Law:

Section:

Section 188 of the Income-tax Act, 1961 - Firm - Succession of one firm by another - Assessee-firm, originally constituted of four partners - Partnership deed made no provision for continuation of firm on death/retirement of partner - New partnership deed executed (after death/ retirement of two partners) between remaining two partners and new person with admission of four minor partners - New firm carried on the same business and continued the same account books and adopted the same previous year as original firm - Whether it was a case of succession within the meaning of section 188 involving two separate assessments for two separate periods - Held, yes Facts The assessee-firm originally constituted of four persons T, O, B and C. The partnership deed made no provision for its continuation on the death or retirement of any of the partners. On 11-2-1971 T died and O retired. A fresh partnership deed was executed on 4-3-1971 with retrospective effect from 12-2-1971 between B and C and one S, who was taken as a new partner, when C's share was reduced from 25 paise to 15 paise. Four minors were also admitted to the benefits of the partnership. The business of the original firm was continued by the newly constituted firm, which adopted the same accounting year, continued the same books of account and took over the assets and liabilities of the old firm. For the assessment year 1972-73, the assessee filed two returns for two periods : (a) for the period from Diwali 1970 to 11-2-1971, and (b) for the period from 12-21971 to Diwali 1971. It claimed two separate assessments on the ground that from 12-2-1971 the original firm stood dissolved and the newly constituted firm was its successor firm within the meaning of section 188. The ITO, however, held that it was a case of change in its constitution and, accordingly, made a single assessment in respect of the entire accounting period. Both the AAC and the Tribunal, on appeal, upheld the ITO's order. On reference : Held Conceptually, "change in the constitution of a firm" and "dissolution of a firm" are expressions defined and explained in the Indian Partnership Act itself. There is no substantial conflict between the…

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