1936 (12) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Material for finding succession of business.
2. Assessment on the company post finding under Section 25-A.
3. Liability of successor company for predecessor's income.
4. Validity of assessment without direct service of notice.
5. Onus of establishing claim for deduction of interest.
6. Salary payments as proper deduction.
7. Onus of establishing irrecoverable amount.
8. Validity of refusal to entertain new contention.

Issue-wise Detailed Analysis:

1. Material for Finding Succession of Business:
The court examined whether there was any material on which the Income Tax Officer (ITO) could find that the assessee company succeeded to the business of the family. The court concluded that there was no material to support the finding that the company succeeded to the business of the family in its entirety. The family was still in the process of partition and had not been entirely replaced by the company.

2. Assessment on the Company Post Finding under Section 25-A:
The court addressed whether the company should be assessed despite the finding that the Hindu undivided family (HUF) had not discontinued. It was held that although the HUF was deemed undivided, the company could be assessed to the extent it succeeded to separable businesses. The court reconciled Section 25-A and Section 26, concluding that each section deals with specific circumstances and is not mutually exclusive.

3. Liability of Successor Company for Predecessor's Income:
The court clarified that the limited company, to the extent it succeeded to the HUF, is liable to be charged as a successor for the 1933-34 assessment made during 1934-35 under Section 34. The language of Section 26(2) was deemed clear and applicable.

4. Validity of Assessment without Direct Service of Notice:
The court held that no fresh notice was necessary for the successor company. The proceedings initiated against the predecessor continue against the successor, and the objection regarding the lack of notice was not raised at the time of assessment and lacked merit.

5. Onus of Establishing Claim for Deduction of Interest:
The court determined that questions of fact, such as whether the assessee discharged the onus of establishing his claim for deduction of Rs. 2,748 as interest on borrowed capital, cannot be raised. The ITO's finding that the assessee failed to discharge this onus was upheld as a question of fact.

6. Salary Payments as Proper Deduction:
The court answered in the negative, agreeing with the Commissioner that salary payments attributed to members of the income-earning family were not a proper deduction from the income assessed under Section 26(2). The income is to be computed based on the position at the time it was earned.

7. Onus of Establishing Irrecoverable Amount:
The court reiterated that questions of fact, such as whether the assessee discharged the onus of proving that Rs. 1,211 at the debit of Narain Singh was irrecoverable, cannot be raised. The assessee had given up this question.

8. Validity of Refusal to Entertain New Contention:
The court upheld the Assistant Commissioner's refusal to entertain a new contention not raised either at the assessment or in the grounds of appeal. The discretion vested in the Assistant Commissioner was not exercised arbitrarily, and the Income Tax Act does not provide for raising new matters after the period prescribed for appeal.

Conclusion:
The court provided detailed answers to each question of law referred, emphasizing the interpretation of relevant sections and the principles of Hindu Law in the context of income tax assessments. The judgment upheld the findings and actions of the Income Tax authorities, with specific clarifications on the applicability of Sections 25-A and 26.