Section 187(2)

Section 187(2) — the law in short

What the courts have decided on section 187(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Empire Estate — a firm dissolved by the death of a partner is succeeded, not reconstituted, so there are two assessments Supreme CourtHelps taxpayerValidity unconfirmed
  A partner died mid-year, the deed said nothing about the firm continuing, and the survivors carried on the business under a fresh deed. The officer has clubbed the whole year into one assessment. Can he?
  No. The Supreme Court held that where the partnership deed contains no provision for the firm continuing on the death of a partner, the firm stands dissolved by force of s.42(c) of the Indian Partnership Act 1932; the case is then not one of a change in the constitution of the firm and falls outside s.187, and where the surviving partners continue the business in partnership there is a succession of one firm by another, which attracts s.188 and separate assessments on the predecessor and the successor firm. Two returns and two assessments, not one.
• Statutory position — sections 187, 188, 188A and 189: one assessment on the firm or two CBDT Circulars & InstructionsCuts both ways
  Partners left and joined during the year, and one of them died. Will the department make one assessment on the firm for the whole year or two separate assessments?
  One assessment if it is a change in constitution under section 187, two if it is a succession under section 188. Section 187 applies where partners cease or are admitted but at least one pre-change partner continues, or where all the partners continue with a change in their shares; the assessment is then made on the firm as constituted at the time of making the assessment. The dividing line is the proviso to section 187(2): where the firm is dissolved on the death of a partner, clause (a) does not apply, so the case falls to section 188 and separate assessments are made on the predecessor and successor firms in accordance with section 170.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.