Section 188 of the Income-tax Act, 1961: Succession of One Firm by Another Firm
Section 188 deals with a business or professional firm succeeded by another firm where the transaction does not amount to a mere change in the constitution of the existing firm under Section 187. The law requires separate assessments of the predecessor and successor firms.
Text of Section 188 of the Income-tax Act, 1961
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.
Official source: Income Tax Department - Section 188.
Meaning and scope of succession
Predecessor firm means the firm that carried on the business or profession before succession. Successor firm means the firm that takes over and continues that business or profession. Succession in this context refers to the replacement of one firm by another in carrying on a business or profession, rather than merely changing the partners or their profit-sharing shares within a continuing firm.
Section 188 applies only if the circumstances fall outside Section 187. The legal character of the transaction depends on the partnership arrangements, dissolution or reconstitution documents, continuity of the business, and the relevant facts; a change of name alone is not decisive.
How separate assessments operate
Section 188 expressly applies Section 170. Under Section 170(1), the predecessor is assessed on income up to the date of succession and the successor is assessed on income after that date. Other subsections of Section 170 address situations where the predecessor cannot be found and recovery of certain unpaid amounts, subject to statutory conditions.
Official source: Income Tax Department - Section 170.
Section 187 compared with Section 188
| Point | Section 187 | Section 188 |
|---|---|---|
| Situation | Change in constitution of a continuing firm | One firm is succeeded by another firm outside Section 187 |
| Assessment | Assessment of the firm as constituted at the time of assessment | Separate assessments of predecessor and successor |
| Related provision | Section 187(2) defines changes in constitution, including its death-related proviso | Section 170 governs assessment on succession |
Read the related article: Section 187 - Change in constitution of a firm.
Illustration
Suppose Firm A carries on a trading business until 30 September, and Firm B succeeds it from 1 October. If this is a genuine succession not covered by Section 187, Firm A is assessed for income up to the succession date and Firm B for income thereafter, applying Section 170. Whether the facts amount to succession rather than reconstitution must be examined before adopting this treatment.
Income-tax Act, 2025: Section 328
Section 328 of the Income-tax Act, 2025 addresses succession of one firm by another firm. It provides for separate assessments of the predecessor and successor where the case is not covered by Section 327 (change in constitution of a firm), with assessment governed by Section 313 (succession to business or profession otherwise than on death).
| Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|
| Section 187 - Change in constitution | Section 327 |
| Section 188 - Succession of firms | Section 328 |
| Section 170 - Succession to business | Section 313 |
Official resources: Income-tax Act, 2025 (official PDF) and Income Tax Department section correspondence.
Practical compliance points
- Record the effective date of succession and retain the deed or other supporting agreement.
- Maintain separate accounting records and evidence of income attributable to each firm.
- Review partnership deeds and changes in partners to determine whether Section 187 or Section 188 applies.
- Examine the implications of Section 170, including any outstanding tax demands and recovery provisions.
- Apply the legislation and return requirements relevant to the particular tax year.
Frequently asked questions
Are predecessor and successor firms assessed separately?
Yes, where Section 188 applies, separate assessments are required under Section 170.
Does every admission or retirement of a partner amount to succession?
No. A continuing firm with a change in partners may be covered by Section 187 rather than Section 188.
What is the corresponding provision in the 2025 Act?
Section 328, read with Sections 327 and 313, is the corresponding framework.
Updated: 27 October 2026. This article is general legal information; transaction-specific facts and applicable transitional provisions should be checked.