Firm dissolution and fresh partnership led to succession treatment, requiring separate income-tax assessments for distinct periods.

A firm's dissolution followed by transfer of assets and liabilities to the continuing partners, and a later fresh partnership deed, was treated as succession of the business rather than a mere change in constitution. Applying the partnership-law effect of dissolution, the tax position was that the pre-dissolution and post-dissolution periods required separate assessments instead of a single assessment for the whole year. The commentary thus confirms that where a dissolved firm is taken over by a newly constituted partnership, the assessment framework follows succession principles, not internal reconstitution.

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Issues: Whether the case involved succession of the firm on dissolution, warranting two separate assessments, or merely a change in the constitution of the firm under the Income-tax Act, 1961.

Analysis: The firm's original partnership was at will, one partner retired, a dissolution deed was executed, the assets and liabilities were taken over by the remaining partners, and a fresh partnership deed was later executed with retrospective effect. Applying the partnership-law position under section 42(c) of the Indian Partnership Act, 1932, the change was treated as succession following dissolution rather than a mere internal reconstitution within section 187(2)(a) of the Income-tax Act, 1961.

Conclusion: The matter called for two separate assessments and not a single assessment for the entire year; the view in favour of the assessee was upheld.

Final Conclusion: The order directing split assessments for the pre-dissolution and post-dissolution periods was sustained, and the departmental appeal failed.

Ratio Decidendi: Where a firm is dissolved and the business is taken over by a newly constituted partnership, the case is one of succession and not merely a change in constitution for income-tax assessment purposes.

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