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TMI Blog1989 (8) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... e some partners who are common between the erstwhile firm and the new firm. The brief facts are that the respondent-assessee-firm, B. M. Jain and Co., was constituted under a deed of partnership dated April 1, 1971, with three partners. One of the partners, Bengali Mal Jain, died on December 26, 1976, during the previous year relevant to the assessment year in question. The surviving partners, along with four others, constituted a new firm with effect from December 27, 1976, and a new partnership deed was drawn up on January 7, 1977. The new firm took over the business of the erstwhile firm. For the assessment year in question, two returns were filed, claiming two separate assessments. In the first return, an income of Rs. 75,940 was disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the Income-tax Officer observing that he would be well within his jurisdiction to frame two separate assessments for the two respective periods on the two firms. On appeal to the Income-tax Appellate Tribunal at the instance of the Revenue, the decision of the first appellate authority was upheld. At the instance of the Commissioner of Income-tax, Agra, the following two questions have been referred for the opinion of this court. "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that it was not a case of change in the constitution of the firm within the meaning of section 187(1) of the Income-tax Act, 1961, and that it was a case of succession of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 103 ITR 517, by a majority, held that under the Partnership Act, reconstitution of a firm and dissolution of a firm are two different legal concepts which are distinct from, each other. Section 187 of the Income-tax Act applies only where a firm is reconstituted in accordance with sections 31 and 32 of the Indian Partnership Act, namely, when a new partner is taken or an existing partner retires with the consent of all the partners or without their consent, if the contract of partnership so provides. It was held that sub-section (2) of section 187 does not contemplate a definition of reconstitution of a firm. It merely, and by way of abundant caution, provides in clause (a) of sub-section (2) that even where the reshuffling of partners is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " The legal position was summed up by the majority decision in the following terms (at p. 526): "To sum up, the legal position that emerges is that section 187 applies, only where a firm is reconstituted in accordance with sections 31 and 32 of the Indian Partnership Act, namely, when a partner is taken or an existing partner retires with the consent of all the partners or without their consent if the contract of partnership so provides. But where a firm is dissolved either by agreement of partners or by operation of law and another firm takes over the business, that will be a case of succession governed by section 188 of the Act, even though some of the partners of the two firms are common." Another Full Bench of this court in CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n entity continues as one single unit throughout. Coming to the facts of the instant case, the findings recorded by the Income-tax Appellate Tribunal are that it is a case of succession within the meaning of section 188 of the Act. It has been found that the duration of the firm was at will and there was no clause in the original partnership deed providing that the firm shall not be dissolved on the death of its partners'. The findings of the Commissioner of Income-tax (Appeals) to the effect that on the death of Bengali Mal Jain, the erstwhile firm was dissolved and a new firm was constituted thereafter, has been upheld by the Income-tax Appellate Tribunal. On the findings recorded by the Income-tax Appellate Tribunal and in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the firm on the death of Bengali Mal Jain have not been challenged before us, nor is such a challenge possible within the scope of the question referred to us. Considering the case from either of the two angles, i.e., before or after the insertion of the proviso to sub-section (2) of section 187, the provisions of section 187 are not applicable to the instant case. Consequently, we answer question No. 1 referred to us in the affirmative, in favour of the assessee by saying that it was a case of succession of one firm by another within the meaning of section 188 and it was not case of change in the constitution of the firm as contemplated by section 187. The second question is also answered in the affirmative and in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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