Law:

Section:

Section 188, read with section 187, of the Income-tax Act, 1961 - Firm - Succession of one firm by another - Assessment year 1991-92 - Whether in a case where out of three partners two of partners had retired from partnership firm during relevant assessment year and a new partnership deed was executed between remaining partner and two new partners, it was a case of succession falling under section 188 and consequently two assessments for relevant assessment year had to be made and that it was not a case of change in constitution within meaning of section 187(2) - Held, yes FACTS The assessee, a partnership firm, was originally constituted by a partnership deed dated 2-3-1981 and it consisted of three partners, namely, P, S and A. One of the clauses of the said partnership deed provided that the firm shall not be dissolved by reason of retirement or death of any partner and on the happening of any such event, the remaining partners shall be entitled to continue the business of the firm as before, subject to determination of the share of the retiring or deceased partner. S and A had expressed their desire to retire from the partnership and gave notice accordingly. On 14-6-1990 a new partnership deed was executed between the remaining original partner P and two new partners, namely PB and M. For the relevant assessment year 1991-92, the assessee filed two separate returns, one for the period from 1-4-1990 to 13-6-1990 and the other for the period from 14-6-1990 to 31-3-1991 on the ground that on the retirement of the two partners of the firm the original partnership ceased to exist by operation of law and subsequently another partnership deed was executed by the remaining partner along with two others and claimed that this was a case of succession covered by section 188 and, therefore, two separate assessments were contemplated. The Assessing Officer framed a single assessment on the partnership firm for the period from 1-4-1990 to 31-3-1991. He held that there was no dissolution of the original partnership on 14-6-1990 when two partners retired and that it was a case of change in the constitution within the meaning of section 187(2) when two partners retired and…

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