Law:

Section:

Section 188 of the Income-tax Act, 1961 - Firm - Succession of one firm by another - Assessment year 1968-69 - Whether where one of partners of assessee firm died during relevant accounting year and a new partnership firm was reconstituted taking widow of deceased as new partner, provisions of section 188 would apply - Held, yes - Whether, therefore, Tribunal rightly held that old firm was dissolved on death of partner, and, consequently, two separate assessments were to be made in respect of two firms during relevant assessment year - Held, yes FACTS Originally the assessee firm consisted of four partners. During the relevant assessment year, one of the partners died. Thereafter, a new partnership was entered into between the three surviving partners and the widow of the deceased. The new partnership deed was executed on 15-6-1967, and the new partnership was to come into existence from 26-5-1967. For the assessment year 1968-69, the assessee filed two separate returns. The ITO held that there was a mere change in the constitution of the firm and nothing more and, therefore, the provisions of section 187 were attracted and the income of the two periods should be clubbed together. On second appeal, the Tribunal took a view that where there was a dissolution in law, section 187 was not applicable. The Tribunal further held that the old firm was dissolved on the death of the partner and, therefore, it directed that there should be two separate assessments for the two periods. On reference : HELD What is meant by a change in the constitution of the firm is coming in of a new partner with the consent of all the existing partners or by the retirement of a partner with the consent of all the partners ; in such cases there is a mere change in the constitution of the firm and nothing more. The same firm continues as before. The question of dissolution of a firm either by operation of law or by act of parties is a different thing altogether. When a firm is dissolved, the old relationship comes to an end and a new relationship comes into existence and if the succeeding partnership firm continues the old business, then there is succession of one firm by another as…

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