Partnership succession after partner's death was treated as section 188, not a mere change in constitution.

A partnership firm's reconstitution after the death of a partner and induction of a new partner was analysed under the amended section 187 of the Income-tax Act, 1961, read with the proviso inserted retrospectively from 1 April 1975. The controlling principle stated was that such a situation constitutes succession of the firm under section 188, not a mere change in constitution under section 187(2). On that basis, the earlier view treating the income as a single assessment under section 187(2) was held unsustainable, and the matter fell within section 188.

---

---

Issues: Whether, on the facts and in the circumstances of the case, section 187(2) of the Income-tax Act, 1961 applied to treat the matter as a mere change in the constitution of the firm, or whether the case was one of succession governed by section 188.

Analysis: The assessment year in question was 1977-78, and the partnership firm underwent a change after the death of one partner, followed by induction of a new partner. The amended section 187, after insertion of the proviso to sub-section (2) with retrospective effect from 1 April 1975, governed the controversy. On that amended provision, the controlling principle was that such a situation amounts to succession of the firm under section 188 rather than a mere change in constitution under section 187. Applying that rule, the earlier view treating the income as one assessment under section 187(2) was not sustainable.

Conclusion: Section 187(2) was not applicable, and the case was one of succession under section 188. The answer was therefore against the Revenue and in favour of the assessee.

---