Law: Income Tax Act, 1961

Section: 187

Income-tax-----Firm---Change in constitution or succession---Firm consisting of two partners---One of the partners retiring---Firm reconstituted with remaining partner and three new partners under new partnership deed----Results in change in constitution of firm and not succession---Single assessment to be made for entire period---Indian Income Tax Act, 1961, S. 187. The assessee-firm consisted of two partners, namely, D and K one of the partners, D, retired from the firm and the firm was reconstituted under a new partnership deed consisting of K and three new partners. The assessee-¬firm filed two returns one for the period prior to the retirement of the partner and another after his retirement and claimed that there should be two separate assessments. The Income-tax Officer held that there was no dissolution of the firm but only reconstitution and he made only one assessment clubbing the income for both the periods. The Appellate Assistant Commissioner, on appeal, confirmed the order of the Income-tax Officer but, on further appeal, the Tribunal held that there was a dissolution of the firm when one of the partners, D, retired. On a reference: Held, that the Tribunal was not justified in holding that the firm stood dissolved when one of the two partners of the firm retired and that there were two distinct and separate firms in the accounting period relevant to the assessment year 1976-77 requiring two separate assessments for both the periods. CIT v. Jagjiwan Patel Co. (1991) 188 ITR 563 (All.) fol. Erach F.D. Mehta v. Minoo F.D. Mehta AIR 1971 SC 1653 ref. JUDGMENT This is an income-tax reference in which the following question has been referred for our opinion: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the firm stood dissolved on September 30, 1974, when one of the two partners of the firm retired and that there were two distinct and separate firms id the accounting period relevant to the assessment year 1976-77 requiring two separate assessments for the period from July 1, 1974, to September 30, 1974, and from October 1, 1974, to June 30, 1975?" We have heard Sri Rajesh Kumar Agarwal, for the…

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