was, therefore, contended that where the provisions of Section 187(2) of the Act are attracted, resort cannot be had to the provisions of the Partnership Act. Now, it is no doubt true that a firm is treated as a ' person ' under the provisions of the Act, but Section 2(23) of the Act provides that unless the context otherwise requires, 'firm' has the same meaning as is assigned to it under the Indian Partnership Act, 1932. The provisions of Section 187(2) of the Act cannot be construed to mean that even though a partnership has come to an end on account of the death of one out of the two partners of the firm, nevertheless the firm would not be deemed to have ceased to exist. In our opinion, the provisions of Section 187 of the Act are not attracted in the instant case. The questionas to whether, if there is a dissolution of partnership as provided by Section 42 of the Indian Partnership Act, 1932, the provisions of Section 187 of the Act are attracted, ,does not really arise in this case because, as held bythe Supreme Court in CIT v. Seth Govindram Sugar Mills : 57ITR510(SC) , Section 42(c) of the Indian Partnership Act can be applied only where there are more than two partners. It is not, therefore, necessary to answer the third question referred to us.
4. For all these reasons, our answer to the first two questions referredto us is in the negative and against the revenue. The answer to the thirdquestion is not necessary in the circumstances of the case. Parties shallbear their own costs of this reference.