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TMI Blog1991 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the explanation which, briefly stated, is this : During the period from August 17, 1974, to April 15, 1975, the business was carried on by a registered firm with the partners C. V. Mathew, C. M. George and C. M. Mathew. This business was sold to new firm with the partners C. V. Mathew, C. M. George, C. M. Mathew and P. 1. Alexander, constituted on April 16, 1975. The two firms which carried on the business during the periods aforesaid are two distinct and different legal entities. The firm which came into being prior to April 16, 1975, sold its business as a running concern to the firm which was constituted on April 16, 1975. The assessment, therefore, is required to be made under section 188 of the Income-tax Act. The assessing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " The question has not been very happily worded. The real question that arises for consideration is whether the assessment made in terms of section 187 is sustainable or not. The answer depends upon the construction of sections 187 and 188 read with section 170 of the Incometax Act. We shall now extract these sections (leaving out irrelevant parts): "187. Change in constitution of a firm.-(1) Where, at the time of making an assessment under section 143 or section 144, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment: (2) For the purposes of this section, there is a change in the constitution of the firm (a) if one or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of assessment. To say that there is a change in the constitution of the firm it shall be shown that, at least one of the partners of the firm before the change continues as a partner after the change. Does that mean that the firm which succeeds the firm carrying on business or profession cannot claim an assessment under section 188 if some of its partners happen to be the partners of the firm which it succeeded. The answer must be in the negative; because, first of all, section 188 does not contain any such prohibition. Secondly, this section envisages a case of succession of the firm carrying on business or profession by another firm and to determine as to whether there is any such succession, reference shall be made not to section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... successor-firm to claim the assessment made under section 188. To put it briefly, to have an assessment under section 188, it is enough if it is established that, during the relevant year of assessment, there existed two distinct and different firms, and the firm carrying on the business or profession was succeeded by the other firm. These principles shall be borne in mind while deciding the issue, namely, whether the assessment requires to be made under section 187 or under section 188. Applying these principles to the facts of the case on hand, let us see whether the assessment should be completed by applying section 187 or made under section 188. The facts found by the Tribunal and relevant in this context are : "It is not in disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dr. Cr. (Rs.) (Rs.) 1975 April 16 Fixed assets 130.00 Bank accounts 4,372.54 Sundry debtors 75,693.83 Goodwill 5,000.00 Stock 1,96,883.37 To Vendor's account 7,877.49 ,, Sundry parties a/c. (being assets and liabilities of the old firm taken over transferred) 2,74,202.25 Fixed assets 64,580.00 To C. M. George 32,290.00 ,, C. M. Mathew 32,290.00 (being the assets introduced by these partners)". Referring to these entries, this is what the Tribunal has stated: "Entries have also been made regarding the transfer of the business from the old firm to the new firm". These findings read with the preamble of the deed constituting the successor firm clearly show that with effect from April 16, 1975, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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