Full Judgment Text
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PETITIONER:
M/S. BADRI PRASAD JAGAN PRASAD
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, U.P., LUCKNOW
DATE OF JUDGMENT20/09/1985
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
TULZAPURKAR, V.D.
CITATION:
1986 AIR 358 1985 SCR Supl. (2) 879
1985 SCC (4) 664 1985 SCALE (2)1246
CITATOR INFO :
D 1987 SC 785 (23)
ACT:
Income Tax Act, 1922, s.25(4) - Hindu undivided family
- carrying on business - Assessed under Act of 1918 -
Partial partition of family on 11th October, 1948 -
Partnership firm succeeding family business on 12th October,
1948 - Succession - When takes place - Intention to carry on
business - Relevancy of - Assessee whether entitled to
relief under s. 25(4).
HEADNOTE:
The Assessee, a Hindu undivided family, carrying on
business was assessed under the Indian Income Tax Act, 1918.
In the assessment year 1949-50 the assessee contended that
there was partial partition of the family on 11th October
1948 and various businesses owned by the family were divided
through entries made in the account books. A partnership
firm was constituted to carry on those businesses and it
succeeded the family. The assessee filed an application
before the Income-tax Officer claiming the benefit of s.
25(4) of the Act, which was rejected.
On appeal, the Appellate Assistant Commissioner set
aside the order and called for a remand report. The remand
report set out that the partnership firm succeeded to the
business of the family on the 12th October, 1948. The
Appellate Assistant Commissioner held that as the succession
took place on a day of the previous year relevant to the
assessment year 1950-51 the claim could not be considered in
respect of the assessment year 1949-50.
The assessee’s appeal to the Tribunal was dismissed.
The High Court, on the Reference made to it, held that
there was a definite finding by the Tribunal that succession
took place on 12th October 1948, that the date marked the
commencement of the previous year relating to the assessment
year 1950-51, that no tax was chargeable for any profits
that might have accrued on 12th October, 1948, the date on
which the succession took place, and that the Tribunal was
right in holding that the assessee was not entitled to the
benefits of s. 25(4) in the year 1949-50 but he could avail
of that benefit in the year 1950-51.
880
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Allowing the appeal to this Court,
^
HELD: 1. The assessee was entitled to relief under s.
25(4) of the Income Tax Act, 1922 in the assessment year
1949-50. [897 C]
2. Section 25 sub-s. (1) dealt with the case of a
business which was discontinued and which had not been
subjected to double taxation having paid tax under the
provisions of the Indian Income Act, 1918, and that the
provisions of sub-s. (1) was that if a business was
discontinued in the middle of a year, then the business
which was discontinued had to pay tax both with regard to
the whole of its previous year and also for the broken
period of the year of assessment. The scheme of the section
seems to be that instead of the business being assessed
again for a broken period, the business should pay tax not
only for the previous year which it ordinarily would do, but
also for the additional period being the period up to its
discontinuance. Sub-s. (4) dealt with a business which had
paid tax under the Indian Income Tax Act, 1918, and that the
sub-section dealt not so much with the mode of taxing a
business which was discontinued as with giving relief to a
business from double taxation. It dealt with a situation
where one business was succeeded by another, and the first
relief to which the business which ceased to continue and
which had been succeeded by another, was entitled, was that
no tax should be payable by the first mentioned person, that
is, the person whose business had come to an end, in respect
of the income, profits and gains of the period between the
end of the previous year and the date of such succession;
and the second relief to which such person was entitled was
that he might further claim that the income, profits and
gains of the previous year should be deemed to have been the
income, profits and gains of the said period. Looking at the
plain language of the section, it was clear that the first
relief had to be claimed by the assessee in the year of
assessment in which the said succession took place, and the
nature of the relief was that he was not obliged to pay tax
on that particular specific period which was made up of the
last date of the previous year and the date of succession.
Therefore, it was necessary to ascertain what was the date
of succession, because it was in relation to the date of
succession that the relief had to be computed. The period
might be anything from one day to 364 days. [886 C-H, 887 A-
C]
Ambaram Kalidas v. Commissioner of Income Tax, Bombay
North, 19 I.T.R. 227, approved.
881
Commissioner of Income-tax, Madras v. K. Srinivasan and
K. Gopalan, 23 I.T.R. 87, re Dalsukh Rai Jaidayal, 44 I.T.R.
417, Commissioner of Income-tax v. Teja Singh 35 I.T.R. 408,
Mahabir Pershad & Sons v. Commissioner of Income-tax, Delhi
135, I.T.R. 775, English v. Cliff [1914] 2 Ch. D. 376,
referred to.
3. On which date the succession takes place is a
question of fact to be determined on the facts and
circumstances available in each case. In this case, there
was a disruption of HUF. The entries in the account books
indicated that there was a partial partition of HUF and the
various businesses owned by the family were divided through
entries made in the account books. The partnership account
books indicated that and that is what happened on 11th
October, 1948. The partnership deed recited to carry on the
business with effect from 12th October, 1948. There were in
the facts of this case two stages - one partial partition of
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the assets of HUF business and there was evidence that
various businesses owned by the family were divided through
entries made in the account books, and next the succession,
the partnership firm carried on the said business
immediately. No vacuum was intended because the clear
expression of intention in the deed of partnership indicated
that disruption and succession were intended by the parties
to be simultaneous. There was continuity of the disrupted
assets, with which the partnership business was carried on
as an integrated whole and there was transfer of ownership -
these are the two essential conditions required to be
fulfilled in order to be entitled to relief under s. 25(4)
of the Act. And all were intended to happen on the same day.
Though the deed stated that partnership would come on 12th
October, 1948, the intention to carry on business jointly
from the date of the division of assets is writ large - it
is clear in this case that succession took place on 11th
October, 1948. In these matters one should adopt a pragmatic
approach and not get enmeshed in technicalities. [896 A-E]
4. In the facts of this case and in view of the entries
in the account books, there was succession on 11th October
1948 - succession not only of the assets of the business as
co-owners but succession of the business. The succession of
the assets with which the business was carried on and the
assent of the co-owners to carry on the business in
partnership from the very next day is evidenced by the
document of partnership. It is to be presumed what was
divided was not merely assets but business. The purpose of
s. 25(4) contemplates, inter alia, that no tax shall be
payable in respect of the income of the period between the
end of
882
the previous year the date of succession to the business. If
the assets were succeeded to or divided as business assets
amongst the erstwhile co-parceners then there was succession
within the relevant assessment year 1949-50. [896 F-H, 897
A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 182
(NT) of 1974.
From the Judgment and Order dated 4.2.1971 of the
Allahabad High Court in Income Tax Reference No. 460 of
1964.
T.A. Ramachandran and A.G. Ratnaparkhi for the
Appellant.
G.C. Sharma, K.C. Dua and Miss A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This appeal by special leave
arises from a judgment and order of the High Court of
Allahabad in respect of a reference under Section 66(1) of
the Income-Tax Act, 1922 (hereinafter referred to as the
’Act’). The appeal relates to the assessment year 1949-50,
the relevant previous year being the year commencing 24th
October, 1947 and ending on 11th October, 1948. The
following questions of law were referred to the High Court
under Section 66[1] of the Act:
"1. Whether, on the facts and in the circumstances of
the case, the Tribunal was justified in holding
that the assessee was not entitled to the relief
under section 25(4) in the year 1949-50?
2. Whether, on the facts and in the circumstances of
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the case, the Tribunal was right in holding that
the succession took place on 12th October, 1948
and consequently the benefit of section 25(4)
could be availed of only in the year 1950-51?"
There was another question not connected with the first
two which was answered in favour of the assessee and is not
the subject matter of this appeal and need not be
considered.
In the relevant year, the assessee was a Hindu
undivided family carrying on business under the name and
style M/s. Badri Prasad Jagan Prasad, Agra. It had a branch
styled as M/s. Jagan
883
Prasad Shiv Prasad of Achnera. The assessee was assessed
under the Indian Income-Tax Act, 1918.
In the assessment year in question, the assessee
contended that there was partial partition of the family on
11th October, 1948 and various business owned by the family
were divided through entries made in the account books. A
partnership firm was constituted to carry on those
businesses and succeeded the family on 12th October, 1948,
according to the High Court. The assessee filed an
application before the Income-tax Officer claiming the
benefit of Section 25(4) of the Act. The Income-tax Officer
rejected the application. On appeal, the Appellate Assistant
Commissioner set aside the order and called for a remand
report from the Income-tax Officer. The remand report
submitted by the Income-tax Officer set out that the
partnership firm succeeded to the business of the family on
the 12th October, 1948. The Appellate Assistant Commissioner
held that as the succession took place on a day of the
previous year relevant to the assessment year 1950-51, the
claim could not be considered in respect of the assessment
year 1949-50. There was an appeal by the assessee. The
Tribunal held that the date of succession was 12th October,
1948 and hence the claim of the assessee to the benefits
under Section 25(4) could be considered only in the course
of assessment proceedings for the year 1950-51. The High
Court held that so far as the first question referred to
hereinbefore, there was a definite finding by the Tribunal
that the succession took place on 12th October, 1948. The
date marked the commencement of the previous year relating
to the assessment year 1950-51. The High Court was of the
opinion that no tax was chargeable for any profits that
might have accrued on 12th October, 1948, the date on which
the succession took place. The profits of the broken period
are exempt from tax. The Tribunal had also found that an
application was made within time by the assessee that the
profits of the previous year should be substituted by the
profits of the broken period. It was held by the Tribunal
that the benefit so applied for was available to the
assessee, not in the assessment year 1949-50 but in the
assessment year 1950-51. The High Court was of the view that
the Tribunal was right having regard to the decision of the
Bombay High Court in the case of Ambaram Kalidas v.
Commissioner of Income-Tax Bombay North, 19 I.T.R. 227.
Reliance was also placed on the observations of this Court
in the case of Commissioner of Income-Tax, Madras v. K.
Srinivasan and K. Gopalan, 23 I.T.R. 87. The High Court was
of the opinion that in view of these observations, upon the
finding of the Tribunal that the succession took place on
12th October, 1948, the
884
Tribunal was right in holding that the assessee was not
entitled to the benefit of Section 25[4] in the year 1949-50
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but he could avail of that benefit in the year 1950-51. The
first two questions were accordingly answered in the
affirmative and in favour of the revenue.
The moot question is when did the succession, if at
all, take place. There was no controversy in that there was
succession. The Tribunal had recorded that the succession
took place on 12th October, 1948. If this is a question of
fact as held by the Tribunal and the High Court and as
contended by the revenue, then relief can only be given in
the assessment year 1950-51. But is a pure question of fact
or is it a mixed question of law and facts having regard to
the relevant scheme of the Act?
Section 25 of the Act deals with assessment in case of
discontinued business. Sub-section (1) of that section
provided that where any business, profession or vocation to
which sub-section (3) was not applicable, was discontinued
in any year, an assessment might be made in that year on the
basis of the income, profits or gains of the period between
the end of the previous year and the date of such
discontinuance in addition to the assessment, if any, made
on the basis of the income, profits or gains of the previous
year. Sub-section (2) of Section 25 stipulated that any
person discontinuing any such business, profession or
vocation should give to the Income-tax Officer notice of
such discontinuance within fifteen days thereof, and, where
any person failed to give the notice required by this sub
section, the Income-Tax Officer might direct that a sum
shall be recovered from him by way of penalty not exceeding
the amount of tax subsequently assessed on him in respect of
any income, profits or gains of the business, profession or
vocation upto the date of its discontinuance. Sub-section
(3) stipulated that where any business, profession or
vocation on which tax was at any time charged under the
provisions of Income-tax Act 1918, was discontinued, then,
unless there was a succession by virtue of which the
provisions of sub-section (4) have become applicable no tax
shall be payable in respect of the income, profits or gains
of the period between the end of the previous year and the
date of such discontinuance, and the assessee might further
claim that the income, profits and gains of the previous
year should be deemed to have been the income, profits and
gains of the said period. Where any such claim was made, an
assessment should be made on the basis of the income,
profits or gains of the said
885
period, and if an amount of tax had already been paid in
respect of the income, profits and gains of the previous
year exceeding the amount payable on the basis of such
assessment, a refund should be given of the difference.
Sub-section (4) of Section 25 is relevant and the
material portion was as follows:-
"(4) Where the person who was at the commencement
of the Indian Income-tax (Amendment) Act, 1939
(VII of 1939), carrying on any business,
profession or vocation on which tax was at any
time charged under the provisions of the Indian
Income-tax Act, 1918, is succeeded in such
capacity by another person, the change not being
merely a change in the constitution of a
partnership, no tax shall be payable by the first
mentioned person in respect of the income, profits
and gains of the period between the end of the
previous year and the date of such succession, and
such person may further claim that the income,
profits and gains of the previous year shall be
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deemed to have been the income, profits and gains
of the said period. Where any such claim is made,
an assessment shall be made on the basis of the
income, profits and gains of the said period, and,
if an amount of tax has already been paid in
respect of the income, profits and gains of the
previous year exceeding the amount payable on the
basis of such assessment, a refund shall be given
of the difference:"
It is not necessary to deal with provision which make
sub-section (4) inapplicable in certain cases as these are
not applicable to the facts of this case. Sub-sections (5)
and (6) are also not relevant for the controversy in this
appeal.
Three aspects are important - (1) discontinuance (2)
succession, (3) date of succession. All these relate only to
the business, profession or vocation. Certain aspects of
this aspect of law have been considered in the decisions of
the Courts. Some of these may be briefly considered.
Before the Bombay High Court in Ambaram Kalidas v.
Commissioner of Income-Tax, Bombay North (supra), the
assessee, a Hindu undivided family, was a dealer in cloth
and was taxed under the provisions of the Indian Income-tax
Act, 1918. Its accounting
886
year was Samvat year. The assessee disrupted on Aso Vad
30th, Samvat year 2000 (17th October, 1944) and on Kartak
Sud 1st. Samvat year 2001 (13th October, 1944) the joint
family business was taken over by a firm consisting of the
erstwhile coparceners. In the assessment year 1945-46 the
question was raised whether the assessee was entitled to
relief under Section 25(4) of the Act. It was held inter
alia (1) that the relief under Section 25(4) could not be
granted to the assessee in the assessment year 1945-46, but
it could only be granted in the assessment year 1946-47 and
it would be open to the assessee to make a claim under
Section 25(4) in the assessment year 1946-47; (2) that the
income of the assessee from the 17th October, 1944 till the
18th October, 1944, was exempt, that the assessee need not
make a claim for this relief and that the period of
limitation provided in Section 25(5) did not apply to this
relief.
Chagla, C.J. of the Bombay High Court set out the
scheme of Section 25 and observed that it dealt under sub-
section (1) with the case of a business which was
discontinued and which had not been subjected to double
taxation having paid tax under the provisions of the Indian
Income-tax Act, 1918, and that the provisions of sub-section
(1) was that if a business was discontinued in the middle of
a year, then the business which was discontinued had to pay
tax both with regard to the whole of its previous year and
also for the broken period of the year of assessment.
According to the learned Chief Justice, the scheme seemed to
be that instead of the business being assessed again for a
broken period, the business should pay tax not only for the
previous year which it ordinarily would do, but also for the
additional period being the period up to its discontinuance.
So far as sub-section (4) was concerned, the Chief Justice
was of the view that it dealt with a business which had paid
tax under the Indian Income-tax Act, 1918, and that the sub-
section dealt not so much with the mode of taxing a business
which was discontinued as with giving relief to a business
from double taxation. Sub-section (4) dealt with a situation
where one business was succeeded by another, and the first
relief to which the business which ceased to continue and
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which had been succeeded by another, was entitled, was that
no tax should be payable by the first mentioned person,
i.e., the person whose business had come to an end, in
respect of the income profits and gains of the period
between the end of the previous year and the date of such
succession; and the second relief to which such person was
entitled was that he might further claim that the income,
profits and gains of the previous year should be deemed to
have been the income profits and gains of the said period.
887
So far as the first relief was concerned, in the facts
of the case before the Bombay High Court that the joint
Hindu family would be entitled to which it would not be
liable to pay any tax in respect of the income, profits and
gains of a period which consisted of the end of the previous
year and the date of succession, the Bombay High Court was
of the view that looking at the plain language of the
section, it was clear that this relief had to be claimed by
the assessee in the year of assessment in which the said
succession took place, and the nature of the relief was that
he was not obliged to pay tax on that particular specific
period which was made up of the last date of the previous
year and the date of succession. The Bombay High Court,
therefore, felt that it was necessary to ascertain what was
the date of succession, because it was in relation to the
date of succession that the relief had to be computed. The
period might be anything from one day to 364 days. In the
facts of the particular case, before the Bombay High Court,
the date of succession was the 18th October, 1944, i.e.
assessment year 1946-47. Therefore, the end of the previous
year was the 17th October, 1944 and the date of succession
was the very first day of the following assessment year.
Therefore, under this section the relief that the assessee
was entitled to was the period between the 17th October,
1944, and the 18th October, 1944, and as the Tribunal had
held that no profits could have been earned between that
period, the result might seem to be anomalous. The Bombay
High Court held accordingly. The other controversy about the
limitation does not arise in the facts of the present case
before us. So it need not be discussed.
This Court in the case of Commissioner of Income-Tax
Madras v. K. Srinivasan and K. Gopalan (supra) held that the
expression ‘end of the previous year’ in sub-section (3) and
(4) of Section 25 of the Act in the context of those sub-
sections meant the end of an accounting year (a period of
full 12 months) expiring immediately preceding the date of
discontinuance or succession. In that case the assessee was
carrying on in partnership a business the profits of which
had been charged to income-tax in their hands under the
Indian Income-tax Act, 1918. Then it transferred the
business as a going concern to a private limited company on
1st March, 1940. The firm’s year of account was a period of
twelve months ending with 30th June each year and the firm
was charged to tax in the year 1939-40 in respect of the
profits of the year of account ending 30th June, 1938. For
the assessment year 1940-41 the assessee claimed that the
firm was not liable to pay any income-tax on the income of
its business
888
from the end of the accounting year ending 30th June, 1938,
to 29th February, 1940, under Section 25(4) of the Act. The
Income-tax authorities held that the exemption claimed
applied only to the income of the period 1st July, 1939, to
29th February, 1940. The Appellate Tribunal and the High
Court affirming the decision of the Appellate Tribunal
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allowed the claim of the assessee for the entire period of
20 months. Viswanatha Sastri, J. held to the contrary.
This Court observed that the scheme of the Act was that
by the charging section i.e., Section 3, income-tax was
levied for a financial year at the rate prescribed by the
annual Finance Act on the total income of the previous year.
Each previous year’s income was the subject of separate
assessment in the relative assessment year. Though the year
of assessment was the financial year, the previous year of
an assessee need not necessarily be the previous financial
year, for this expression had to be understood as defined by
Section 2(11)(a) of the Act.
This Court was of the view that sub-section (1) of
Section 25 of the Act merely empowered the Income-tax
Officer, if he so chose to do, to make an accelerated
assessment in case of discontinuance of business at the time
of discontinuance to save loss of revenue by the
disappearance of an assessee. In other words, the sub-
section imposed a liability of premature assessment on the
assessee. It conferred no benefit on him. Sub-sections (3)
and (4) of Section 25 have a different end in view and these
are not in pari materia with sub-section (1). These are in
the nature of substantive provisions intended to give relief
from tax charged in certain cases. The mere circumstance of
their being grouped together with sub-section (1) in Section
25 could not lead to the conclusion that the provisions
contained therein were of the same nature ad character as
the provisions contained in sub-section (1). It was not
correct, according to this Court, to hold that these two
sub-sections were in the nature of exceptions to the rule
laid down in sub-section (1). Sub-section (1) was itself an
exception to the general rule laid down in the charging
section of the Act. The object of sub-sections (3) and (4)
was to provide relief to a business for the double
assessment suffered by it in the financial year 1922-23 and
it was entitled to this relief in the year of assessment in
which the income and profits of the accounting period in
which discontinuance or succession took place fell to be
assessed.
This Court expressed the view that the expression ‘end
of the previous year’ in sub-sections (3) and (4) of Section
25 in
889
the context of those sub-sections meant the end of the
accounting year (a period of full 12 months) expiring
immediately preceding the date of discontinuance or
succession. The expression ‘previous year’ in the context of
Section 25(3) and (4) meant a completed accounting year
immediately preceding the discontinuance or succession.
The Allahabad High Court in re Dalsukh Rai Jaidayal 44
I.T.R. 417, had to consider this question. There the
assessee was a Hindu undivided family which carried on
business. For the assessment year 1944-45 its accounting
year was the period, 19th October, 1942 to 7th October,
1943. It claimed exemption from tax for that period under
Section 25(4) of the Indian Income-tax Act, 1922 on the
ground that a partnership succeeded to its business on 8th
October, 1943.
The question referred to the Allahabad High Court was
"Whether on the facts of the case, the assessee family is
entitled in respect of its Benaras business, to exemption
from tax under Section 25(4) of the Income-tax Act for the
period from 19th October, 1942 to 7th October, 1943"
Bhargava, J. observed in his judgment that for the purposes
of applying the provisions of Section 25(4) of the Act, it
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was necessary to determine in each case, where the question
arose, as to what was the date of succession and what was
the previous year for purposes of Section 25(4) of the Act.
Bhargava, J. was of the opinion that in the case before the
Allahabad High Court, the date of succession was ‘admittedly
8th October, 1943’. The previous year, for the purpose of
Section 25(4) of the Act would be completed accounting year
of the assessee ending on any date preceding the date of
succession, i.e. 8th October, 1943. This is the principle,
according to the Allahabad High Court, laid down by this
Court in the case of Commissioner of Income-tax v.
Srinivasan (supra). The same principle, according to the
Allahabad High Court, was laid down by the Bombay High Court
in the case of Ambaram Kalidas v. Commissioner of Income-tax
(supra). Applying that principle to the facts before the
Allahabad High Court the previous year for the purpose of
Section 25(4) of the Act would be the period beginning on
19th October, 1942, and ending on 7th October, 1943, because
7th October, 1943 was a date preceding the date of
succession which, as mentioned above, was ‘admittedly 8th
October, 1943’a basis upon which the High Court proceeded.
It was a case where the findings of fact recorded led to the
conclusion that the date of succession was 8th October, 1943
and the
890
previous year for purposes of Section 25(4) of the Act was
the accounting period beginning on 19th October, 1942 and
ending on 7th October, 1943. Under the first part of Section
25(4) of the Act, the assessee was entitled as of right to
be exempted from tax on the income earned during the period
between the end of the previous year and the date of
succession. Therefore, the income that would be exempted
from tax, according to the Allahabad High Court, under this
part of Section 25(4) of the Act would be the income earned
between 7th October, 1943 which was the date on which the
previous period ended, and 8th October, 1943, which was the
date on which the succession took place.
The Allahabad High Court, accordingly held that the
contention of the assessee that under the first part of
Section 25(4) of the Act, the income earned during the
period 19th October, 1942 to 7th October, 1943, was exempted
was incorrect and could not be accepted. The High Court felt
that it was unfortunate that the succession took place on
8th October, 1943, which was the very first day of the next
accounting period following the previous year (19th October,
1942 to 7th October, 1943), with the result that the
assessee in effect get no relief at all because no income
was earned by the assessee between 7th October, 1943 and 8th
October, 1943. If the date of succession had been later than
8th October, 1943, and any income had been earned during
that period that could have been the income of the assessee
which would have been exempt from tax. Even in that case, if
the assessee had earned any income in the period between 7th
October, 1943 and 8th October, 1943, and before succession
took place, that income would have been the income exempt
under the first part of Section 25(4) of the Act. According
to the High Court, such a contingency could have arisen if
on 8th October, 1943, the date of succession itself, any
income had been earned by the assessee in that Benaras
business prior to the succession taking place on that very
day. The facts showed, however, that no such income was
earned.
The High Court further observed that under the second
part, the assessee could have made a second claim that the
income of the assessee for the previous year 19th October,
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1942 to 7th October, 1943 be deemed to be the income of the
period in respect of which he could claim exemption as of
right, which meant that the assessee could claim that the
income earned between 19th October, 1942 and 7th October,
1943 be treated as the income for the period 7th October,
1943 to 8th October, 1943 and exemption for that period be
granted on that basis. The High Court noted further that
question did not arise in the reference made to this Court.
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Upadhya, J. could not agree with the decision of
Bhargava, J. Upadhya, J. after setting out the facts
expressed the view that such a construction should be placed
on the expression "end of the previous year" in Section
25(4) which should be consistent with the object of the
provision. This "end of the previous year" therefore, could
not be taken to be 7th October, 1943, in that case, for that
would leave no period at all between the end of the previous
year and the date of succession. Having regard to the object
of the statutory provision it appeared proper to construe
the phrase "end of the previous year" as meaning the end of
that previous year which the preceded succession and the
period in respect of which exemption was claimed. The
learned judge noted that the assessee who had paid income-
tax under the Act of 1918 and subsequently under the Act of
1922 paid the tax twice in respect of one year’s income that
of 1921-22. The statute had provided that if that business
whose income was thus subjected to double taxation was
discontinued or was succeeded to by another person, the
person who paid the tax twice on the income of the period
1921-22 should be granted relief in respect of one year’s
tax. If however this discontinuance or succession took place
not at the end of a year the law, according to the learned
judge, cast a duty on the Income-tax Officer not to tax the
income for that part of the previous year or accounting
period which ended with the date of the discontinuance or
succession and commenced with the end of the preceding
accounting period. The "end of the preceding accounting
period" had been expressed as "the end of the previous year"
in these provisions. The language of the provisions
indicated that it was assumed that in every case there would
necessarily be a period between the end of the previous year
and the date of succession. But if there had been no period
at all the provisions of Section 25(4) would be evidently in
applicable completely. The assessee would not get any
exemption because there would be no broken period and as
there would be no such period no question of his claiming
any substitution as mentioned in the second part of Section
25(4) could possibly arise. He was, therefore, in favour of
answering the question mentioned hereinbefore in the
affirmative in favour of, the assessee. The matter was,
therefore, referred to a learned third judge, Jagdish Sahai,
J. He, after setting out the facts and the object of
introduction of Section 25(3) and (4) and the relevant
decisions of this Court and the Bombay High Court as well as
the decision of this Court in the case of Commissioner of
Income-tax v. Teja Singh, 35 I.T.R. 408., was of the view
that the assessee could not only have got an exemption in
respect of the payment of tax on account of income which
might have accrued
892
to it but would also have been entitled, on an application
being made, to get the income for the year 19th October,
1942 to 7th October, 1943, teated as the income for that
period and obtained relief under the second part of Section
25(4). He (Jagdish Sahai, J.) agreed with the views of
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Bhargava, J. The question was answered in accordance with
the majority view.
The matter was considered by the Delhi High Court
exhaustively in the case of Mahabir Pershad & Sons v.
Commissioner of Income-tax, Delhi 135 I.T.R. 775. There the
assessee, an HUF carrying on business had paid tax under the
Indian Income-Tax Act, 1918. There was partition on 31st
March, 1943, and in the document written on 29th April,
1943, it was recited that the family business was dissolved
on 31st March, 1943, and each of the coparceners had taken
his share after having understood the accounts. On 30th
April, 1943, a partnership deed was executed between the
three adult coparceners of the HUF; the minors were not
admitted to the benefits of the partnership but amounts were
credited to the accounts in their names through their
guardians. As the terms of the deed are of some
significance, it is necessary to refer to these. The
partition deed mainly contained recitals regarding the
allocation of immovable property among the various members
of the family. So far business was concerned which is
material for the present purpose, there was a deed, preamble
of which recited: "...Where as the joint family after due
rendition of accounts disrupted on 31st March, 1943, and
whereas the immovable property pursuant to a separate
partition deed had been divided inter-se the constituents of
the erstwhile family and whereas the said constituents had
taken over their shares and the joint family no longer
existed, all the assets had been fully divided, now,
therefore, with effect from 1st April, 1943 we the parties
to this deed start (emphasis supplied) a partnership
business in equal shares regarding all business activities"
of the business conducted by the HUF. The question was
whether the HUF was entitled to the relief upon succession
to its business provided by section 25 (4) of the Act, of
the tax for the entire period 1st April, 1942, to 31st
March, 1943 as claimed by the assessee or whether, as
contended by the revenue, because the HUF had been
partitioned on 31st March, 1943, and the succession by the
firm to the business had taken place on 1st April, 1943, the
assessee was not entitled to any relief in that year. It was
held that the assessee was entitled to the relief under
Section 25 (4) in respect of the entire profits of the
accounting year 1942-43 because of any of the following
three alternative reasons: (a) if
893
it was taken that the family got disrupted on 31st March,
1943, and the firm commenced on 1st April, 1943, the relief
that was contemplated by Section 25 (4) was in respect of
the period 1st April, 1942 to 31st March, 1943; (b) since
the case of both the parties was that the disruption and
formation of the partnership were simultaneous, it would be
correct to say that the succession took place on the same
date as the partition, viz., 31st March, 1943, although the
partnership could, from another point of view, be said to
have commenced business only on 1st April, 1943; (c) on a
proper construction of the documents, there was disruption
of the family on 31st March, 1943, followed by succession,
on the same day, to the business by the erstwhile family as
co-owners, some of whom subsequently converted it into a
partnership business which was run with effect from 1st
April, 1943. Ranganathan, J. of the Delhi High Court
analysed the provisions of the section and referred to the
relevant decisions.
In English v. Cliff [1914] 2 Ch. D 376., a settlement
had been made on 13th May, 1982 by which the settlor
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conveyed real estate unto and to the use of two trustees
upon certain trusts declared therein. It was further
declared that the trustees should stand possessed of the
premises during the terms of 21 years from the date of the
trust upon trust to apply the rents and profits in the
manner specified. It was further declared that the said
trustees should "at the expiration of the said term of
twenty-one years" sell the said premises as mentioned
therein. The validity of this settlement was attacked on the
ground that it offended the rule against perpetuity. It was
argued that an estate or trust in order to be valid and not
to infringe the rule against the rule of perpetuity, must
where there are no lives or life in being to be taken into
account, arise not later than the term of twenty-one years
from its creation. It was contended that as the trust for
sale in that case arose at the expiration of 21 years it
necessarily followed that it did not arise within this
period. Warrington, J. observed at page 380 of the report of
the Chancery Division as follows:
"Is that argument sound? It is perfectly true that
in many of the well-known text-books relating to
the rule against perpetuity the rule is stated
somewhat in this form, namely, that the estate or
the trust or other limitation must arise ‘within’
the period allowed by law, and I am quite willing
to accept that statement as being for all
practical purposes a sufficient statement of the
rule, but when I come to consider
894
what that statement means and to apply it to such
a case as the present, then, in my opinion, the
trust which is to arise ‘at the expiration’ of the
term of twenty-one years does arise ‘within’ the
period of twenty-one years, because I should have
to resort to all sorts of subtle calculations and
distinctions unless I were to hold that an estate
or a trust to arise coincidentally with the
termination of the period of twenty-one years was
a valid estate or trust. To put an analogous case
which occurred to me in the course of the
argument; there must be many cases in which
testator has fixed the period of twenty-one years
from his death as that at which a class of
beneficiaries is to be ascertained............I
think that any lawyer dealing with such a
limitation as that would say without doubt that it
was a good limitation, and yet in that case it is
necessary to wait until the last infinitesimally
small fraction of a minute has expired before it
can be said whether a certain number of persons
will be living or not at the expiration of that
moment of time. The trust in the present case is
to arise at the expiration of the term of twenty-
one years, and if looked at from one point of view
that trust arises coincidentally with the last
moment of the term, although, if looked at from
another point of view, it may be said to arise at
some infinitesimally small fraction of time after
the last moment of the term. In my opinion,
however, the only sensible view to be taken of
such a limitation is that the term determines and
the trust arises at the very same moment of time,
and if looked at in that way it is impossible to
say that the trust arises at a later period than
that allowed by law. It seems to me, therefore,
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that the term determines and the trust arises at
mathematically and identically the same moment,
and so far as that objection goes I am of opinion
that the trust is a good one."
It is not possible for the Court to indulge in
differential calculus in cases as was observed by the Delhi
High Court, which deal with a point of time which coincides
with the end of one interval and the commencement of
another. In such a case, it would be as, true to say, that
the partnership commenced on last day of the previous year,
for certain purposes as to say that it commenced only on 1st
day of the next year. The fact of
895
the matter is that the succession took place (in the absence
of anything definite in the relevant documents) at a zero
hour which is as much part of the last date of one year as
it is of the first day of the next year. In such a
situation, the Delhi High Court felt that it would be
inequitable to deny relief to the assessee under Section 25
(3) on the theoretical assumption that the firm commenced
business on 1st April, 1943, and, therefore, the succession
took place on that date.
In our opinion, having regard to the facts and
circumstances of this particular case, in the background of
relevant provisions of law and the relevant documents it is
a mixed question of law and fact, especially in view of the
documents involved in this case, i.e. entries in the books
of account and the deed of partition.
In the instant case before us, the partnership deed
dated 28th February, 1949 recites as follows:
"WHEREAS (1) Jagan Prasad (2) Har Prasad (3)
Mathura Prasad (4) Shiva Prasad (5) Basdeo Prasad
and (6) Dilsuk Rai, first five sons of L. Nak Ram
and the sixth son of L. Badri Prasad, all caste
Vaish Agarwal resident of Achnera (For Jagan
Prasad Har Prasad Shiva Prasad and Dil Sukh Rai)
and of Agra (For Mathura Prasad and Basdeo Prasad)
are carrying on the business at Agra, under the
name and style of Agarwal Iron Works at Achnera,
under the name and style of Jagan Prasad Shiva
Prasad, Jagan Prasad Har Prasad as members of the
Hindu Undivided Family known as Badri Prasad Jagan
Prasad, but since Deshehra (Kunwar Sudi 10) Sambat
2005 corresponding to 12th October, 1948, the
business of the family has been divided amongst
the sic members of the family for which necessary
entries are made in the account books and the
capital account which is distributed equally among
the partners as required by all members signifying
the assent thereto, and since that date the
members of the family have become partners and the
business has become a partnership business. It has
now been decided amongst the partners, above
mentioned to execute a proper deed of partnership
and it has been mutually agreed that the following
terms and conditions herein after specified shall
govern the partnership in all matters."
896
We adopt the analysis of law as laid down by Chagla,
C.J. in the decision in the case of Ambaram Kalidas v.
Commissioner of Income-Tax, Bombay North (supra) but in each
case on which date the succession takes place is a question
of fact to be determined on the facts and circumstances
available for such case. In this case, there was a
disruption of HUF. The entries in the account book indicated
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that there is a partial partition of HUF and the various
business owned by the family were divided through entires
made in the account books. The partnership account books
indicated that and that is what happened on 11th October,
1948. The partnership deed recited to carry on the business
with effect from 12th October, 1948. In case of succession
of a business - there were in the fact of this case two
stages - one partial partition of the assets of HUF business
and there was evidence in the instant case that various
businesses owned by the family were divided through entries
made in the account books and next succession and the
partnership firm carried on the said business immediately.
No vacuum was intended because the clear expression of
intention in the deed of partnership as set out before
indicated that disruption and succession were intended by
the parties to be simultaneous. There was continuity of
these disrupted assets, with which the partnership business
was carried on as an integrated whole and there was transfer
of ownership - these are the two essential conditions
required to be fulfilled in order to be entitled to relief
under Section 25 (4) of the Act. And all were intended to
happen on the same day. Though the deed stated that
partnership would come into effect on 12th October, 1948 but
the intention to carry on business jointly from the date of
the division of assets is writ large - it is clear in this
case that succession took place on 11th October, 1948. One
should take a pragmatic approach in these matters and not
get enmeshed in technicalities.
In the facts of this case and in view of the entries in
the account books, there was succession on 11th October,
1948 - succession not only of the assets of the business as
co-owners but succession of the business. The succession of
the assets with which the business was carried on and the
assent of the co-owners to carry on the business in
partnership from the very next day is evidenced by the
document of partnership. It is to be presumed what was
divided was not merely assets but business. It is true that
co-ownership of assets merely does not ipso facto mean co-
ownership of the business but to hold them as co-owners of
business is evidenced from the facts of this case and the
subsequent conduct can be taken into consideration in
certain cases
897
like this. Looked at from this point of view, there is
really no question of any conflict arising in the facts of
this case between the principles enunciated by the Bombay
High Court and the principles enunciated by the Delhi High
Court in the last mentioned case. The purpose of Section 25
(4) has been noted. It contemplates, inter alia, that no tax
shall be payable in respect of the income of the period
between the end of the previous year and the date of
succession to the business. If the assets were succeeded to
or divided as business assets amongst the erstwhile co-
parceners then there was succession within the relevant
assessment year 1949-50.
We are of the opinion that the assessee was entitled to
relief under Section 25 (4) in the assessment year 1949-50.
The question number 1 is therefore answered in the negative
and in favour of the assessee and in that view of the
matter, the question number 2 does not arise.
The appeal is accordingly allowed. The appellant is
entitled to the costs of the appeal.
A.P.J. Appeal allowed.
898
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