1960 (12) TMI 97 - HC - Income Tax

Summary

Issues Involved:
1. Relief under Section 25(4) of the Indian Income-tax Act.
2. Determination of succession to business.
3. Identity and continuity of business operations.
4. Treatment of assets, liabilities, and goodwill.

Issue-wise Detailed Analysis:

1. Relief under Section 25(4) of the Indian Income-tax Act:
The primary question was whether the assessee, K.H. Chambers, was entitled to relief under Section 25(4) of the Indian Income-tax Act. The department initially denied this relief, asserting that there was no succession to the business by K.H. Chambers in 1932, as the business conducted by him was not considered a continuation of the business previously run by G.A. Chambers.

2. Determination of Succession to Business:
The court examined whether K.H. Chambers succeeded to the business of G.A. Chambers in 1932. The Income-tax Officer concluded that G.A. Chambers had closed his business, and K.H. Chambers commenced a new business, despite dealing in similar lines. This conclusion was supported by the division of assets and liabilities, where significant portions were retained by G.A. Chambers, and the trade name "Chambers and Co." was not transferred to K.H. Chambers. The Tribunal upheld this view, stating that the identity of the son's business with that of the father was lost on 30th November 1932, as the business was not transferred intact.

3. Identity and Continuity of Business Operations:
The court considered several factors indicating continuity:
- K.H. Chambers continued operating the same lines of business as Chambers and Co.
- He used the same premises, telephone number, post box number, codes, and trade marks.
- Important sections of the staff from Chambers and Co. were retained.
- G.A. Chambers facilitated the transfer of the agency of the Liverpool and London and Globe Insurance Company to K.H. Chambers' business.

The court noted that the decisions in similar cases, such as Jitanram Nirmalram v. Commissioner of Income-tax and Commissioner of Income-tax v. Mansookhlal Zaveri, supported the view that substantial identity or similarity in the nature and extent of activities could constitute succession.

4. Treatment of Assets, Liabilities, and Goodwill:
The division of assets and liabilities between G.A. Chambers and K.H. Chambers was scrutinized. A large volume of liabilities and assets were retained by G.A. Chambers, while K.H. Chambers took over some liabilities, stock-in-trade, and outstandings. The department argued that the retention of the trade name "Chambers and Co." by G.A. Chambers indicated no transfer of goodwill. However, the court found that the goodwill and connections of Chambers and Co. were effectively transferred to K.H. Chambers, despite the non-transfer of the trade name.

The court emphasized that the father's suggestion to discontinue the business was not implemented, and the business was continued by the son with the father's support in discharging liabilities. The court concluded that there was a real succession to the business within the meaning of Section 25(4) of the Act.

Conclusion:
The court answered the referred question in the negative, ruling in favor of the assessee, K.H. Chambers. The court held that there was a succession to the business, entitling the assessee to relief under Section 25(4) of the Indian Income-tax Act. The assessee was also entitled to costs.