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TMI Blog1962 (2) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... got an one-fourth share. The business, as such, was allotted to the shares of Chandappa Iyer, the father, and one of his sons, Hanumantha Rao. The other two sons, Subba Rao and Seshagiri Rao, left the business. There is no dispute that the family business was taken over as an integral whole by Chandappa Iyer and Hanumantha Rao who continued it as a firm by entering into a partnership on October 7, 1954, the day next after the division. There were several trade debts due to the family from third parties forming part of the business and they were carried over by the firm into its books of account. This firm of partnership was assessed to income-tax for the assessment year 195657, relevant to the previous year ended on October 25, 1955, and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the family on the partition brought about a capital receipt in their hands. He, however, allowed two debts to be written off as these debts were brought into the accounts of the business as a trade debt. The Appellate Tribunal also took the view that the trade debts written off were really capital receipts in the hands of the partners of the firm. The reasoning of the Tribunal is set out thus in its order: Apart from all that the assessee has clearly stated that, at the time of partition, a valuation of surplus of assets over the liabilities was put and the aggregate was divided. Therefore, on October, 7, 1954, those amounts became the assessee's capital and they lost the identity as debts due to the firm. What is realised out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and if the business is banking or money-lending must have been advanced in the ordinary course of such business. 4. The debt must have become bad and irrecoverable in the accounting year. If the joint family, which carried on the business as owner at the time when these debts came into existence, had continued the business in the relevant accounting year and if it were to be assessed on the income of that year, there cannot be any doubt that the debts in respect of which the present write-off is claimed would be properly within the scope of the above provision. This right to claim allowance for bad debts would also of course enure in favour of any person who might claim to have succeeded to that business, now that the joint famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss itself is split up, if not totally extinguished, there is a discontinuance of the business, but where the business if merely allotted without its structure being in any way impaired, to one or more members of the family, there is only succession. Discontinuance and succession are mutually exclusive. The test to be applied to ascertain whether there has been a discontinuance or succession is to find out whether the identity of the business is preserved or not. A disruption of a Hindu undivided family owning a business need not necessarily involve the disruption of the unity of the business taken as a whole bringing about a censer of such business. It was held in Meyyappa Chettiar v. Commissioner of Income-tax [1943] 11 I.T.R. 247, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was a partition in the family under which some of the vilasams were allotted to the father and the rest were allotted to the assessee. After the partition, the son, who assessed to incometax for the assessment year 1939-40, claimed that there was a discontinuance of the business within the meaning of section 25(3) of the Indian Income-tax Act. It was held that, on partition, as the assets of the joint family business were split up the joint family business was no longer in existence. It was terminated and there was a discontinuance within the meaning of section 25(3). It is quite clear on the facts of that case that the business itself was split up. Satyanarayana Rao J. in fact referred to the decision in Meyyappa Chettiar's case# a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was previously carried on by the joint family. We do not understand this passage to mean that a joint family business allotted to a member of the family at a partition does not bring about a change of ownership from the family to the individual separated member. The case before the learned judges was one in which there was a complete disintegration of the family business. This is made quite clear from the following further observations of Satyanarayana Rao J.: In my view, the legal position of the assessee and his father after partition in relation to the business was correctly stated by the Appellate Assistant Commissioner who held that, after splitting up of the assets of the business, the joint family business no l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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