1961 (4) TMI 127 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee firm was entitled to the benefit provided in section 25(3) or 25(4) of the Indian Income-tax Act, 1922, in relation to the assessment in question.

Issue-wise Detailed Analysis:

1. Entitlement to Benefit under Section 25(3) or 25(4) of the Indian Income-tax Act, 1922:

Background:
The Hindu undivided family Hakam Mal Tani Mal was taxed under the Income-tax Act of 1918 on income from timber business. In the accounting year relevant to the assessment for 1934-35, the family converted into a partnership. This partnership was orally dissolved, and the business of the timber depots at Abdullapur was taken over by R.B. Jodha Mal and Gajjan Mal Ram Parkash, who formed a new partnership on April 1, 1939. The deed of partnership was executed on June 29, 1939.

Assessment Year 1943-44 Claim:
The assessee firm R.B. Jodha Mal Kuthalia, Abdullapur, claimed relief under section 25(3) and (4) of the Indian Income-tax Act, 1922, for the assessment year 1943-44, on the ground that the business had suffered tax under the Income-tax Act of 1918 and was succeeded by the new firm on April 1, 1939.

Income-tax Officer's Decision:
The Income-tax Officer disallowed the claim, stating that there was no registered or decreed dissolution of the previous partnership.

Appellate Assistant Commissioner's Decision:
The Appellate Assistant Commissioner concluded that the relief under section 25(3) or 25(4) was available to the person who carried on the business at the commencement of the Indian Income-tax (Amendment) Act of 1939. He opined that the succession took place on April 1, 1939, and the parent firm Hakam Mal Tani Mal was entitled to relief under section 25(4). He further noted that relief under section 25(4) is not available in the case of second succession.

Income-tax Appellate Tribunal's Decision:
The Tribunal held that the appellant firm came into existence on April 1, 1939, and succeeded to the Abdullapur business only on that date. The business was in existence on March 31, 1939, and the Income-tax (Amendment) Act of 1939 came into force on April 1, 1939. Therefore, the first succession to this business was on April 1, 1939, and any right to relief under section 25(3) or (4) accrued only then, not in relation to the current assessment.

High Court's Analysis:

Mehar Singh's Judgment:
Mehar Singh held that the partnership deed did not indicate dissolution or separation of partners on March 31, 1939. The document stated that partners became separate from April 1, 1939. Given the Income-tax (Amendment) Act of 1939 came into force simultaneously, the new firm succeeded after or simultaneously with the Act's commencement. Thus, the parent firm Hakam Mal Tani Mal was not dissolved before the Act came into force, and the Tribunal's decision was correct.

Gosain's Judgment:
Gosain disagreed, interpreting the deed to mean the previous firm dissolved on March 31, 1939, and the new partnership started from April 1, 1939. He believed the new firm was entitled to relief under section 25(4) of the Indian Income-tax Act, as the business was deemed to be run by the new partnership from the commencement of April 1, 1939.

Dulat's Judgment:
Dulat concurred with Gosain, stating that the intention of the parties was to bring the new firm into existence before the Act and to claim relief under section 25(4) when the business was either discontinued or succeeded. He concluded that the assessee firm was entitled to the benefit under section 25(3) or (4) of the Income-tax Act, and the Tribunal was wrong in its decision.

Conclusion:
The High Court, through Dulat's judgment, determined that the assessee firm was entitled to the benefit provided in section 25(3) or 25(4) of the Indian Income-tax Act, 1922, in relation to the assessment in question. The assessee firm was awarded the costs of the reference.