1961 (8) TMI 6 - SC - Income Tax

Whether on the facts and circumstances of the case there was a change in the persons carrying on the business within the meaning of section 8(1) of the Excess Profits Tax Act ? Held that - The appellant submitted to the assessment of income-tax of the income from all the three businesses only at Virudhunagar, and held that these factors clearly indicated that the dominant motive in forming the partnerships was the avoidance or reduction of liability to the excess profits tax. It is in the light of these facts that the attack made by the appellant is against the answer given by the High Court to the question referred to it has to be judged. Thus considered we must hold that there is no substance in the appeal. It accordingly fails and is dismissed

Issues Involved:
1. Change in the persons carrying on the business under section 8(1) of the Excess Profits Tax Act.
2. Avoidance or reduction of liability to excess profits tax under section 10A of the Excess Profits Tax Act.

Issue-wise Detailed Analysis:

1. Change in the Persons Carrying on the Business (Section 8(1) of the Excess Profits Tax Act):

The first issue pertains to whether there was a change in the persons carrying on the business within the meaning of section 8(1) of the Excess Profits Tax Act. The relevant accounting periods were from February 7, 1943, to March 31, 1946. The High Court found that the partition effected in the family of the appellant indicated a complete partition, despite the appellant and his minor sons continuing as if they were an undivided Hindu family. The High Court emphasized the factual continuation of the Hindu undivided family after January 27, 1942, for income-tax assessment purposes. The High Court relied on the conduct of the appellant, his application under section 25A, and the statements made by all parties regarding the partition. The High Court concluded that a general partition had indeed taken place, as evidenced by the closure of old account books and the commencement of new ones. The High Court's findings were based on the facts found by the income-tax authorities, which were consistent with the answer given by the High Court. The Supreme Court upheld the High Court's decision, dismissing the appeals with costs.

2. Avoidance or Reduction of Liability to Excess Profits Tax (Section 10A of the Excess Profits Tax Act):

The second issue concerns whether the main purpose in constituting two firms was the avoidance or reduction of liability to excess profits tax within the meaning of section 10A of the Excess Profits Tax Act. The assessment year in question was 1943-44. The High Court outlined important considerations for deciding such a question, including the timing of the new business, the onus of proof on the department, the relationship between the parties, and whether the tax advantage was incidental or the main motive. The High Court found ample material to sustain the Tribunal's conclusion that the partnerships were formed mainly to avoid or reduce excess profits tax liability. The Tribunal's findings were based on evidence, including the timing of the partnerships, the appellant's control over the businesses, and the financial contributions. The Supreme Court agreed with the High Court's decision, stating that the question was more a matter of fact than a mixed question of fact and law. The Supreme Court dismissed the appeal, affirming the High Court's judgment.

Conclusion:

The Supreme Court dismissed all the appeals, upholding the High Court's decisions on both issues. The High Court's findings were based on substantial evidence and consistent with the facts presented by the income-tax authorities. The Supreme Court emphasized the importance of factual determinations in these cases and found no legal error in the High Court's conclusions. The respondent was awarded costs in all the appeals in one set.

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