Succession of firm, not mere change in constitution, required separate assessments for distinct accounting periods.

Where three partners retired and new partners were inducted, the earlier firm came to an end because the remaining partner alone could not constitute the firm. The facts therefore showed succession of one firm by another, not a mere change in constitution under section 187(2) of the Income-tax Act, 1961. As the two accounting periods were distinct, the income for those periods could not be clubbed and separate assessments were required.

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Issues: Whether the income of two accounting periods of the firm was liable to be clubbed on the footing of a mere change in constitution, or whether the facts showed succession requiring bifurcation and two separate assessments.

Analysis: The assessment periods were distinct, and the firm's business continued through a change in partners in which three partners retired and the remaining partner could not, by himself, constitute the firm. On the retirement of the partners and the induction of new partners, the earlier firm came to an end and a new firm came into existence. On these facts, the case was one of succession and not a mere change in constitution within the meaning of section 187(2) of the Income-tax Act, 1961. The cited Full Bench authority also supported separate assessments.

Conclusion: The income for the two periods could not be clubbed, and two separate assessments were required. The decision was in favour of the assessee.

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