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Issues:
1. Whether there was a change in the constitution of the firm under section 187(2) of the Income Tax Act, 1961. 2. Whether the old firm was dissolved after the death of a partner and a new firm came into existence. 3. Whether the case falls under section 188 of the Income Tax Act, 1961. Detailed Analysis: Issue 1: The primary issue in this case was whether there was a change in the constitution of the firm under section 187(2) of the Income Tax Act, 1961. The Income Tax Officer (ITO) initially completed the assessment by clubbing the income for both periods, considering it as a case of change in the firm's constitution. However, the Appellate Tribunal found that the partnership deed did not indicate that the firm would continue after the death of a partner, and therefore, there was no change in the constitution of the firm as per section 187(2). Issue 2: The next issue revolved around whether the old firm was dissolved after the death of a partner and a new firm came into existence. The assessee contended that after the death of a partner, the old firm was dissolved, and a new firm with different partners and profit-sharing ratios came into existence. The Tribunal found overwhelming evidence, including a new partnership deed and communication to authorities, supporting the dissolution of the old firm and the creation of a new one. The Tribunal concluded that the old firm was indeed dissolved, and a new firm started its operations. Issue 3: Finally, the question arose as to whether the case fell under section 188 of the Income Tax Act, 1961. The Tribunal analyzed the facts and found that the situation aligned with section 188, as there was a clear dissolution of the old firm and the formation of a new firm with different partners. The Tribunal referred to various decisions supporting the position that after the death of a partner, the firm stands dissolved unless there is a contract to the contrary, as provided under the Partnership Act. In conclusion, the Tribunal allowed the appeal, directing the ITO to complete separate assessments for the two periods, as the old firm was dissolved after the death of a partner, and a new firm was formed. The judgment clarified the legal position regarding the dissolution of a firm and the formation of a new one in such circumstances, emphasizing the importance of partnership deeds and compliance with relevant laws and regulations.
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