Valid partnership dissolution triggers succession and separate tax assessments; common partners alone do not mean mere change in constitution.

A valid dissolution of a partnership firm, supported by a dissolution deed and surrounding acts recognising the end of the old firm, prevents post-dissolution business income from being aggregated in the old firm's hands merely because some partners continue in the new firm. Section 43 of the Partnership Act does not make notice mandatory in every dissolution by agreement, and section 187(2) of the Income-tax Act cannot override partnership law where dissolution is established. In such a case, the business is treated as succession by one firm to another under section 188, requiring separate assessments.

---

---

Issues: Whether the assessee-firm was dissolved on 31 January 1975 and, if so, whether the income of the business for the period after 1 February 1975 could still be aggregated in the hands of the old firm on the ground that several partners were common to both firms.

Analysis: The dissolution was supported by a formal dissolution deed, public notice, intimations to authorities and accounting entries, and there was no factual enquiry to discredit it. A dissolution by agreement falls within section 40 of the Indian Partnership Act, 1932, and section 43 deals only with one mode of dissolution and does not make notice mandatory in every case. Once dissolution is established, the mere continuance of business or the presence of common partners does not convert the situation into a mere change in constitution. The reasoning under section 187(2) of the Income-tax Act, 1961 does not override partnership law where the case is one of dissolution followed by a new firm. In such circumstances the governing provision is section 188, which contemplates succession of one firm by another and requires separate assessments.

Conclusion: The firm was dissolved on 31 January 1975, and the post-dissolution income could not be assessed in the hands of the erstwhile firm. The assessee succeeded on the question of separate assessment.

Ratio Decidendi: Where a firm is validly dissolved and a new firm succeeds it, commonality of some partners by itself does not amount to a mere change in constitution, and separate assessments must follow under the succession provision rather than aggregation under the provision governing continuance of the same firm.

---