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TMI Blog1970 (11) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... the constitution of the firm was changed by taking four minors also as partners. The five original partners took 14 per cent. each as the shares and the remaining 30 per cent. was distributed equally among the four minors. The reconstitution was to take effect from 1st June, 1962, though the accounts of the firm as constituted originally continued till 30th June. In other words, for the first half year, the firm as constituted originally continued and for the second half year, the firm as reconstituted was treated as another firm. The Income-tax Officer assessed the two periods separately; but the Commissioner of Income-tax felt that such separate assessment for the two periods was erroneous and prejudicial to the revenue. Therefore, he dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit the firm made during that year, in other words, the share of the loss of the partners who had retired could not be carried over. This conclusion is of no avail to the assessee in the present case. But, one observation of Hegde J., who spoke for the Division Bench, is relied upon by the counsel for the assessee. The observation appearing at the end of the first paragraph of page 280 of the reports is: "In other words, if it is found that a change has occurred in the constitution of the firm, assessment will have to be made on the firm as constituted at the time of making the assessment and not on the firm that was in existence earlier. From this it follows, for the purpose of assessment, every change in the constitution of a firm bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een succeeded in such capacity by another person, such person and such other persons should each be assessed, etc. The corresponding section of the Act of 1961, we mean section 188 of the new Act, provides that where a firm carrying on a business or profession is succeeded by another firm and the case is not one covered by section 187, separate assessments shall be made, etc. An expression similar to "and the case is not one covered by section 187" found in section 188 of the new Act is absent in sub-section (2) of section 26 of the old Act. We do not propose to consider whether this difference in language justified or warranted the observation of Hegde J. extracted by us hereinbefore, because, as will presently appear, such consideration i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succeeded by another firm, and the case is not one covered by section 187, separate assessments shall be made on the predecessor firm and the successor firm. The argument of the counsel for the assessee is that, though the case before us is only one where a change has occurred in the constitution of the firm, the assessment should be in the manner indicated by section 188, viz., the firm as constituted originally should be assessed for the first half year and the firm as constituted after the change in the constitution should be assessed for the second half year as another firm. The counsel relies on the observation of Hegde J. that, "for the purpose of assessment, every change in the constitution of a firm brings into existence a new firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1962 was the addition of four minor partners; all the five original partners continued. And the shares of the original partners in the firm were also altered so as to give shares to the partners newly brought in. Such change in the constitution comes under clause (a) of sub-section (2) of section 187. Then the assessment should be only under that section and not under section 188. Of course, the assessment has to be on the firm as constituted at the time of making the assessment--the firm as reconstituted; but in working out the shares of the loss or the profit of the several partners, the two periods may have to be separately considered. The result is that our answer to the question referred is in the affirmative and against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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