Firm reconstitution under income tax law required one assessment where continuing partners remained and new partners were admitted.

A firm was treated as reconstituted, not dissolved, where three partners continued, the two minors earlier admitted to partnership benefits were dropped, and five new partners were inducted. On those facts, section 187(2)(a) of the Income-tax Act, 1961 applied because some original partners remained while others ceased and new partners were admitted. The assessment had therefore to be made as one assessment on the firm as constituted at the time of assessment under section 187(1), rather than by splitting the year into separate assessments on the basis of dissolution. The questions were answered in favour of the Revenue and against the assessee.

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Issues: Whether the firm's assessment for the relevant year had to be made as a case of change in constitution of the firm under section 187 of the Income-tax Act, 1961, or whether the events amounted to dissolution requiring separate assessments for the two periods.

Analysis: The relevant assessment year was 1976-77. Three partners remained common throughout, while the two minors earlier admitted to the benefits of partnership were dropped and five new partners were inducted. On these facts, the conditions in section 187(2)(a) of the Income-tax Act, 1961 were satisfied because one or more partners ceased and new partners were admitted while some original partners continued. The statutory scheme required the assessment to be made on the firm as constituted at the time of assessment under section 187(1), and the case did not fall within dissolution.

Conclusion: The firm was reconstituted and not dissolved, and only one assessment was justified. The questions were answered in favour of the Revenue and against the assessee.

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