Section 188 of ITA, 1961 : Section 188: Succession Of One Firm By Another Firm

Explanation using Example

Let's say there is a partnership firm "ABC & Co." that provides marketing services. The firm consists of three partners: A, B, and C. On June 30, 2023, partner C decides to leave the firm, and D joins A and B to form a new partnership firm "ABD & Co." starting from July 1, 2023. This is not a mere change in the constitution of the firm as per section 187, but rather a succession of one firm by another.

In such a case, as per section 188 of the Income-tax Act, 1961, the tax authorities will assess "ABC & Co." for the period from April 1, 2023, to June 30, 2023, and "ABD & Co." will be assessed separately for the period starting from July 1, 2023, to the end of the financial year, as per the provisions of section 170. This means the income earned by "ABC & Co." before the change will be taxed to "ABC & Co." and the income earned by "ABD & Co." after the change will be taxed to "ABD & Co."