1961 (8) TMI 62 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to exemption from tax under Section 25(4) of the Indian Income-tax Act for the period April 1, 1946, to July 5, 1946.
2. Determination of the date of succession for tax purposes.
3. Validity of a certificate issued under Section 46(2) of the Indian Income-tax Act due to alleged non-issuance of a notice of demand to the petitioner.

Detailed Analysis:

1. Entitlement to Exemption from Tax under Section 25(4):
The primary issue was whether the assessee firm was entitled to exemption from tax under Section 25(4) of the Indian Income-tax Act for the entire period from April 1, 1946, to July 5, 1946, or only up to May 13, 1946, the date of Kotaiah's death. The assessee argued that the business continued until the sale on July 5, 1946, and thus the exemption should cover the entire period. However, the court noted that Section 25(4) provides relief when a business is succeeded by another entity, not merely when there's a change in the constitution of a partnership. The court concluded that the firm could only claim the benefit of Section 25(4) for the period from April 1, 1946, to May 13, 1946, when Kotaiah's death resulted in a change of ownership.

2. Determination of the Date of Succession:
The court examined whether the date of succession occurred on May 13, 1946, the date of Kotaiah's death, or on July 5, 1946, when the business was sold. The court referenced the Supreme Court's decision in Executors of the Estate of J.K. Dubash v. Commissioner of Income-tax, which held that succession occurs when there is a change in ownership and the successor continues the business as the owner. The court found that the death of Kotaiah led to a change in ownership, with Durgamba succeeding to his estate. Therefore, the date of succession was May 13, 1946.

3. Validity of Certificate under Section 46(2):
The petitioner contended that the certificate issued under Section 46(2) of the Indian Income-tax Act was invalid because the department failed to issue a notice of demand to him, the adopted son of Veera Sarabhaiah. The court clarified that Section 29 requires notice to be served on the assessee or other persons liable to pay the tax. Since the notice of demand was served on Veera Sarabhaiah and Durgamba, the requirements of Section 29 were met. The court rejected the petitioner's argument and dismissed the writ petition without costs.

Conclusion:
The court ruled in favor of the department, determining that the assessee firm was only entitled to the benefit of Section 25(4) for the period from April 1, 1946, to May 13, 1946. The court also upheld the validity of the certificate issued under Section 46(2), dismissing the writ petition filed by the petitioner.