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Issues:
1. Whether two separate assessments should be made for different periods due to reconstitution of a partnership firm and subsequent dissolution? 2. Whether there was a change in the constitution of the firm or only a succession under the Income-tax Act? Analysis: 1. The case involved a registered firm engaged in business, initially comprising four partners which reconstituted to include fifteen new partners on December 1, 1974, totaling nineteen partners. A deed of dissolution was executed on January 31, 1975, followed by the formation of a new firm on February 1, 1975, with fifteen partners from the old firm and three new individuals. The Department sought to assess the income of the new firm along with the old firm due to common partners, under section 187(2) of the Income-tax Act. The Commissioner of Income-tax (Appeals) agreed with this approach, citing a decision by the Andhra Pradesh High Court. However, the Appellate Tribunal disagreed, emphasizing the dissolution of the old firm and the formation of a new one. The Tribunal's decision was based on the overruling of the Andhra Pradesh High Court decision by its Full Bench in another case. The Tribunal ruled for separate assessments up to January 31, 1975, excluding income post-February 1, 1975. 2. The Department argued for a single assessment, contending that the old firm continued with a change in partners rather than a dissolution. In contrast, the assessee supported the Tribunal's decision, highlighting the deed of dissolution as evidence of the old firm's termination. The court examined the events leading to the dissolution, including partner retirements and the distribution of profits as per the dissolution agreement. It was established that the old firm ceased to exist post-January 31, 1975, with a new firm formed on February 1, 1975. Citing precedents from the Madras High Court and the Supreme Court, the court affirmed the Tribunal's decision, emphasizing the significance of the dissolution deed in determining the firm's continuity. The court rejected the Department's argument regarding the necessity of notice under the Partnership Act, affirming the Tribunal's directive for separate assessments for the two distinct periods. In conclusion, the court upheld the Tribunal's decision for separate assessments, dismissing the Department's appeal and ruling in favor of the assessee. The judgment emphasized the legal significance of a deed of dissolution in determining the continuity of a partnership firm and the applicability of relevant provisions under the Income-tax Act.
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