Law:

Section:

Section 187 of the Income-tax Act, 1961 - Firm - Position prior to 1-4-1993 - Assessment year 1977-78 - Assessee-firm was dissolved by a deed of dissolution on 20-5-1977 and thereupon a new partnership firm was constituted by executing a new partnership deed on 21-5-1977 - Assessee-firm filed income tax returns of two firms for two different periods, i.e., one from 1-4-1977 to 20-5-1977 and other for period from 21-5-1977 to 31-3-1978 - Assessing Officer clubbed income of both firms by applying provisions of section 187(2) - On appeals, Commissioner (Appeals) as well as Tribunal formed opinion that provisions of section 187(2) were not applicable and Assessing Officer was wrong in clubbing income of two firms - On instant reference, it was seen from records that a goodwill account had been created while settling accounts of partners and, they were given credit of their respective shares of goodwill according to their profit-sharing ratio - Moreover, capital accounts of partners who had purchased business of old firm were also debited on account of entire goodwill taken over by them - Whether in view of circumstances, it could be concluded that accounts of all partners were duly settled and firm was dissolved in toto - Held, yes - Whether, therefore, Tribunal was right in holding that there should be two separate assessments of assessee-firm in respect of aforesaid two periods - Held, yes FACTS The assessee-firm was dissolved by a deed of dissolution executed on 20-5-1977 according to which the two partners, namely, 'J' and 'S' took over the running business and assets of the firm. Subsequently, on 21-5-1977 a new partnership firm was constituted by executing a new partnership deed. The income-tax returns were filed for the two relevant assessment periods, i.e., one return for the period from 1-4-1977 to 20-5-1977 and the second return for the period from 21-5-1977 to 31-3-1978. The Assessing Officer clubbed the income of both the periods under the provisions of section 187(2) and assessed the assessees. On appeal, Commissioner (Appeals) arrived at a conclusion that as there was a new partnership deed executed, the provisions of section 187(2) were not…

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