CHAPTER XVI — SPECIAL PROVISIONS APPLICABLE TO FIRMS
CHAPTER XVI — SPECIAL PROVISIONS APPLICABLE TO FIRMS
Section 188 — Succession of one firm by another firm
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The counterpart to section 187: it applies where the old firm ceases and a new firm succeeds to the business, the case not being one of change in constitution.
Finance Act, 2026: No change.
Successor (ITA 2025): Re-enacted (succession of one firm by another).
A. SECTION COMMENTARY
1. The provision
Section 188 deals with succession proper. Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by section 187 (change in constitution), separate assessments are made on the predecessor firm and the successor firm in accordance with section 170. The result is two assessments — one on the old firm for the period up to succession and one on the new firm thereafter — divided at the date of succession. Section 188 is thus the "two-assessment" route, in contrast to the "single-assessment" route of section 187.
Everything turns on whether the case is "covered by section 187". If at least one partner of the old firm continues and the firm is not dissolved, it is a change in constitution (section 187, one assessment). If the old firm ceases to exist — because no partner continues, or because the firm stands dissolved (for instance on the death of a partner where the deed contains no continuance clause) — and a new firm carries on the business, it is a succession (section 188, two assessments). The Supreme Court in Wazid Ali Abid Ali and Empire Estate fixes the test: survival of the firm. Where the firm does not survive, section 187 is out and section 188 governs.
Section 188 does not itself prescribe the manner of the two assessments; it imports section 170 (succession to business otherwise than on death). Section 170 makes the predecessor assessable for the period up to succession and the successor for the period thereafter, with provisions for recovery from the successor where the predecessor cannot be found. The dividing line is the date of succession.
4. Dissolution-on-death is succession, not reconstitution
The most common section 188 fact-pattern is the dissolution of a firm on the death of a partner followed by the constitution of a new firm by the survivors. Since the proviso to section 187(2) removes such a case from "change in constitution", it falls to be dealt with as a succession under section 188 — two assessments. A firm of two partners is always in this position on the death of one, because the firm cannot survive as a partnership of one (Empire Estate).
B. STATUTORY POSITION (verbatim text)
The text of section 188, as it stands in the Act, is set out below.
188. 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 on the predecessor firm and the successor firm in accordance with the provisions of section 170.
C. AUTHORITIES
Section 188 is construed in tandem with section 187; the controlling authorities are the same Supreme Court decisions, applied from the succession side. The Full-Bench and High Court decisions on the dissolution/reconstitution line are equally in point.
Cluster 1 — Succession on dissolution (the core fact-pattern)
Where the firm does not survive, section 188 (two assessments) applies, not section 187.
CIT v. Empire Estate (1996) 218 ITR 355 (SC)
Held: Where a firm is dissolved on the death of a partner (no continuance clause), the case is not a change in constitution; the surviving partners continuing the business effect a succession, attracting section 188 and two separate assessments divided at the date of death.
Significance: The governing Supreme Court authority on succession by dissolution-on-death; squarely a section 188 case.
Court / status: Supreme Court.
Wazid Ali Abid Ali v. CIT (1988) 169 ITR 761 (SC)
Held: If the deed provides that death shall not dissolve the firm, section 187 applies (one assessment); if there is no such provision and the firm is dissolved on death, the surviving partners continuing the business attract section 188 as a succession of one firm by another.
Significance: Fixes the survival test that allocates a case to section 187 or section 188.
Court / status: Supreme Court.
Cluster 2 — Succession versus reconstitution (High Court line)
Dahi Laxmi Dal Factory v. ITO (1976) 103 ITR 517 (Allahabad)(FB)
Held: Dissolution of a firm (e.g., on a partner's death) followed by continuance of the business by a new firm is a succession governed by section 188 read with section 170 — two assessments — and not a change in constitution under section 187.
Court / status: High Court (Allahabad), Full Bench; broadly affirmed by the 1984 proviso and the Supreme Court.
Vishwanath Seth v. CIT (1984) 146 ITR 249 (Allahabad)
Held: Section 188 is the exception that, by reference to section 170, contemplates two assessments in the case of succession to a firm; reconstitution (continuity) attracts section 187 and a single assessment, whereas dissolution-and-succession attracts section 188 and two assessments.
Court / status: High Court (Allahabad).
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (local Act print, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; no statutory word has been altered. The new scheme of firm taxation (firm as a separate taxable entity, abolition of registration) operates from assessment year 1993-94; sections 182, 183 and 186 stand omitted by the Finance Act, 1992, w.e.f. 1-4-1993. The Finance Act, 2026 makes no amendment to any section of Chapter XVI. Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed on its own terms, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XVI — SPECIAL PROVISIONS APPLICABLE TO FIRMS
Section 188 — Succession of one firm by another firm
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The counterpart to section 187: it applies where the old firm ceases and a new firm succeeds to the business, the case not being one of change in constitution.
Finance Act, 2026: No change.
Successor (ITA 2025): Re-enacted (succession of one firm by another).
A. SECTION COMMENTARY
1. The provision
Section 188 deals with succession proper. Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by section 187 (change in constitution), separate assessments are made on the predecessor firm and the successor firm in accordance with section 170. The result is two assessments — one on the old firm for the period up to succession and one on the new firm thereafter — divided at the date of succession. Section 188 is thus the "two-assessment" route, in contrast to the "single-assessment" route of section 187.
2. The boundary with section 187
Everything turns on whether the case is "covered by section 187". If at least one partner of the old firm continues and the firm is not dissolved, it is a change in constitution (section 187, one assessment). If the old firm ceases to exist — because no partner continues, or because the firm stands dissolved (for instance on the death of a partner where the deed contains no continuance clause) — and a new firm carries on the business, it is a succession (section 188, two assessments). The Supreme Court in Wazid Ali Abid Ali and Empire Estate fixes the test: survival of the firm. Where the firm does not survive, section 187 is out and section 188 governs.
3. Mechanics — the link to section 170
Section 188 does not itself prescribe the manner of the two assessments; it imports section 170 (succession to business otherwise than on death). Section 170 makes the predecessor assessable for the period up to succession and the successor for the period thereafter, with provisions for recovery from the successor where the predecessor cannot be found. The dividing line is the date of succession.
4. Dissolution-on-death is succession, not reconstitution
The most common section 188 fact-pattern is the dissolution of a firm on the death of a partner followed by the constitution of a new firm by the survivors. Since the proviso to section 187(2) removes such a case from "change in constitution", it falls to be dealt with as a succession under section 188 — two assessments. A firm of two partners is always in this position on the death of one, because the firm cannot survive as a partnership of one (Empire Estate).
B. STATUTORY POSITION (verbatim text)
The text of section 188, as it stands in the Act, is set out below.
188. 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 on the predecessor firm and the successor firm in accordance with the provisions of section 170.
C. AUTHORITIES
Section 188 is construed in tandem with section 187; the controlling authorities are the same Supreme Court decisions, applied from the succession side. The Full-Bench and High Court decisions on the dissolution/reconstitution line are equally in point.
Cluster 1 — Succession on dissolution (the core fact-pattern)
Where the firm does not survive, section 188 (two assessments) applies, not section 187.
CIT v. Empire Estate (1996) 218 ITR 355 (SC)
Held: Where a firm is dissolved on the death of a partner (no continuance clause), the case is not a change in constitution; the surviving partners continuing the business effect a succession, attracting section 188 and two separate assessments divided at the date of death.
Significance: The governing Supreme Court authority on succession by dissolution-on-death; squarely a section 188 case.
Court / status: Supreme Court.
Wazid Ali Abid Ali v. CIT (1988) 169 ITR 761 (SC)
Held: If the deed provides that death shall not dissolve the firm, section 187 applies (one assessment); if there is no such provision and the firm is dissolved on death, the surviving partners continuing the business attract section 188 as a succession of one firm by another.
Significance: Fixes the survival test that allocates a case to section 187 or section 188.
Court / status: Supreme Court.
Cluster 2 — Succession versus reconstitution (High Court line)
Dahi Laxmi Dal Factory v. ITO (1976) 103 ITR 517 (Allahabad)(FB)
Held: Dissolution of a firm (e.g., on a partner's death) followed by continuance of the business by a new firm is a succession governed by section 188 read with section 170 — two assessments — and not a change in constitution under section 187.
Court / status: High Court (Allahabad), Full Bench; broadly affirmed by the 1984 proviso and the Supreme Court.
Vishwanath Seth v. CIT (1984) 146 ITR 249 (Allahabad)
Held: Section 188 is the exception that, by reference to section 170, contemplates two assessments in the case of succession to a firm; reconstitution (continuity) attracts section 187 and a single assessment, whereas dissolution-and-succession attracts section 188 and two assessments.
Court / status: High Court (Allahabad).
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (local Act print, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; no statutory word has been altered. The new scheme of firm taxation (firm as a separate taxable entity, abolition of registration) operates from assessment year 1993-94; sections 182, 183 and 186 stand omitted by the Finance Act, 1992, w.e.f. 1-4-1993. The Finance Act, 2026 makes no amendment to any section of Chapter XVI. Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed on its own terms, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.