ORDER Heard counsel for the parties.
2. This is an income-tax reference under section 256(1) of the Income Tax Act, 1961. In which the following question has been referred to us for our opinion :
2. This is an income-tax reference under section 256(1) of the Income Tax Act, 1961. In which the following question has been referred to us for our opinion :
"Whether, on the facts and in the circumstances of the case, it was not the case of mere change in the constitution of the firm within the meaning of section 187(2) of the Income Tax Act, 1961 ?"
3. The relevant assessment year is 1981-82. During this assessment year one of the partner of the assessee-firm Smt. Vidyawati Devi died on 16-5-1980. There is no mention in the partnership deed that the partnership will continue despite the death of a partner. Hence in view of section 42(c) of the Indian Partnership Act, the firm automatically stated dissolved on the death of the partner and hence it is a case of dissolution of the firm and not re-constitution. Consequently there should be two assessments and not one in view of the Supreme Court decision in CIT v. Empire Estate (1996) 218 ITR 355 (SC). We, therefore, answer the question referred to us in the affirmative i.e., in favour of the assessee and against the department. The reference is answered accordingly.
3. The relevant assessment year is 1981-82. During this assessment year one of the partner of the assessee-firm Smt. Vidyawati Devi died on 16-5-1980. There is no mention in the partnership deed that the partnership will continue despite the death of a partner. Hence in view of section 42(c) of the Indian Partnership Act, the firm automatically stated dissolved on the death of the partner and hence it is a case of dissolution of the firm and not re-constitution. Consequently there should be two assessments and not one in view of the Supreme Court decision in CIT v. Empire Estate (1996) 218 ITR 355 (SC). We, therefore, answer the question referred to us in the affirmative i.e., in favour of the assessee and against the department. The reference is answered accordingly.