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Section 188 of the Income-tax Act, 1961 - Firm - Succession of one firm by another - Assessment year 1976-77 - On death of one of partners, a new firm was constituted after a gap of few days - Tribunal found that firm stood dissolved on death of said partner as there was no contract to contrary in partnership deed and accordingly, directed to make two separate assessments, one for period prior to death of partner and other for period subsequent to his death - Whether Tribunal was justified in order directing ITO to pass two separate assessment orders for aforesaid two periods - Held, yes FACTS Pursuant to death of one of its partners on 30-6-1975, a new firm was constituted on 7-7-1975 with effect from 3-7-1975. The assessee-firm filed two returns, one for the period from 1-1-1975 to 30-6-1975 and the other for the period 3-7-1975 to 31-12-1975. The ITO held that it was a case of a change in the constitution of the firm and, therefore, only one assessment was to be made for the entire period. On appeal, the AAC held that on the death of the partner, on 30-6-1975, the earlier partnership stood dissolved. He relied on the fact that the accounts were closed for the period ending on 30-6-1975, and the trading and profit and loss account and the balance-sheet for that period were separately prepared and that the new accounts were started with effect from 3-7-1975, when the new firm was constituted. The fact that there was a gap of a few days between the death of the partner on 30-6-1975, was also relied on by the AAC in support of this conclusion. Accordingly, he held that it was a case of succession and two separate assessments for the aforesaid two different periods according to the two returns filed by the assessees should be made. The Tribunal affirmed the order of the AAC. On reference: HELD Section 187 provides for change in the constitution of a firm, while section 188 deals with succession of one firm by another. The amendment in section 187(2) was made by the Taxation Laws (Amendment) Act, 1984, with retrospective effect from 1-4-1975 by adding a proviso. This newly added proviso to section 187(2) applied in the instant case, on the clear finding of the…

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