1973 (11) TMI 16 - HC - Income Tax

Whether firm was entitled to relief under section 25(4) of the Indian Income-tax Act 1922 in respect of the profits from its business for the period from October 1 1951 to December 28 1951 relevant to the assessment year 1953-54 ? - It is true that the mere fact that there are common partners between two firms cannot by itself indicate a succession for the purpose of section 25(4) but the court is entitled to consider this as one of the factors or pieces of evidence which taken together with the other material on record which I have already discussed in my opinion shows that there was not a discontinuance or a complete break with the past when the old firm has dissolved as the Tribunal has held but there was a succession to the business of the old firm within the terms of section 25(4) of the Indian Income-tax Act 1922. In this connection it is important to bear in mind that the decision of the Supreme Court in Chambers case shows unmistakably that no formal transfer is necessary and that it is sufficient if the overall business effect of the whole transaction or arrangement between the old firm and the new firm results in succession to the old business. Viewed in that manner I have come to the conclusion that the question referred to us must be answered in the affirmative.

Issues Involved:
1. Entitlement to relief under section 25(4) of the Indian Income-tax Act, 1922.
2. Determination of succession versus discontinuance of business.
3. Interpretation of section 25(4) of the Indian Income-tax Act, 1922.

Issue-Wise Detailed Analysis:

1. Entitlement to Relief Under Section 25(4) of the Indian Income-tax Act, 1922:
The primary issue was whether the firm of M/s. Ramdas Khimji Bros. was entitled to relief under section 25(4) of the Indian Income-tax Act, 1922, for the profits from its business for the period from October 1, 1951, to December 28, 1951, relevant to the assessment year 1953-54. The Tribunal initially rejected the firm's claim, but upon appeal, the Appellate Assistant Commissioner allowed the claim. The Tribunal later remanded the case for further investigation, and the Appellate Assistant Commissioner reaffirmed the relief. The Tribunal, however, eventually ruled against the firm, leading to the present reference.

2. Determination of Succession Versus Discontinuance of Business:
The Tribunal had to decide whether the business carried on by the assessee-firm was the same as that which had suffered tax under the 1918 Act. The Tribunal found in favor of the assessee-firm, stating that it would be unrealistic to separate cotton mukadami from cotton business, thus categorizing them as the same business. However, the Tribunal also held that there was a complete break with the past when the old firm was dissolved and a new firm started without any assets of the old firm, indicating discontinuance rather than succession.

3. Interpretation of Section 25(4) of the Indian Income-tax Act, 1922:
Section 25(4) deals with succession as distinguished from discontinuance and entitles an assessee who has succeeded to a business, which has paid tax under the 1918 Act, to certain reliefs. The court emphasized that to attract the applicability of section 25(4), a change of ownership of the business, whether by transfer, inheritance, or devolution, is essential. The Tribunal's finding that the business carried on by the assessee-firm was the same as that which suffered tax under the 1918 Act was accepted for the purpose of this reference.

The court examined the legal concept of succession, referencing cases like Ramgopal Ganpatrai & Sons Ltd. v. Commissioner of Excess Profits Tax and Commissioner of Income-tax v. K. H. Chambers. The court highlighted that succession involves a change of ownership and implies that the identity and continuity of the business are preserved. The main test for succession is whether there has been a taking over of the whole business, maintaining substantial identity and continuity.

The court considered the documentary evidence, including letters from the Japanese firm and the income-tax examiner's note, which showed continuity in the business activities. The court also noted that the partnership deed of Ramdas Khimji Bros. made an indirect provision for meeting the liabilities of the old firm, indicating succession. The presence of common partners between the old and new firms was another factor supporting the case of succession.

Conclusion:
The court concluded that the business carried on by the assessee-firm was the same as that which had suffered tax under the 1918 Act, and there was no complete break with the past. The overall business effect of the transaction or arrangement between the old and new firms resulted in succession to the old business. Therefore, the question referred to the court was answered in the affirmative, entitling the firm to relief under section 25(4) of the Indian Income-tax Act, 1922. The finding of the Tribunal regarding super-tax was in favor of the assessee and was not addressed further in this reference.

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