Change in constitution of firm under tax law applied where continuing partners carried on the same business after retirement.

Where one partner retired and the remaining partners continued the business under the same firm name, the arrangement was treated as a change in the constitution of the firm under section 187(2) of the Income-tax Act, 1961, rather than succession under section 188. The Full Bench rule applied because one or more partners of the old firm continued in the reconstituted firm, and the later amendment to section 187(2), effective from assessment year 1975-76, did not govern the relevant assessment year 1974-75. On that basis, the view that two separate assessment orders were justified as a case of succession could not be sustained.

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Issues: Whether, on the facts and circumstances of the case, the two separate assessment orders for the relevant assessment year were sustainable or whether the case fell within a change in the constitution of the firm under section 187(2) of the Income-tax Act, 1961, rather than succession under section 188.

Analysis: The relevant assessment year was 1974-75. One partner retired, the remaining partners continued the business in the same firm name, and returns were filed for the periods before and after retirement. The legal position was governed by the Full Bench decision of the same Court holding that where one or more partners of the old firm continue in the new firm, the matter is one of change in constitution within section 187(2). The later amendment to section 187(2), effective from assessment year 1975-76, did not apply to the present assessment year. On that basis, the Tribunal's view that the case was one of succession under section 188 could not be sustained.

Conclusion: The case was one of change in the constitution of the firm under section 187(2) of the Income-tax Act, 1961, and not succession under section 188; the Tribunal was not justified in holding otherwise, and the answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: Where one or more partners of an old firm continue the business in the reconstituted firm, the matter falls within section 187(2) as a change in constitution, unless the statutory regime applicable to the relevant assessment year provides otherwise.

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