DIVAN,C. J.

( 1 ) THESE two matters have been placed before a Full Bench of five Judges in view of the order of reference made by a Division Bench of which one of us (Divan C. J.) was a member on 1/12/1976. Those two matters were referred to a larger Bench in view of the conflicting decisions of the different High Courts on the point which is involved in both these matters.

( 2 ) THE question that has to be decided is whether the provisions of S. 187 of the Income-tax Act , 1961 (hereinafter referred to as the Act) can be invoked by the Income-tax authorities, when a partnership firm is dissolved; and after the dissolution of the partnership firm, the business of the firm is continued by another partnership firm in which one or more of the partners of the dissolved firm have also joined and there are thus common partners between the dissolved firm and the new firm which continues the business of the old firm.

( 3 ) IN order to appreciate the controversies arising in both these matters, we will first refer to the facts in R. C. No. 22 of 1975. We are concerned in this case with assessment year 1969-70. The relevant accounting year is financial year 1968-69. The assessee is a registered firm carrying on business of running a cinema theatre under the name and style of "sri Vinayaka Cinema" at Nellore. The partnership was constituted by a partnership deed dated 29/04/1967. This partnership was duly registered under the provisions of the Income-tax Act. Amongst 9 partners of the firm, Srinivasulu and his son, Kamalakara Rao were also partners. Kamalakara Rao was a major at the relevant time and was the managing partner of the firm. Srinivasulu had gifted away four out of the twelve shares that he held in the firm to his daughter Smt. Y. V. Ramani and had formed a sub-partnership with her in the firm. The sub-partnership was recognised by the Income-tax Department and assessments were made separately on the father and daughter in respect of their respective share incomes. Srinivasulu, died on 17/08/1968 and on that very day another partner, Subbarama Reddy, retired from the firm after gifting away his interest in the firms business to one K. Penchala Lakshmamma. There was no clause in the partnership deed dated 29/04/1967 providing that, in the event of the death of one of the partners, the firm was not to be dissolved. Hence, as a result of the death of Srinivasulu, the old partnership firm stood dissolved under the provisions of the Partnership Act. By a deed dated 19/08/1968, a new partnership firm was constituted and under the new partnership deed, seven of the partners of the old firm together with two new partners, viz. , Y. V. Ramani and k. Penchala Lakshmamma, started a new partnership firm. This new firm was also registered under the Income-tax Act. For the assessment year 1969-70, two separate returns were filed, one for the period 1-4-1968 to 17-8-1968 and the other for the period 18-8-1968 to 31-3- 1969. It may be mentioned that the business of the old firm was taken over and continued by the new firm that came into existence under the partnership deed dated 19/08/1968. An application for renewal of registration was sent along with the return for the first period while for the second period, a fresh application in form 11 was filed.

( 4 ) ON those facts, the Income-tax Officer held that there was only a change in the constitution of the firm as contemplated by S. 187 (2) of the Act and he accordingly clubbed the incomes of the two periods and made a single assessment. He however granted registration to the firm that came into existence under the partnership deed of 19/08/1968 and allocated the profits among the respective partners who constituted the firm in the two different periods. Against this decision of the Income Tax officer, the matter was taken in appeal to the Appellate Assistant Commissioner. The contention of the assessee was accepted by the Assistant Commissioner observing that, in the absence of any provisi