The related question is whether a partnership firm is such an entity in law that notwithstanding the death of a partner, that entity does not undergo a change and whether the legal entity, continues notwithstanding the death of one of the partners.
Under the Indian Partnership Act a partnership has not been given any legal status. It is not a juristic person and the independent status given to the partnership firm under the Act has to be limited only for the purposes of that Act. Such a legal position becomes clear from the landmark judgment of the Supreme Court in CIT vs. R.M. Chidambaram Pillai. In this case, Supreme Court exclusively dealt with the concept of a partnership firm and quoted with approval a paragraph from Lindley on Partnership–
“’The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm; but, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer.”
The Supreme Court has in its various judgments pointed out that the Indian law of partnership is substantially same in this regard. In another case Dulichand Laxminarayan v. CIT, the Apex Court quoted with approval:
“…In some systems of law this separate personality or a firm apart from its members has received full and formal recognition, as, for instance, in Scotland. That is, however, not the English common law conception of a firm. English lawyers do not recognise a firm as an entity distinct from the members composing it. Our partnership law is based on English law and we have also adopted the notions of English lawyers as regards a partnership firm.
It is clear from the foregoing discussion that the law, English as well as Indian, has, for some specific purposes, some of which are referred to above, relaxed its rigid notions and extended a limited personality to a firm. Nevertheless, the general concept of a partnership, firmly established in both systems of law, still is that a firm is not an entity or ‘person’ in law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute the firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership. According to the principles of English jurisprudence, which we have adopted, for the purposes of determining legal rights ‘there is no such thing as a firm known to the law’ as was said by James L.J. in Ex parte Corbett: In re. Shand  LR 14 Ch. 122, 126. In these circumstances to import the definition of the word ‘person’ occurring in section 3(42) of the General Clauses Act, 1897, into section 4 of the Indian Partnership Act will, according to lawyers, English or Indian, be totally repugnant to the subject of partnership law as they know and understand it to be…”
Similarly, the Supreme Court in Malabar Fisheries Co. v. CIT, observed that-
“…a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm’s property or firm’s assets all that is meant is property or assets in which all partners have a joint or common interest…The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm’s rights in the partnership assets amounting to a transfer of assets within the meaning of section 2(47) of the Act….”
Another decision of the Supreme Court in CIT v. AW. Figgies & Co. decides three things. Firstly, it holds that under the prevailing law, a firm has no legal existence; secondly, it holds that retirement or taking in of a new partner results in reconstitution of the firm and thirdly, a partnership firm is treated as a distinct assessable entity. All these three aspects were later reiterated in Chidambaram Pillai’s case (supra).
These authorities, therefore, clearly establish that a partnership cannot be treated as a ‘person’ owning property and as pointed out by Lindley, any change amongst the partners destroys the identity of the firm.
Author: Vivek Kumar Verma
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  106 ITR 292 as quoted at para 12 in Commissioner of Income Tax vs. Patel Brothers, 13TAXMAN238(Bom);
 12th edition, page 28,
  29 ITR 535
  120 ITR 49
  24 ITR 405