1969 (7) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 10A of the Excess Profits Tax Act
2. Validity of the partial and complete partitions
3. Liability of the assessee-firm for the income from the new business
4. Comparison with precedents and applicability of Section 8 of the Act

Detailed Analysis:

1. Applicability of Section 10A of the Excess Profits Tax Act:
The core issue is whether the transactions in question can be avoided under Section 10A of the Excess Profits Tax Act. Section 10A(1) states that if the Excess Profits Tax Officer believes that the main purpose of any transaction was to avoid or reduce liability to excess profits tax, he may make adjustments to counteract the avoidance or reduction of liability. The Excess Profits Tax Officer and the Appellate Tribunal both concluded that the main purpose of the partial partition was to avoid excess profits tax liability. The Tribunal's decision was upheld by the Supreme Court, which directed the High Court to determine the question referred by the Tribunal.

2. Validity of the Partial and Complete Partitions:
The assessee argued that the partition in Gur Bux Rai's family was genuine and thus Section 10A could not be invoked. The court noted that although there was a change in the constitution of the firm at Farrukhabad, the firm at Kanpur continued with minor changes. The court found that the partial partition of July 1942 and the complete partition of June 1943 were transactions within the meaning of Section 10A and were primarily aimed at avoiding excess profits tax liability.

3. Liability of the Assessee-Firm for the Income from the New Business:
The assessee contended that after the partition, a new business came into existence, and thus the old firm should not be liable for the new business's income. The court examined Sections 4 and 5 of the Act, which provide for the charge and application of the tax, and found that these sections did not support the assessee's argument. The court also referenced the case of Sohan Pathak and Sons v. Commissioner of Income-tax, noting that the facts were different as the old firm did not disappear entirely in the present case.

4. Comparison with Precedents and Applicability of Section 8 of the Act:
The court reviewed several precedents, including Commissioner of Excess Profits Tax v. Moholal Maganlal and Arunachala Nadar v. Commissioner of Excess Profits Tax. It was noted that in the latter case, the Supreme Court did not disturb the Tribunal's decision applying Section 10A. The court also considered Section 8 of the Act, which deals with successions and amalgamations, and found that the special provision of Section 10A overrides the general provision of Section 8. The court concluded that the assessee could derive little assistance from Section 8.

Conclusion:
The court accepted the Tribunal's finding that the main purpose of the transactions was to avoid excess profits tax liability. The question referred to the court was answered in the affirmative and against the assessee. The assessee was ordered to pay Rs. 200 as costs of the reference to the Commissioner of Income-tax, U.P.