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Issues:
1. Whether the retirement of two partners in a firm resulted in succession or a change in the constitution of the firm? 2. Whether there should be two separate assessments for the assessment year 1972-73 due to the retirement of partners and reconstitution of the firm? Analysis: The case involved the reconstitution of a firm following the retirement of two partners and the subsequent assessment for the year 1972-73. The primary issue was whether this reconstitution constituted a succession or merely a change in the firm's constitution. The Income-tax Appellate Tribunal referred two questions to the High Court for consideration. The Tribunal held that it was a case of succession, following previous court decisions. However, the High Court analyzed the provisions of the Income-tax Act, particularly section 187, to determine the nature of the reconstitution. The High Court emphasized the significance of section 187(2)(a), which defines a change in the constitution of a firm. The court noted that in this case, there was no deed of dissolution executed upon the retirement of the partners, and a new partnership deed was created with a new partner. The court concluded that this scenario fell under the definition of reconstitution rather than succession. The court highlighted that if a deed of dissolution had been executed followed by a new partnership deed, it might have been considered a case of succession. Furthermore, the court distinguished the present case from instances of partner death, where the firm is dissolved as per the Partnership Act. The court clarified that the absence of a dissolution deed upon the partners' retirement indicated a reconstitution rather than succession. Ultimately, the High Court ruled in favor of the Revenue, determining that the case was a reconstitution rather than succession, leading to the dismissal of the appeal. In conclusion, the High Court's judgment clarified the distinction between reconstitution and succession in the context of partnership firms following the retirement of partners. By interpreting the relevant provisions of the Income-tax Act, the court determined that the case at hand constituted a reconstitution rather than succession, impacting the assessment for the respective period.
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