Dissolution followed by succession: partnership documents showed a new firm succeeding to the old business for tax relief.

A partnership deed fixing a terminal date, followed by an express dissolution by mutual consent and a transfer of assets, liabilities and business to continuing partners, supported a finding of dissolution followed by succession rather than a mere change in constitution. The subsequent deed confirmed that the business was carried on by the continuing partners to the exclusion of the retiring partner. On the documents and surrounding circumstances, the new firm was treated as succeeding to the old business, so relief under section 25(4) of the Indian Income-tax Act, 1922, was available.

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Issues: Whether the firm was dissolved on 1 April 1959 and whether the assessee was entitled to relief under section 25(4) of the Indian Income-tax Act, 1922, on the ground that a new firm succeeded to the business of the old firm.

Analysis: The relevant deeds showed that the original partnership was for a fixed term and would stand dissolved on 31 March 1959, that the deed dated 30 March 1959 expressly recorded dissolution by mutual consent from 1 April 1959, and that the outgoing partner released all claims while the continuing partners took over the assets, liabilities, and business. The subsequent deed of 29 June 1959 confirmed that the business was thereafter carried on by the continuing partners to the exclusion of the retiring partner. On the documents and surrounding circumstances, the arrangement was not a mere change in constitution but a dissolution followed by succession by a new firm.

Conclusion: The assessee was entitled to relief under section 25(4); the finding of dissolution and succession was upheld against the Revenue.

Ratio Decidendi: Whether there is dissolution followed by succession, or only a change in constitution, depends on the intention of the parties as gathered from the partnership documents and surrounding circumstances, and a new firm formed by continuing partners after dissolution can amount to succession to the old business within section 25(4).

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