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Issues Involved:
1. Discontinuance of business under Section 25(3) of the Indian Income Tax Act, 1939. 2. Method of accounting for assessment under Section 13 of the Indian Income Tax Act. Issue-wise Detailed Analysis: 1. Discontinuance of Business under Section 25(3): The primary issue was whether the business of Messrs. Motichand and Devidas was discontinued upon the death of Mr. Devidas on 8th July 1940, thereby entitling the assessees to relief under Section 25(3) of the Indian Income Tax Act, 1939. The Tribunal had to determine if the death of Mr. Devidas led to the cessation of the business or merely a change in the constitution of the firm. The firm had been in operation since 1909, with partnership deeds executed in 1926, 1936, and 1937, adjusting the shares of the partners. Upon Mr. Devidas's death, the firm was dissolved, and a new partnership was formed between Mr. Motichand and Mr. Tanubhai, effective from 8th July 1940. The Tribunal noted that the new firm did not take over the business as a going concern, nor did it assume the liabilities or assets of the old firm. Instead, it started with new books and fresh retainers, indicating a clear break from the old firm. The Tribunal referenced the case of In re P.E. Polson, which held that if a business carried on by A was sold to B, and A had paid Income Tax under the Act of 1918, A was entitled to relief under Section 25(3). Despite the Madras High Court's contrary view in O. Rm. M. SP. S.V. Meyyappa Chettiar v. Commissioner of Income Tax, Madras, the Tribunal adhered to the precedent set by the Bombay High Court. The Tribunal concluded that the business of the old firm had indeed been discontinued from 8th July 1940. The fact that the new firm carried on business in the same name and premises was immaterial. The Tribunal emphasized that the business of a professional partnership, such as that of Solicitors, is inherently tied to the professional knowledge and experience of its partners. Therefore, the death of a partner and the formation of a new partnership constituted a discontinuance of the old business. 2. Method of Accounting for Assessment: The second issue was whether the assessees were properly assessed on the "receipts" or "cash" basis under Section 13 of the Indian Income Tax Act. The Tribunal determined that the Income Tax Officer was entitled to adopt the receipts or cash basis for assessing the income of the assessee firm. The previous practice of assessing the partners based on their withdrawals was not considered a method of accounting regularly employed by the assessees. The Tribunal clarified that under the Act, only two methods of accounting are recognized: the mercantile method and the receipts or cash basis. Withdrawals by the partners do not constitute a method of accounting. The Tribunal reasoned that the total income or profits of a Solicitors firm are the profit costs after defraying office expenses. Therefore, the Income Tax Officer's adoption of the cash receipts method was appropriate, and the assessment on this basis was affirmed. Conclusion: The Tribunal answered both questions in the affirmative. The business of Messrs. Motichand and Devidas was considered discontinued upon the death of Mr. Devidas, entitling the assessees to relief under Section 25(3). Additionally, the assessment on the receipts or cash basis was deemed proper. The Tribunal ordered that the Commissioner should pay half the costs of the reference, considering the mixed outcomes of the arguments.
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