Partnership succession under tax law allows separate assessments when an old firm is dissolved and a new firm is formed.

Dissolution of an old firm by mutual consent, followed by constitution of a new partnership from a later date, is treated as succession of one firm by another under section 188 of the Income-tax Act, 1961, rather than a mere change in constitution under section 187(2). On that footing, separate assessments are justified because the later firm is a distinct successor entity, not the same firm continuing with altered partners. The Tribunal's view was supported by prior Full Bench and other decisions of the same court, and its order setting aside the Commissioner's revision under section 263(1) was upheld.

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Issues: Whether, on the dissolution of the old firm by mutual consent and constitution of a new firm with effect from a later date, the case fell under section 188 of the Income-tax Act, 1961, or under section 187(2) of the Income-tax Act, 1961, so as to justify separate assessments.

Analysis: The old firm was dissolved by agreement of the partners and a new partnership came into existence thereafter. In such a situation, the matter is governed by section 188 dealing with succession of one firm by another, and not by section 187(2), which applies where there is merely a change in the constitution of the firm. The Tribunal's view was supported by the earlier Full Bench and other decisions of the same court treating dissolution followed by a new partnership as succession.

Conclusion: The reference was answered in the affirmative. The Tribunal was justified in setting aside the Commissioner's order under section 263(1) and in upholding two separate assessments. The decision is in favour of the assessee and against the department.

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