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Issues:
1. Interpretation of section 187(1) of the Income-tax Act, 1961 regarding assessing the assessee-partnership. 2. Interpretation of the effect of the partnership deed and retirement of a partner on the partnership dissolution. 3. Determining if a change in the constitution of the firm occurred due to a partner's retirement. Analysis: The judgment by the High Court of Bombay involved a reference made by the Revenue regarding the assessment year 1971-72. The court noted that the assessee was a registered partnership with four partners governed by a partnership deed. The deed allowed one partner, Vijaykumar, to unilaterally terminate the partnership. Vijaykumar exercised this right on December 31, 1970, leading to the dissolution of the old firm and the formation of a new one with three partners. The Income-tax Officer initially accepted this dissolution and made separate assessments for the two broken periods. However, the Additional Commissioner of Income-tax intervened under section 263, directing a single assessment for the year ended March 31, 1971, citing a mere change in the firm's constitution due to one partner's retirement. The court analyzed the facts and found that there was indeed a dissolution of the old firm, as evidenced by the closure of old books and the start of new ones. The court upheld the Tribunal's decision that the new firm succeeded the old one, necessitating separate assessments for the broken periods under section 188. The court rejected the Revenue's argument that the old firm continued with three partners, emphasizing the actual dissolution and formation of a new firm. Consequently, the court answered the posed questions in the negative and in favor of the assessee, ruling that separate assessments were appropriate for the broken periods. In conclusion, the court's judgment clarified the legal implications of partnership dissolution, retirement of a partner, and the formation of a new firm. It underscored the importance of correctly interpreting partnership deeds and statutory provisions to determine the tax implications of such events. The decision provided clarity on the application of relevant sections of the Income-tax Act in cases of partnership changes, ensuring proper assessment and compliance with tax laws.
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