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TMI Blog1961 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... r depots at Abdullapur fell to the share of R.B. Jodha Mal and Gajjan Mal Ram Parkash, who then formed a new partnership about the same, each having half share in the business. So far as the present reference is concerned, the only evidence of the dissolution of the previous partnership and the creation of the new partnership between R.B. Jodha Mal and Gajjan Mal Ram Parkash in regard to the Abdullapur timber depots, is the deed of partnership entered into between the last named two on June 29, 1939. The material part of that deed, which has bearing on the question under consideration, reads : Whereas, we, the deponents, were partners and shareholders in firm of Lala Hakam Mal Tani Mal, Simla, and all the partners of firm Lala Hakam Mal Tani Mal understood and settled their accounts up to the 31st of March, 1939, on the 31st of March, 1939, and all the partners have become separate from the 1st of April, 1939, and the business at Abdullapur in the name of firm Lala Hakam Mal Tani Mal and R.B. Jodha Mal Kuthalia has fallen to our share to run which we have by means of an oral agreement constituted a separate partnership styled R.B. Jodha Mal Kuthalia, Abdullapur, from the 1st of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the Act of 1918. The relief is available to the person who at the commencement of the Indian Income-tax Act; 1939, carried on business which was charged to tax under the provisions of the Indian Income-tax Act, 1918. That relief is available at the time of succession. The question for consideration is whether under these circumstances mentioned above, the relief was admissible to the appellant or not. From the assessment order of 1939-40 in the case of Messrs. Hakam Mal Tani Mal, it will be seen that the four firms took over the running of business of Abdullapur depot with Lala Gajjan Mal as partner. It is on this date, namely, 1st April, 1939, that Messrs. Hakam Mal Tani Mal was succeeded by R.B. Jodha Mal Kuthalia. Therefore, it must be assumed that Messrs. Hakam Mal Tani Mal were carrying on business at the commencement of the Indian Income-tax (Amendment) Act of 1939 for the making over and taking over of business which took place on 1st April, 1939. It is altogether immaterial and not quite relevant that the accounts were closed on 31st March, 1939. I am of opinion, therefore, the succession took place on 1st April, 1939, and the parent firm of Messrs. Hakam Mal Tani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is whether partners of firm Hakam Mal Tani Mal, described as the parent firm in the orders of the income-tax authorities, separated on March 31, 1939, or on April 1, 1939, for in the former case if the assessee firm succeeded to it before April 1, 1939, the answer to the question in the reference has to be in the affirmative and in the latter case, the answer must be in the negative. The department as also the assessee firm have for the decision of this question, relied solely upon the partnership deed, exhibit A, of June 29, 1939, between R.B. Jodha Mal Kuthalia and Gajjan Mal. The relevant part of that deed has already been reproduced above. On March 31, 1939, the partners of Hakam Mal Tani Mal settled their partnership accounts up to that date. Mere settlement of accounts obviously is not evidence of dissolution or separation of the partners of a partnership. There is no statement in exhibit A that firm Hakam Mal Tani Mal was dissolved or its partners separated on March, 31 1939. No more is stated than this that on that date, they settled their accounts up to that date. Then follows the statement that : all the partners have become separate from the 1st of April, 1939, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable reading of the deed to the assessee firm is this that they became separate on the midnight of March 31 and April 1, 1939. This, however, is not helpful to the assessee firm at all because simultaneously the Income-tax (Amendment) Act of 1939 came into force. As the Act came into force, so the partners of Hakam Mal Tani Mal separated and there came into being a new firm. The new firm, the assessee firm, thus succeeded after the coming into force or at the most simultaneously with the coming into force of that Act. The parent firm of Hakam Mal Tani Mal thus was not dissolved or did not come to an end before that Act came into force. So, the answer given by the Tribunal to the question in the reference is correct in the circumstances and on the facts of this case. It has been pressed that the intention of the partners of the parent firm of Hakam Mal Tani Mal was to dissolve the parent firm on March 31, 1939, and to allow succession of the assessee firm immediately so as to enable it to have benefit of the Act of 1939. The other partners of the parent firm have not come forward with any statement. The partnership deed, exhibit A, embodies only a statement of two of those partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd R.B. Jodha Mal Kuthalia has fallen to our share to run which we have by means of an oral agreement, constituted a separate partnership styled R.B. Jodha Mal Kuthalia, Abdullapur, from the 1st of April, 1939. , I have no doubt that the parties meant to say that all the partners of the previous firm Lala Hakam Mal Tani Mal became separate with effect from the 1st April, 1939, and that the business of Abdullapur, in the name of the said firm Lala Hakam Mal Tani Mal and R.B. Jodha Mal Kuthalia, fell to the share of R.B. Jodha Mal Kuthalia and Messrs. Gajjan Mal Ram Parkash with effect from the same date, i.e. 1st April, 1939. 1st April, 1939 , must be deemed to have started at midnight between 31st March, 1939, and 1st April, 1939, and the business at that particular moment must be deemed to be run by the new partnership which now claims the benefit of section 25(4) of the Indian Income-tax Act. In my judgment, we shall be straining the language of this document too far if we hold that the firm Lala Hakam Mal Tani Mal continued functioning till 1st April, 1939, inclusive of the said date, and the new partnership came into existence either on the next date, i.e., 2nd April, 1939, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the year preceding the year of assessment. This resulted in double assessment for one year, as income for that year had been assessed under the old Act of 1918 and was again assessed under the new Act of 1922. To provide some relief against this apparent hardship, a provision was made in the new Act by section 25, sub-section (3), that if any business on which tax was charged under the Act of 1918 was discontinued then no tax will be payable for the period between the end of the previous year and the date of such discontinuance, and the assessee could further claim that the income of the previous year be deemed to have been the income of the broken period and in this manner claim a refund of the difference. Later on in 1939, further relief was considered advisable in this connection so as to provide for not only a discontinuance of the business but also for succession, i.e., in such cases where a person went out of business leaving it to another person to carry it on. Sub-section (4) was, therefore, added to section 25 of the Act by amending Act VII of 1939 and this sub-section (4) ran thus : Where the person who was at the commencement of the Indian Income-tax (Amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and styled R.B. Jodha Mal Kuthalia, Abdullapur, was dissolved in March, 1943. On the ground of that dissolution, it was claimed by the assessee firm that it is entitled to relief either under section 25(3) or section 25(4) of the Income-tax Act because the business of the partnership, namely, R.B. Jodha Mal Kuthalia, Abdullapur, had either been discontinued from March, 1943, or it had been succeeded to by other persons within the meaning of section 25(4) of the Act. The claim, of course, was that the assessee firm R.B. Jodha Mal Kuthalia, Abdullapur, was carrying on business at the commencement of the Income-tax (Amendment) Act VII of 1939, and had subsequently either discontinued the business in 1943 or there had been a succession to that business in 1943. The Income-tax Tribunal took the view that the assessee firm came into existence only on 1st April, 1939, while the amending Act VII of 1939 had come into force with effect from midnight between 31st March and 1st April, 1939, and in this way there was succession to the old business after the coming into force of the amending Act and it could not be said that the assessee firm was doing business at the time the amending Act h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, a claim for relief would have been made immediately. It is unthinkable to my mind that knowing the provisions of the Act contained in section 25(4), the parties concerned would not have claimed the relief if the succession mentioned in the document was a succession after the amendment of the Act. It is true that the document at one place says that the dissolution of the old firm took place on 31st March, 1939, and then goes on to say that the new firm started on 1st April, 1939, but these recitals have to be read in the light of the provisions in section 25, sub-section (4), which were known to the parties at that time and along with the conduct of the parties. Mehar Singh J., as I have already mentioned, was himself inclined to agree that according to the instrument of 29th June, 1939, the new firm may be deemed to have come into existence at midnight between 31st March and 1st April, but he was not persuaded that it could further be held that the firm was in existence before the amending Act VII of 1939 came into force as both events happened simultaneously. It is to be noticed in this connection that sub-section (4) of section 25 of the Income-tax Act affords relief to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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