TMI Blog1975 (7) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... 16, 1963. In order to meet the financial needs of the partnership, seven more partners were admitted to the partnership and a fresh deed dated May 26, 1964, was executed and they continued to carry on the business. One of the partners died on August 15, 1964, and the remaining 19 partners decided to continue to carry on the business under the terms and conditions evidenced, by another deed dated September 2, 1964. For the assessment year 1964-65, corresponding to the previous year ending April 11, 1964, the assessee-firm filed three returns of income--one for the period ending May 27, 1963, the second for the period December 15, 1963, and the third for the period ending April 11, 1964, and claimed that though the assessee was liable to be assessed for the entire period, as there were changes in the constitution of the firm on the respective dates three separate assessments will have to be made and the income during these periods could not be clubbed together and one assessment made on the assessee-firm. He also contended that section 187 of the Income-tax Act, 1961 (hereinafter called the Act), does not authorise the clubbing of the income. The Income-tax Officer held that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partner by reason of death and the partnership continuing to carry on the business will only amount to a charge in the constitution of the firm. He further contended that section 187 contemplates only single assesssment on the firrn as constituted at the time of making the assessment on the income of the previous year and the income could not be apportioned and separate assessments made with reference to every time a change in the constitution takes place. He also referred to certain clauses in the partnership deed as providing for the continuance of the partnership irrespective of the death of one or more of the partners. The first point that arises for consideration, therefore is whether there was merely a change in the constitution of the firm within the meaning of section 187(2) when one of the partners died on May 27, 1963, or when the two partners retired on December 15, 1963, and when seven new partners were admitted to the partnership with effect from December 16, 1963. Section 187(2) reads as follows : " (2) For the purposes of this section, there is a change in the constitution of the firm-- (a) if one or more of the partners cease to be partners or one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased to exist was continued. A reconstitution of a firm or partnership necessarily implies that the firm never became extinct. What it denotes is a structural alteration of the membership of the firm, by addition or reduction of members, and an incidental redistribution of the shares of the partners." We have already noticed that if there is a contract to the contrary against dissolution of a firm by the death of a partner, a change in the constitution of the firm also occurs by reason of death of a partner provided there are at least two surviving partners. In our opinion, therefore, the words " ceasing to be partners " in section 187(2) would also include a case of death of a partner when such death by reason of a contract to the contrary or by reason of any law, did not bring about the dissolution of the partnership. But we are not prepared to accept the further argument of the learned counsel for the revenue that for the purpose of section 187 even in cases where there is no contract to the contrary against the dissolution of the firm by death of a partner it will amount to a change in the constitution of the firm within the meaning of section 187(2). Of course, the argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these cases also show that the partners never intended that the dissolution should result in the death of a partner. In the partnership deed that was executed subsequent, to the death of one of the partners, in the preamble portion it is clearly stated that the partners continued to carry out the business even after the death of that partner and subsequently, they admitted one more partner. There could be no doubt that a contract against dissolution by reason of death of a partner could be either express or implied and such implied contract could be gathered from the conduct of the parties. If any authority is needed, reference may be made to the decision in Devji Goa v. Tricumji Jiwandas and Ramkumar v. Kishorilal . We are of the view that the above extracted clauses in the partnership deed and the conduct of the parties show that death was not intended to bring about a dissolution of the partnership. We are, therefore, of the view that by reason of the death of one of the partners on May 27, 1963, there was no dissolution and there was only a reconstitution of the firm on all the occasions, namely, when one of the partners died, two of them retired and the admission of seven mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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