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- Determination of change in the constitution of a firm or existence of two separate firms for assessment purposes. Detailed Analysis: The case involved a question regarding the change in the constitution of a firm or the existence of two separate firms for assessment. The firm in question was initially constituted in 1963 with four partners. Subsequently, due to the dissolution of the trust and mutual consent of all parties, the partnership was dissolved on December 12, 1967. The next day, a new partnership with different partners was formed. The Income Tax Officer (ITO) initially framed a single assessment for both periods, but the Appellate Authority Commission (AAC) directed separate assessments for the two periods, considering it a case of succession due to the dissolution of the firm. The Revenue appealed the decision, which led to the Income-tax Appellate Tribunal agreeing with the AAC but recognizing a question of law for the High Court to consider. Various legal authorities were cited to determine whether the situation constituted a dissolution of the firm or merely a change in its constitution. The court emphasized that the dissolution was intended by the parties, and the deed of dissolution further confirmed this fact. Referring to the Supreme Court's decision in CIT v. Pigot Chapman & Co., the court highlighted that dissolution and reconstitution are distinct legal concepts. It was clarified that a dissolution followed by the constitution of a new firm by some erstwhile partners could still be considered a succession to the old business. Additionally, a previous judgment by the Delhi High Court in CIT v. Sant Lal Arvind Kumar was referenced to support the conclusion that in cases of dissolution, separate assessments must be made for distinct periods. Based on the legal principles and precedents cited, the High Court concluded that there were indeed two separate firms during the relevant periods, and their incomes needed to be assessed separately. The court ruled in favor of the assessee, directing the Commissioner to pay costs. The judgment highlighted the importance of analyzing the intention of the parties and the specific circumstances to determine whether a firm's dissolution leads to succession or a mere change in its constitution.
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