Section 42 of the Partnership Act, 1932: In the case of a firm with more than two partners, if one of the partners dies or retires, there is change in the constitution of the firm but there is no dissolution

(i) It is settled in law by virtue of Section 42 of the Partnership Act, 1932 that the partnership will stand dissolved inter alia on the death of the partner but this is applicable in cases where there are only two partners constituting the partnership firm. The aforesaid principle would not apply where there are more than two partners in a partnership firm and the deed of partnership provides otherwise that the firm will not stand automatically dissolved on the death of one of the partners.

(ii) In the case at hand, the partnership consisted of three partners and the deed of partnership, in unequivocal terms, provided that the death of a partner shall not cause discontinuance of partnership and the surviving partners may continue with the business. Therefore, the principle laid down under Section 42 of the Partnership Act would not be applicable and the partnership would continue despite the death of one of the partners.

(iii) In M/s Wazid Ali Abid Ali vs. Commissioner of Income Tax, Lucknow 1988 (Supp) SCC 193, the Supreme Court observed that under the Partnership Act, on death or demise of a partner, the firm shall not be dissolved but shall be carried on with the remaining partners or by including the heirs and representative of the deceased partner on such terms and conditions mutually agreed upon. The aforesaid decision relied upon the decision of Calcutta High Court in Sandersons & Morgans vs. ITO (1973) 87 ITR 270 wherein it was reiterated that if one of the partners dies or retires, there is change in the constitution of the firm but there is no dissolution. A similar view was expressed by the Allahabad High Court in Noor Mohammad and Co. vs.Commissioner of Income-Tax (1991) 191 ITR 550 wherein it was held that the partnership would continue despite the death of one of the partners in terms of the Partnership Deed.