Law:

Section:

I. Section 188, read with section 187 of the Income-tax Act, 1961 - Firm - Succession of one firm by another - On death of one of partners on 5-8-1971, a minor was admitted to benefits of partnership - Business of erstwhile firm was taken over as running concern and no separate accounts were kept - A new partnership deed was executed on 28-10-1971 - ITO made single assessment on ground that there was only change in constitution of firm - Whether on facts, it could be said that there was succession and constitution of a new firm and, therefore, two separate assessments had to be made, one on erstwhile firm and other on new firm - Held, yes II. Section 37(2) of the Income-tax Act, 1961 - Entertainment expenditure - Whether expenditure incurred by assessee in providing food and refreshment, etc. to its customers was not in nature of entertainment expenditure and was, therefore, deductible - Held, yes FACTS I. One of the partners of the firm expired on 5-8-1971 and thereafter, minor was admitted to the benefits of the firm. The business of the erstwhile firm was taken out as a running concern and no separate accounts were kept by the new firm. A new partnership deed was executed on 28-10-1971. The ITO held that there was only a change in the constitution of the firm and, therefore, did not accept assessee's contention to make two assessments on basis of two returns filed, viz one of the erstwhile firm and other of the new firm . This was upheld by the AAC and the Tribunal. On reference : FACTS II. The assessee incurred expenses in providing food and refreshments etc. to the customers. The Tribunal held that these expenses were in the nature of entertainment expenses and, as such, were hit by the provisions of section 37(2B). On reference: HELD I. As regards the assessee's contention regarding two separate assessments, in view of the various decisions of the High Court, relied upon by the assessee, it was to be held that the instant case was not a case of a mere change in the constitution of the firm but it amounted to succession and constitution of a new firm and therefore, two separate assessments had to be made, one on the erstwhile firm and the other on the new…

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