Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, BANGALORE
Vs.
RESPONDENT:
M/s. R. HANUMANTHAPPA AND SON
DATE OF JUDGMENT10/08/1971
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
HEGDE, K.S.
CITATION:
1972 AIR 175 1972 SCR (2) 94
1971 SCC (3) 592
ACT:
Mysore Income-tax Act, 1923, s. 25(3)-Hindu undivided family
carrying on family business-After partition, the same copar-
ceners with another formed partnership and was carrying on
the same business-Whether discontinuance of the family busi-
ness within the meaning of s. 25(3)-Mysore Income-tax Act,
1922-Finance Act, 1950-Whether appeal lay from a judgment of
Mysore High Court arising out of pre-constitution matter-
Interpretation of Art. 136(i) of the Constitution.
HEADNOTE:
After the partition of a Hindu undivided family the
coparceners formed into a partnership and carried on the
same business which was being done by the Hindu undivided
family.
A clause in the deed of partnership was that "the
partnership shall ,carry on as a successor to the business
originally carried on by the Hindu undivided family". The
assessment of the Hindu undivided family for the year 1949-
50 was completed on December 29, 1949. The previous asses
sment year was November 30, 1947 to November 1, 1948.
This assessment was sought to be reopened under s. 34 of the
Mysore Income-tax Act, 1923 and an additional demand was
raised by the order of the Income-tax Officer. On behalf of
the disrupted Hindu undivided family, an exemption was
claimed under s. 25(3) of the Mysore Act of 1923 which
provided that where any business etc. was discontinued ’no
tax shall be payable in respect of the income, profits and
gains of the period between the end date of the previous
year and the date of such discontinuance.’
The assessee claimed the benefit under s. 25(3) of the
Mysore Act on the ground that after partition there was a
discontinuance of the business and so no tax was payable.
The Income-tax Officer relied on the succession clause which
showed that the business which was being carried on by the
Hindu undivided family continued to be carried on by the
partnership firm and also the cash balance, book account and
the stocks of the family business had been transferred from
the books of the family to that of the firm. The Appellate
Assistant Commissioner and the Tribunal upheld the view of
the Income-tax Officer. On reference, the High Court
answered the question in favour of the assessee. In ,appeal
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to this Court it was contended by the Revenue, that there
was ,discontinuance of the business within the meaning of s.
25(3) of the Mysore Act. The respondent raised a
preliminary objection that since the matter related to pre-
constitution period and the Mysore High Court being the
final authority under the Mysore Act, no appeal lay to any
higher ,Court.
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HELD: (i) The requirement of sub-s. (3) of s. 25 is that
the business should be discontinued and not that the person
or persons who own the business should cease to be the same;
the discontinuity must be real and factual and it has to be
of the business and not of its owner or owners of the
business. There was no factual cessation of business or its
discontinuance in the present case. All that happened was
that previously the owner of the business was the Hindu
undivided family and subsequently the partnership became the
owner. There was merely a change of ownership and the
business as such continued. Therefore, there was no
discontinuance of the business within the meaning of s.
25(3) of the Act. [102B-C, 101B]
(ii) Since the Indian Income-tax Act, 1922 was introduced in
the erstwhile State of Mysore and since this Act was amended
by s. 3 of the Finance Act, 1950 (by which it was made
applicable to whole of India except Jammu & Kashmir), the
Mysore Act therefore has ceased to have any effect except
for the purposes of levy, assessment etc. mentioned in the
section. Further the judgment of Mysore High Court was
delivered on January 4, 1967 and the appeal was brought by
special leave under Art. 136 of the Constitution. The
language of Art. 1-36 (i) is very wide to cover any
judgment, including the impugned judgment of the Mysore High
Court, dealing with a pre-constitution matter. [103B]
C.I.T. Bombay v. P.E. Polson, 13 I.T.R. 384, Income-tax
Appellate Tribunal v. Bachraj Nathani of Raipur, 1946 I.T.R.
191 and S.N.A.S.A. Annamalai Chettiar v. C.LT. Madras, 20
I.T.R. 238, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil appeal No. 704 of 1968.
Appeal by special leave from the judgment and order dated
January 4, 1967 of the Mysore High Court in I.T.R.C. No. 43
of 1965.
Jagdish Swarup, Solicitor General A. N. Kirpal and B. D.
Sharma for the appellant.
M.C. Chagla, K. R. Ramani and T.A. Ramachandran for the
respondent.
The Judgment of the Court was delivered by
Grover, J. This is an appeal by special leave and is
directed against the judgment of the Mysore High Court
rendered in its advisory jurisdiction on a case stated by
the Commissioner of Income tax Mysore under S. 66 (2) of the
Mysore Income tax Act, 1923, hereinafter called the ’Mysore
Act’.
The facts are not in dispute. The family of R. Hanu-
manthappa and son was being assessed in the status of Hindu
undivided family with late R. Hanumanthappa as
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its karta till there was a partition and all the family
assets including the cotton business were divided after the
disruption of the joint family which took place on November
2, 1948. The division took place among the following three
coparceners, (1) R. Hanumanthappa, Karta, (2) R. Rama Setty
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his son and (3) R.R. Sreenivasa Murthy his grandson. After
the disruption of the family the partnership firm was formed
on November 22, 1948, the partners being the aforesaid
erstwhile three coparceners of the Hindu Undivided family,
hereinafter referred to as ’H. U. F.’ and R. Gopamma a
widowed daughter of R. Hanumanthappa. The partnership
worked under the name and style of R. Hanumanthappa & Son,
Cotton Merchants. It is common ground that it did the same
business which was- being done by the H. U. F. The business
assets and liabilities falling to each coparcener’s share
were entered in their personal accounts and then
retransferred to the partnership firm as contribution of
capital with the exception of a few trade debts. In the
deed of partnership it was stated in paras 2 and 3
follows:-
(2) "WHEREAS the aforesaid R. Hanumanthappa,
R. Rama Setty and R. R. Srinivasamurthy were
carrying on, as members of a Hindu undivided
family, a family business as cotton merchants,
till they became divided on 2-11-1948 and the
said three parties desire to continue the
family business constituting themselves into a
partnership.
(3) WHEREAS it is agreed that the aforesaid
Sreemathi Gopamma shall also be admitted into
the partnership constituted for the purpose of
the carrying on the family business after the
partition of the family as aforesaid.
NOW IT IS AGREED BETWEEN THE FOUR PARTIES
HERETO :-
(1)-That the partnership shalt carry on, as
successor to the business, originally carried
on by the Hindu Undivided Family of Cotton
Merchants Ginners and Pressers."
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The assessment for the assessment year 1949-50 was completed
on December 29, 1949 on the H. U. F. The previous year was
the Deepavali year ie. November 30, 1947 to November 1,
1948 This-assessment was sought to be reopened under the
provisions of s. 34 of the Mysore Act and an additional
demand of Rs. 2,25,942/- was raised by the order of the
Income tax Officer dated September 23, 1959. Before the
Income tax Officer an exemption had been claimed on behalf
of the disrupted H. U. F. under s. 25 (3) of the Mysore Act.
This provision which was in the same terms as s. 25 (3) of
the Indian Income tax Act, hereinafter called the ’ Indian
Act’, as it stood before the amendment of 1939 was as
follows :-
"Where any business, profession or
vocation ... on which tax was at any time
charged under the, provisions of the Mysore
Income tax Act 1920, is discontinued, no tax
shall be payable in respect of the income,
profits and gains of the period’ between the
end date of the previous year and the, date of
such discontinuance, and the assessee may
further claim that the income, profits and
gains of the previous year shall be 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 the
previous year, exceeding the amount payable on
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the basis of such assessment, a refund shall
be given of the difference."
The Mysore Income tax Act 1920 referred to in the above,
provision was in pari materia with a similar provision in he
earlier Indian Income Tax Act of 1918. Under those Acts the
income tax was paid for each income tax year in respect of
the income of that year. As pointed out by the High Court
the position was changed with the introduction of the Indian
Income tax Act 1922 in British India and the Mysore Act 1923
in the erstwhile State of Mysore according to which during
each assessment year tax was )aid in respect of the income
earned during the previous ear. A situation, therefore,
arose that upon the introduction of the new Act the assessee
had to pay tax in
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respect of the income of the same year both under the
earlier Statute and under the later enactment. It was with
a view to removing this hardship and saving the assessees
from double taxation that provision was made in sub-s. (3)
of S. 25 of the new Act to give relief to the assessees to
the extent possible. The assessee, in the present case, was
being assessed under the Mysore Income tax Act 1922 and it
could certainly claim the benefit of S. 25 (3) of the Mysore
Act provided it could prove discontinuance of the business
within S. 25 (3).
In support of the contention that there had been dis-
continuance of the assessee’s business as contemplated by S.
25 (3) of the Mysore Act it was urged, inter alia, before
the Income tax authorities that on partition the business,
had disintegrated into several parts which had been allotted
individually to each coparcener thereby connoting
discontinuance of the business. The assets which had beer
acquired by the firm were of the divided members and did not
belong to the H. U. F. and a fourth partner had joined the
partnership. This showed that the partnership ha( not
succeeded to the business of the H. U. F. The Income tax
Officer rejected these contentions. Apart from other
matters he relied on the clause in the partnership deed
which showed that the business which was being carried on by
the H. U. F. continued to be carried on by the partnership
firm and that the cash balance, book account and the stocks
of the family business had been transferrer from the books
of the family to that of the firm.
In appeal the, Appellate Assistant Commissioner upheld the
view of the Income tax officer. It may be mentioned that
the appellate authority under the Mysore Act was designated
as Deputy Commissioner but since that A( was no longer in
force the appeal was heard by the Appellant’ Assistant
Commissioner. He took the view that the case was one of
succession and not of discontinuance an affirmed the order
of the Income tax Officer. The Con-, missioner agreed with
the reasons of the Appellate Assistant Commissioner. On
application being made under S. 66 (2) of the Mysore Act the
following question was ,referred for the opinion of the High
Court :-
"Whether on the facts and in the circumstances
of the case, the assessee is entitled to
exemption
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under Section 25 (3) of the Mysore Income-tax
Act?"
The High Court answered the question in favour of the
assessee and against the Revenue.
There are numerous decisions relating to the question as to
what is meant by business being discontinued as also of
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there having been a succession with reference to s. 25 (3),
of the Indian Act. The language of s. 25 (3) of the Mysore
Act was different and was the same as of the Indian Act
before its amendment in 1939. We have to ascertain the
correct scope and ambit of the words "business is disconti-
nued" which Would mean discontinuance of business for: the
purpose of s. 25 (3) of the Mysore Act
In Commissioner of Income tax Bombay v. P.E. Polsonl’ it was
observed as follows:-
"Before the amending Act came into force the
words "discontinued" and "discontinuance" in
Section 25 of the 1922 Act had been the
subject of numerous decisions in the Courts of
India, among them Commissioner of Income tax,
Bombay v. Sanjana & Co. Ltd. (1925) 50 Bom.
87, Kalumal Shorimal v. Commissioner of Income
tax, Punjab (1929) 3 1. T. C. 341 and Hanutram
Bhuramal v. Commissioner of Income Tax, Bihar
(1938) 6 I.T.R. 290 and it had been
uniformally decided that these words did not
cover mere change of ownership but referred
only to a complete cessation of the business.
Their lordships entertain no doubt of the
correctness of these decisions,. which appeal
to be in accord with the plain meaning of the
section and to be in line with similar
decisions upon the English Income Tax Acts.
Nor has their correctness been challenged in
the judgment under appeal or in the argument
before their Lordships."
It was pointed out that under the Indian Act before it was
amended in 1939, s. 25 (3) gave relief in the event of.’
discontinuance. The amendment only introduced a quali-
fication that if there was a succession in respect of
which.
(1) 13 I.T.R. 384.
100
relief was given there should not be any relief upon dis-
continuance. It did not enlarge or Alter the meaning of
"’discontinuance". In the first case referred to by their
Lordships, a company went into voluntary liquidation and the
liquidator transferred the business to a new company which
continued that business. It was held that the business was
not discontinued within the meaning of S. 25 (3) of the
Indian Act. (This was ’before the amendment made in 1939).
Macleod C. J. analysed the scheme of the Indian Act and
emphasised the fact that under its provisions tax was
chargeable on the profits of a business and it made no
difference if there was any change in the persons who
carried on the business so long as the business was
continued. In the next case i.e. Kalumal Shorimal there had
been a partition of the H. U. F. The assessee got the family business a
s its share. The other coparceners
relinquished their rights therein and started separate busi-
ness of their own. The assessee carried on the business
under the old name and style. The assessee’s contention was
that the family firm had ceased to exist because the family
had disrupted. This was rejected by the High ’Court on the
ground that the business of the family could continue in
spite of its disruption. The question really was whether
the business was discontinued or not in consequence of the
breaking up of the family. It is unnecessary to refer to
the third case as a similar principle was laid down there
Grille C.J., and Niyogi J., discussed elaborately the case
law relating to sub-s. (3) and (4) of s. 25 of the Indian
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Act in Income tax Appellate Tribunal Bombay v. Bachraj
Nathani of Raipurl. The observations made there are
pertinent for the purpose of the present ,case. This is
what was said :-
"It must be observed that sub-section (3) is
,concerned with business, profession or
vocation and sub-s. (4) with person. When an
owner of a business dies or transfers his
business or when partners dissolve their
partnership, there is discontinuance so far as
the person dying or transferring or the
separating partners are concerned but there
may be no discontinuance of the business as
such. Thus the word discontinuity is capable
of double interpretation according as it is
vis-a-vis the
(1) (1946) I.T.R. 191.
101
owners of vis-a-vis the business. In the
fromer case, the discontinuity is notional or
jural and in the latter case, it is real or
factual."
All the above decisions proceed on the footing that the
requirement of sub-s. (3) of s. 25 is that the business
should be discontinued and not that the person or persons
who own the business should cease to be the same. The dis-
continuity as pointed out in Bachraj Nathani(1) case must be
real and factual and it has to be of the business and not of
its owner or owners of the business.
A great deal of emphasis has been laid on behalf of the
respondent assessee on the integrity of the business carried
on by the H.U.F. having been broken by the disruption of the
family and it is claimed that the business of the family
must be deemed to have totally ceased or discontinued on
such disruption. Reliance has been placed on a number of
decisions out of which mention may be made only of
S.N.A.S.A. Annamalai Chettiar v. Commissioner of Income tax,
Madras(2) in which a H.U.F. consisting of a father and son
carried on money lending business under different vilasams.
There was a partition in 1939 under which some of the
vilasams were allotted to the father and the rest were
allotted to the assessee. The Madras High Court held that
as the assets of the H.U.F. were split up on partition the
family business no longer continued its existence but was
terminated and there was, therefore, a discontinuance within
the meaning of s. 25 (3) of the Indian Act. It was observed
by the court that the mere fact that after continuing the
same books of account and the customers of the money lending
business were to some extent identical, would not make the
business of the father a continuation of the old business
when once what was a single unit was split up into various
component parts. The parts separated were distinct and
separate parts of a unified whole but the unity and
integrity between parts were no longer possible unless there
was a reunion or partnership. It is apparent that the facts
of this case were different and clearly distinguishable from
those of the present case. Here apart from the
circumstances and facts which have been found and
established the partner
(1) (1946) LT.R. 191.
(2) 20 I.T.R. 238.
102
ship deemed itself made it clear that the three coparceners
who had effected partnership desired to continue the family
business as partner after the partition of the family. No-
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thing could be clearer than the language used in sub-clause
(1) of clause (3) of the Partnership deed that the partner-
ship shall carry on as successor to the business originally
carried on by the H.U.F. of cotton ginners and pressers.
Thus there was no factual cessation of business or its
discontinuance. All that happened was that previously the
owner of the business was the H.U.F. and subsequently the
partnership became the owner. There was merely a change of
ownership and the business as such continued. In other
words the business was never discontinued so as to attract
the provision of S. 25 (3) of the Mysore Act. The judgment
of the High Court cannot thus be sustained. The answer
given by it in favour of the assessee will have to be
discharged and in its place the question referred is
answered in favour of the Revenue.
We may mention a preliminary objection that was raised on
behalf of the respondent. It was argued that the matter
related to the pre-Constitution period under the Mysore Act
by which the Mysore High Court had been constituted as the
highest court and no appeal lay to any higher court. The
decision of the Mysore High Court, therefore, was final and
no appeal could be entertained by this Court. We find no
force in this objection. By S. 3 of the Finance Act 1950,
the Indian Act was amended. The following amendment is
relevant for our purposes:
S. 3 "Amendment of Act XI of 1922-With
effect from 1st day of April, 1950, the
following amendments shall be made in the
Income tax Act,-
(a) for sub-section (2) of section 1 of the
following sub-section shall be substituted,
namely :-
(2) It extends to the whole of India, except
the ’State of Jammu & Kashmir
The effect of S. 13 of the Finance Act dealing with repeals
and savings was ’that the Mysore Act ceased to have any
effect except to the extent mentioned in the section.
103
In the present case the judgment of the Mysore High Court
was delivered on January 4, 1967 and the appeal which has
been brought to this Court is by leave granted under Art.
136 of the Constitution. We are unable to see how under
Art. 136 special leave to appeal could not be granted
against the judgment of the Mysore High Court when the
language of Art. 136 (1) is very wide and expressly covers
any judgment etc. passed or made by any court or Tribunal in
the territory of India.
In the result the appeal is allowed and the question is
answered as mentioned above. Owing to the previous order of
this court dated February 2, 1968 the appellant, shall pay
the costs of the respondent in this Court.
S.C. Appeal allowed.
8-MI245Sup.CI/71.
104