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Issues:
1. Determination of whether the death of a partner resulted in a change in the constitution of the firm or a succession. 2. Assessment procedure for a firm following the death of a partner. Analysis: The High Court of Madhya Pradesh addressed a reference under section 256(1) of the Income-tax Act, 1961, raised by an assessee regarding the impact of a partner's death on the firm's status. The firm, engaged in grain business, had four partners, with one partner passing away on March 17, 1973. The assessee filed two returns for the assessment year 1974-75, one for the period before the partner's death and the other for the subsequent period. The contention was whether the firm dissolved upon the partner's death or if it was a mere change in constitution governed by section 187 of the Act. The Income Tax Officer (ITO) held it was a change in constitution based on the partnership deed's provisions, a decision upheld by the Commissioner (Appeals) and the Tribunal, leading to the reference to the High Court. The central issue revolved around determining whether section 187 or section 188 of the Income-tax Act applied to the situation. The judgment clarified that the assessment should be based on section 187 as it stood before the 1975 amendment. Referring to the decision in Girdharilal v. CIT [1984] 147 ITR 529, the court emphasized that in cases like this, where there was a change in the constitution of the firm, section 187 applied, and not section 188 governing succession. The income earned before and after the change should be combined for a single assessment for the entire accounting period. Therefore, the questions raised by the assessee were answered in favor of the Revenue, confirming that the firm's constitution changed with the partner's death, and only one assessment was required for the entire accounting year. In conclusion, the High Court's judgment upheld the Tribunal's decision that the partner's death led to a change in the firm's constitution, not a dissolution, and necessitated a single assessment for the entire accounting year. The decision was based on the interpretation of section 187 of the Income-tax Act before the 1975 amendment, following the precedent set by a Full Bench decision. The reference was resolved against the assessee, affirming the Revenue's position on the assessment procedure in such cases.
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