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TMI Blog1952 (11) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... irement of the partner the old business of the firm comes within the definition of either discontinuance or succession as contemplated by Section 25(3) and 25(4) of the Income-tax Act. On the above facts, the Tribunal held that it was not a case which came within the provision of Section 25(3) or (4) of the Act. The Commissioner of Income-tax in his reply has agreed that a question of law did arise from the order of the Tribunal but stated that the question is concluded by the decision of the Patna High Court reported in Hanutram Bhuramal v. Commissioner of Income-tax, Bihar and Orissa*, besides the decisions of the other High Courts. We cannot say that the decision of the Patna High Court is on all fours with the facts of the present case. We therefore think that a question of law does arise and we refer the following question of law to the Honourable High Court:― Whether on the facts and in the circumstances of this case the Tribunal was right in holding that there was neither a discontinuance in nor any succession to the appellant's business as contemplated by Section 25(3) and Section 25(4) of the Income-tax Act. It has been also argued by the applicant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bahadur Ramchand Ram, etc., for dissolution of the firm from 8th November, 1942, cannot be accepted. The other suggestions have been incorporated in the statement. This reference came up for hearing before a Division Bench consisting of Ramaswami and Sarjoo Prosad, JJ., and the following order was passed by the High Court on 1st March, 1951. ORDER RAMASWAMI and SARJOO PROSAD, JJ.―Under Section 66(1) of the Indian Income-tax Act the Appellate Tribunal has referred the following question of law for the determination of the High Court, viz., whether on the facts and in the circumstances of this case the Tribunal was right in holding that there was neither a discontinuance in nor any succession to the appellant's business as contemplated by Section 25(3) and Section 25(4) of the Income-tax Act. The material facts are not controverted. The assessee was a firm named Jittanram Nirmalram constituted of four partners, viz., Rai Bahadur Ramchandram, Lakshmi Narain Bhadani, Vishnu Pd. Bhadani, and Bhagwandas Bhadani. It is stated that on 9th November, 1942, Bhagwandas gave a notice severing his connection with the firm and commencing a new business of his own known as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VII of 1918); (2) Whether upon the facts proved the firm Jittanram Nirmalram was dissolved on 9th November, 1942, as a result of the severance of Bhagwandas Bhadani, or, in the alternative, whether there was no dissolution of the partnership but Bhagwandas Bhadani merely retired from being a partner of the firm. The case is accordingly referred back to the Appellate Tribunal under Section 66(4) of the Indian Income-tax Act. The costs of hearing will be dealt with when the matter is finally heard after the Appellate Tribunal sends back the reference. SUPPLEMENTARY STATEMENT OF CASE. By order dated the 1st March, 1951, the High Court of Judicature at Patna has asked us under Section 66(4) to submit our findings on the following questions of fact: (1) Whether the business of the firm Jittanram Nirmalram as constituted before 9th November, 1942, was at any time charged under the provisions of the Indian Income-tax Act of 1918 (Act VII of 1918); (2) Whether upon the facts proved the firm Jittanram Nirmalram was dissolved on 9th November, 1942, as a result of the severance of Bhagwandas Bhadani, or, in the alternative, whether there was no dissolution of the partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anch of the business of Ramchandram Hari Prasad was given partly in lieu of his dues. Thereafter, Bhagwandas Bhadani carried on business independently. The Tribunal held that the Gaya cloth branch was not an independent business, but only a part of the business of the firm. It considered the claim for relief under Section 25(3) and 25(4) in paras. 2 and 3 of its order dated 23rd February, 1948, herewith annexed marked B, which forms part of the case. Therein it was held that the old business had continued retaining its goodwill and the balance of its assets and its own activities except that of the cloth shop. There has been no break in or discontinuance of the business of the firm. We find that the firm of Jittanram Nirmalram was not dissolved on 9th November, 1942, but Bhagwandas Bhadani merely retired from being a partner. Thus the finding isagain recorded by us. 5. We submit the aforesaid two findings on the question of factas desired by the High Court. Tarkeshwar Prasad, S. V. Nandkeoliyar, Madan Kishore and B. N. Jain, for the assessee Gopal Prasad, for the Commissioner. JUDGMENT RAMASWAMI and SARJOO PROSAD, JJ.- Under Section 66(1) of the Indian Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the question. For this reason the High Court referred the case back to the Appellate Tribunal to make a further statement on two questions of fact, viz., (1) whether the business of the firm Jittanram Nirmalram as constituted before 9th November, 1942, was at any time charged under the provisions of the Indian Income-tax Act of 1918 (Act VII of 1918); and (2) whether upon the facts proved the firm Jittanram Nirmalram was dissolved on 9th November, 1942, as a result of the severance of Bhagwandas Bhadani, or, in the alternative, whether there was no dissolution of the partnership but Bhagwandas Bhadani merely retired from being a partner of the firm. We have now before us the additional statement of the case sent by the Appellate Tribunal and we have heard further arguments on behalf of the assessee and on behalf of the department on the manner in which the question referred to us should be answered. It was contended by the learned Standing Counsel that there was no case of succession within the meaning of the statute since Bhagwandas Bhadani having severed his connection with the firm was granted the Gaya cloth branch of the business partly in lieu of his share of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1948] 16 I.T.R. 19 in which there was evidence to show that some of the assets and liabilities of the old firm were retained by one of the partners Kassam Manji and fresh capital was introduced by the sons into the new partnership firm. The same business was however carried on at the same place by a successor firm. In view of this circumstance the High Court rejected the argument that there was any alteration in the identity of the business or that there was no succession to the business which was being carried on by the deceased Kassam Manji under the old partnership. The same matter is put clearly by Rowlatt, J., in an English case, James Shipstone Sons Ltd. v. Morris**: Another point Mr. Latter laid some stress on was this. He said you cannot be successor to a part of a trade. He cited Mr. Justice Bray's remarks in a case in the 'Law Times', the name of which I forget for the moment. I think that is quite sound when you get two parts of a trade, as an omnibus business separate from a tramway business, as it may very well be, but I do not think it means that if what is succeeded to is not the same extent of trade or even does not include a particular line of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been the income, profits and gains of the said period............ It is also necessary to consider the provisions of Section 26(2) in this context. Section 26(2) states:- Where a person carrying on any business, profession or vocation has been succeeded in such capacity by another person, such person and such other person shall, subject to the provisions of sub-section (4) of Section 25, each be assessed in respect of his actual share, if any, of the income, profits and gains of the previous year. On this question the additional statement submitted by the Appellate Tribunal contains a finding that the firm of Jittanram Nirmalram was not dissolved on 9th November, 1942, but Bhagwandas Bhadani merely retired being a partner. On the basis of this finding it was argued by the learned Standing Counsel that there was no break or discontinuance in the existence of the firm Jittanram Nirmalram and there was no case of succession within the meaning of Section 25(4) or Section 26(2) of the Indian Income-tax Act. The argument cannot possibly be accepted for in reaching the finding that the firm was not dissolved on 9th November, 1942, the Appellate Tribunal has committed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that the new firm carried on the business in the name of the old firm, viz., Jittanram Nirmalram. But these considerations are not very material in deciding whether the new firm was an entity different in character from that of the predecessor firm Jittanram Nirmalram. As already observed the old firm of Jittanram Nirmalram stood dissolved from 9th November, 1942, as a result of the notice given by Bhagwandas Bhadani. The new firm consisting of the remaining partners must have been registered on a subsequent date and though it was named Jittanram Nirmalram it must be held to be a different person since a new partnership of three persons is a different entity from a dissolved partnership of four persons though three of the partners may be common. It is necessary to remember in this connection that a partnership is not in English law or in Indian law a single juristic person and a firm as such has no legal personality or existence. The partners merely carry on the business both as principals and as agents for each other within the scope of the partnership business. A firm's name is a mere expression and not a legal entity although for procedure and convenience it may be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shall adjust the assessment as directed. It was held by the House of Lords reversing the decision of the Court of Appeal that though in English law a partnership was not a single juristic person, the scheme of the income-tax legislation treated the partnership as a legal entity for the purpose of assessing revenue and there was succession to the business within the meaning of Rule 9, sub-rules 1 and 2. Applying the principle of these authorities it is clear that in the present case there has been succession to the business within the ambit of Section 25(4) of the Indian Income-tax Act and the argument on behalf of the assessee on this part of the case must prevail. For the reasons we have expressed we hold that the Tribunal was right in holding that there was not a discontinuance of the business but that the Tribunal was not right in holding that there was no succession to the petitioner's business as contemplated under Section 25(4) of the Income-tax Act. The reference is accordingly answered in favour of the assessee. But since the question of discontinuance has been answered in favour of the department there will be no order as to costs. The assessee is entitled to w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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