Partners left and joined during the year, and one of them died. Will the department make one assessment on the firm for the whole year or two separate assessments?
One assessment if it is a change in constitution under section 187, two if it is a succession under section 188. Section 187 applies where partners cease or are admitted but at least one pre-change partner continues, or where all the partners continue with a change in their shares; the assessment is then made on the firm as constituted at the time of making the assessment. The dividing line is the proviso to section 187(2): where the firm is dissolved on the death of a partner, clause (a) does not apply, so the case falls to section 188 and separate assessments are made on the predecessor and successor firms in accordance with section 170.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1993-04-01, reported as Section 187 as amended by the Finance Act 1992 with effect from 1 April 1993, its sub-section (2) proviso inserted by the Taxation Laws (Amendment) Act 1984 with retrospective effect from 1 April 1975; section 188A inserted by the Direct Tax Laws (Amendment) Act 1987 with effect from 1 April 1989; sections 187, 188 and 189 as in force for assessment year 2025-26, read from the Income-tax Department's Year 2025 section pages; section 188A read from the Department's Year 1990, Year 2000 and Year 2009 pages, which are identical. It bears on section 187, section 187(1), section 187(2), section 188, section 188A, section 189, section 189(3), section 189(4), section 170, section 159(6) of the Income Tax Act 1961, in Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters.
The choice between one assessment and two is not a formality. It decides whose income is aggregated with whose, which slab and rate apply to each period, how losses and depreciation are dealt with between the two periods, and who signs and verifies which return. It is also the point at which recovery bites: section 188A makes every person who was a partner during the previous year, and the legal representative of a deceased partner, jointly and severally liable along with the firm for the tax, penalty or other sum payable by the firm for the assessment year relevant to that previous year. Section 189 covers the separate case of a firm whose business has been discontinued or which has been dissolved: the assessment is made as if no discontinuance or dissolution had taken place, penalties under Chapter XXI can be imposed, every person who was a partner at that time and the legal representative of a deceased partner are jointly and severally liable, and proceedings already commenced continue from the stage they had reached. The practical consequence is that a partner who left years ago can still be pursued, and the proviso to section 187(2) is often the only thing between a client and a single aggregated assessment he did not expect.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Chapter XVI of the Act deals with firms whose composition changes during a year. Section 187 governs a change in constitution, section 188 a succession of one firm by another, section 188A the liability of the partners for the firm's dues, and section 189 the assessment of a firm whose business has been discontinued or which has been dissolved. The four provisions have to be read together, because the answer to 'one assessment or two' under sections 187 and 188 determines what section 188A and section 189 then attach to.
Under section 187(1), where at the time of making an assessment under section 143 or section 144 it is found that a change has occurred in the constitution of a firm, the assessment is made on the firm as constituted at the time of making the assessment. Section 187(2) defines a change in constitution as arising (a) where one or more partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners before the change continue as partner or partners after the change, or (b) where all the partners continue with a change in their respective shares or in the shares of some of them; with a proviso that nothing in clause (a) applies to a case where the firm is dissolved on the death of any of its partners. Section 188 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 are made on the predecessor firm and the successor firm in accordance with the provisions of section 170. Section 188A makes every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which that previous year is relevant. Section 189(1) requires the assessment of a discontinued or dissolved firm to be made as if no discontinuance or dissolution had taken place, with all the provisions of the Act, including those relating to penalty, applying so far as may be; sub-section (3) makes every person who was a partner at the time of such discontinuance or dissolution, and the legal representative of a deceased partner, jointly and severally liable; sub-section (4) allows proceedings commenced before the discontinuance or dissolution to be continued from the stage at which they stood; and sub-section (5) preserves section 159(6).
Section 187 rests on the continuity of at least one partner: if someone who was a partner before the change is still a partner after it, the assessable entity is treated as the same firm and one assessment covers the whole previous year. Section 188 is residual — it applies only where the case is 'not one covered by section 187' — and when it applies it borrows the machinery of section 170 for succession, which is why the two assessments are made in the manner section 170 prescribes rather than by any rule of its own. The proviso to section 187(2) is the deliberate exception: even though a surviving partner may continue, a dissolution on death is not treated as a mere change in constitution, so the case falls out of section 187 and into section 188. Sections 188A and 189 then supply the collection consequences, both of them fixing joint and several liability on the individuals rather than leaving the revenue with a claim only against an entity that may no longer exist.
Provided that nothing contained in clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners.
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Handle my notice → Ask a CA on WhatsAppOne assessment if it is a change in constitution under section 187, two if it is a succession under section 188. Section 187 applies where partners cease or are admitted but at least one pre-change partner continues, or where all the partners continue with a change in their shares; the assessment is then made on the firm as constituted at the time of making the assessment. The dividing line is the proviso to section 187(2): where the firm is dissolved on the death of a partner, clause (a) does not apply, so the case falls to section 188 and separate assessments are made on the predecessor and successor firms in accordance with section 170. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 187, section 187(1), section 187(2), section 188, section 188A, section 189, section 189(3), section 189(4), section 170, section 159(6) of the Income Tax Act 1961. It is reported as Section 187 as amended by the Finance Act 1992 with effect from 1 April 1993, its sub-section (2) proviso inserted by the Taxation Laws (Amendment) Act 1984 with retrospective effect from 1 April 1975; section 188A inserted by the Direct Tax Laws (Amendment) Act 1987 with effect from 1 April 1989; sections 187, 188 and 189 as in force for assessment year 2025-26, read from the Income-tax Department's Year 2025 section pages; section 188A read from the Department's Year 1990, Year 2000 and Year 2009 pages, which are identical. The choice between one assessment and two is not a formality. It decides whose income is aggregated with whose, which slab and rate apply to each period, how losses and depreciation are dealt with between the two periods, and who signs and verifies which return. It is also the point at which recovery bites: section 188A makes every person who was a partner during the previous year, and the legal representative of a deceased partner, jointly and severally liable along with the firm for the tax, penalty or other sum payable by the firm for the assessment year relevant to that previous year. Section 189 covers the separate case of a firm whose business has been discontinued or which has been dissolved: the assessment is made as if no discontinuance or dissolution had taken place, penalties under Chapter XXI can be imposed, every person who was a partner at that time and the legal representative of a deceased partner are jointly and severally liable, and proceedings already commenced continue from the stage they had reached. The practical consequence is that a partner who left years ago can still be pursued, and the proviso to section 187(2) is often the only thing between a client and a single aggregated assessment he did not expect. If it applies to you, the first step is this: Establish first whether any person who was a partner before the change continued as a partner after it. If at least one did, and the firm was not dissolved on a death, the case is a change in constitution and one assessment is made.
Chapter XVI of the Act deals with firms whose composition changes during a year. Section 187 governs a change in constitution, section 188 a succession of one firm by another, section 188A the liability of the partners for the firm's dues, and section 189 the assessment of a firm whose business has been discontinued or which has been dissolved. The four provisions have to be read together, because the answer to 'one assessment or two' under sections 187 and 188 determines what section 188A and section 189 then attach to. The matter was decided on 1993-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Under section 187(1), where at the time of making an assessment under section 143 or section 144 it is found that a change has occurred in the constitution of a firm, the assessment is made on the firm as constituted at the time of making the assessment. Section 187(2) defines a change in constitution as arising (a) where one or more partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners before the change continue as partner or partners after the change, or (b) where all the partners continue with a change in their respective shares or in the shares of some of them; with a proviso that nothing in clause (a) applies to a case where the firm is dissolved on the death of any of its partners. Section 188 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 are made on the predecessor firm and the successor firm in accordance with the provisions of section 170. Section 188A makes every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which that previous year is relevant. Section 189(1) requires the assessment of a discontinued or dissolved firm to be made as if no discontinuance or dissolution had taken place, with all the provisions of the Act, including those relating to penalty, applying so far as may be; sub-section (3) makes every person who was a partner at the time of such discontinuance or dissolution, and the legal representative of a deceased partner, jointly and severally liable; sub-section (4) allows proceedings commenced before the discontinuance or dissolution to be continued from the stage at which they stood; and sub-section (5) preserves section 159(6).
Section 187 rests on the continuity of at least one partner: if someone who was a partner before the change is still a partner after it, the assessable entity is treated as the same firm and one assessment covers the whole previous year. Section 188 is residual — it applies only where the case is 'not one covered by section 187' — and when it applies it borrows the machinery of section 170 for succession, which is why the two assessments are made in the manner section 170 prescribes rather than by any rule of its own. The proviso to section 187(2) is the deliberate exception: even though a surviving partner may continue, a dissolution on death is not treated as a mere change in constitution, so the case falls out of section 187 and into section 188. Sections 188A and 189 then supply the collection consequences, both of them fixing joint and several liability on the individuals rather than leaving the revenue with a claim only against an entity that may no longer exist. In the words reproduced by the source cited on this page: "Provided that nothing contained in clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners."
It was decided by the CBDT Circulars & Instructions on 1993-04-01 and is reported as Section 187 as amended by the Finance Act 1992 with effect from 1 April 1993, its sub-section (2) proviso inserted by the Taxation Laws (Amendment) Act 1984 with retrospective effect from 1 April 1975; section 188A inserted by the Direct Tax Laws (Amendment) Act 1987 with effect from 1 April 1989; sections 187, 188 and 189 as in force for assessment year 2025-26, read from the Income-tax Department's Year 2025 section pages; section 188A read from the Department's Year 1990, Year 2000 and Year 2009 pages, which are identical. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 187, section 187(1), section 187(2), section 188, section 188A, section 189, section 189(3), section 189(4), section 170, section 159(6), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Under section 187(1), where at the time of making an assessment under section 143 or section 144 it is found that a change has occurred in the constitution of a firm, the assessment is made on the firm as constituted at the time of making the assessment. Section 187(2) defines a change in constitution as arising (a) where one or more partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners before the change continue as partner or partners after the change, or (b) where all the partners continue with a change in their respective shares or in the shares of some of them; with a proviso that nothing in clause (a) applies to a case where the firm is dissolved on the death of any of its partners. Section 188 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 are made on the predecessor firm and the successor firm in accordance with the provisions of section 170. Section 188A makes every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which that previous year is relevant. Section 189(1) requires the assessment of a discontinued or dissolved firm to be made as if no discontinuance or dissolution had taken place, with all the provisions of the Act, including those relating to penalty, applying so far as may be; sub-section (3) makes every person who was a partner at the time of such discontinuance or dissolution, and the legal representative of a deceased partner, jointly and severally liable; sub-section (4) allows proceedings commenced before the discontinuance or dissolution to be continued from the stage at which they stood; and sub-section (5) preserves section 159(6). It arises in Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters, on section 187, section 187(1), section 187(2), section 188, section 188A, section 189, section 189(3), section 189(4), section 170, section 159(6) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where a partner has died, check the partnership deed and the Indian Partnership Act position on whether the firm stood dissolved on that death. If it did, the proviso to section 187(2) takes the case out of clause (a) and section 188 applies. If section 188 applies, insist on two returns and two assessments made in accordance with section 170, and do the apportionment of income, depreciation and losses between the two periods rather than accepting a single computation. Before agreeing to any recovery step, read section 188A and section 189(3): a former partner's liability is joint and several and is not limited to his profit share, and it extends to the legal representative of a deceased partner. Where the firm has been dissolved or the business discontinued, note that section 189(4) allows proceedings to be continued from the stage they had reached against the persons named in section 189(3), and that section 189(5) preserves section 159(6).
Still good law. Sections 187, 188 and 189 were read this pass from the Department's Year 2025 section pages, the most recent versions published there, and no later amendment appears on them. Section 188A is stated from three identical archived pages (Year 1990, Year 2000, Year 2009) because no current page could be reached; its present text has not been confirmed. The extensive case law on the boundary between section 187 and section 188 was not re-examined this pass; this entry states the statutory scheme only. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Statutory entry, not a decision. 'tier' is set to 'cbdt' because the library's fixed tier vocabulary has no value for a statutory entry; the source is the Income-tax Department's own section pages. 'decided_on' is the date the present section 187 took its final form, 1 April 1993, not a date of decision; footnote 10 on the Department's Year 2000 page for section 187 records a proviso 'Omitted by the Finance Act, 1992, w.e.f. 1-4-1993'. The proviso to section 187(2) reproduced above — the whole of the dividing line between section 187 and section 188 — was inserted by the Taxation Laws (Amendment) Act 1984 with retrospective effect from 1 April 1975 (footnote 11 on the same page). Sections 187, 188 and 189 were read from the Department's Year 2025 section pages, which carry no footnote lists, so no commencement could be taken from them. No Year 2025 page could be reached for section 188A — /w/section-188a-64 returns HTTP 404 — so the text of section 188A given here was read from three archived pages stamped Year 1990, Year 2000 and Year 2009, which are word for word identical to each other; the Year 1990 and Year 2000 pages both carry the footnote 'Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989'. On that basis the section appears unamended, but its current text has not been confirmed from a current departmental page and a later pass should confirm it. Sub-section (2) of section 189 is not set out above. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Under section 187(1), where at the time of making an assessment under section 143 or section 144 it is found that a change has occurred in the constitution of a firm, the assessment is made on the firm as constituted at the time of making the assessment. Section 187(2) defines a change in constitution as arising (a) where one or more partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners before the change continue as partner or partners after the change, or (b) where all the partners continue with a change in their respective shares or in the shares of some of them; with a proviso that nothing in clause (a) applies to a case where the firm is dissolved on the death of any of its partners. Section 188 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 are made on the predecessor firm and the successor firm in accordance with the provisions of section 170. Section 188A makes every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which that previous year is relevant. Section 189(1) requires the assessment of a discontinued or dissolved firm to be made as if no discontinuance or dissolution had taken place, with all the provisions of the Act, including those relating to penalty, applying so far as may be; sub-section (3) makes every person who was a partner at the time of such discontinuance or dissolution, and the legal representative of a deceased partner, jointly and severally liable; sub-section (4) allows proceedings commenced before the discontinuance or dissolution to be continued from the stage at which they stood; and sub-section (5) preserves section 159(6).
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