The reconstitution of a partnership firm after the dissolution of the old firm constitutes a case of succession governed by Section 188 of the Income-tax Act, 1961.

Agarwal, J.

1. The assessee-firm was originally constituted under a partnership deed, dated November 18, 1963. Kashi Prasad and six others were the partners of the aforesaid firm. Kashi Prasad died on May 4, 1965. A fresh partnership deed was, thereafter, executed on May 6, 1965, and a new firm consisting of six old partners and two new partners was constituted, having different shares in the partnership. The assessee-firm, thereafter, submitted two returns of its income for the following periods :

(1) November 6, 1964, to May 5, 1965.

(2) May 6, 1965, to October 24, 1965.

2. The Income-tax Officer issued a notice calling upon the assessee to show cause why the assessments should not be made on the firm as constituted at the time of making the assessment treating it as merely a change in the constitution of the firm in terms of Section 187 of the Income-tax Act. The assessee-firm filed a reply claiming that the old firm was dissolved on May 4, 1965, and, therefore, a new firm came into existence. THE Income-tax Officer held that the old business was continuing and, therefore, it was merely a change in the constitution of the firm. The Income-tax Officer, accordingly, clubbed the income for both the periods mentioned above and made one single assessment order. The assessee went in appeal to the Appellate Assistant Commissioner of Income-tax. The appeal was dismissed. The assessee then filed a second appeal to the Appellate Tribunal. The appeal filed by a assessee was allowed. The Tribunal found that, on account of the death of one of the partners of the old firm, the same stood dissolved automatically and, thereafter, a new firm came into existence. The department, thereafter, filed application under Section 256(1) of the Income-tax Act for referring the question to the High Court for its opinion. The application was allowed and the following question was consequently referred :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that this case is not one covered by Section 187 of the Income-tax Act, 1961, but falls under Section 188 of that Act and that two separate assessments should have been made ?''

3. The controversy involved in the present case, therefore, is whether the reconstitution of the partnership firm in the instant case falls under Section 187(2) of the Act. According to the revenue on the death of one of the partners of the old firm as it did not close its business and since the same business was continued with two additional partners, it was a case of mere change in the constitution of the old firm.

4. The contention raised by the counsel for the assessee was that the new firm that came into existence after the dissolution of the old firm was a different firm and, therefore, it was a case of succession of one firm by another and two separate assessments had to be made under Section 188 of the Income-tax Act, 1961. The above controversy has been recently decided by a Full Bench of this court in Dahi Laxmi Dal Factory v. Income-tax Officer, Sitapur [1916] 103 ITR 517 (All) [FB]. The view taken in this case by the majority is that 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. We are bound by this decision of the Full Bench. Following the same, we answer the question mentioned above in the affirmative. We hold that the Tribunal was right in taking the view that the present case was covered by Section 188 of the Income-tax Act.

5. For the reasons given above, we answer the question in favour of the assessee and against the department. No order as to costs. Counsel's fee is, however, assessed at Rs. 200.