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TMI Blog1944 (11) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... o) at the Ghadial Gally in the Mulji Jetha Market was used by the partnership for its business in piece-goods, and the rent of the shop was to be paid by the partnership. On October 30, 1939, (Aso Vad 2, 1995) Gokuldas died. The account year of the partnership was the Samvat year. As this death occurred about twelve days before the close of the Samvat year, nothing appears to have been done for those days. As from November 12, 1939, that is the beginning of the new Samvat year 1996, a new partnership was formed. Three sons of Haridas were included as partners, and the shares of the five partners were re- shuffled. Gokuldas Jivraj or his estate represented by his legal representative was not given any share in this business. A partnership deed, recording the terms of the partnership and dated December 1, 1939, was duly executed, and is part of the record. According to that Haridas got a share of five annas; his three sons-Dwarkadas, Babhoobhai and Ajitsingh-got a share of two annas each, while Karsondas Premji's share was raised from three annas six pies to five annas. From the statement of case it appears that at the end of Samvat year 1995 there were several outstanding contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Tribunal, on the material put before them, (although on the two material points they had misdirected themselves, as I pointed out above), they found that there was no more than a change of constitution of the firm. They rejected the contention that an al- together new firm had come into existence. The question for consideration in respect of the income of the assessee- firm, which is the firm doing business in Samvat year 1996, has to be considered under two Acts: (1) the Income-tax Act and (2) the Excess Profits Tax Act. Section 26 of the Indian Income-tax Act runs as follows:- Where, at the time of making an assessment under Section 23, it is found that a change has occurred in the constitution of a firm.... the assessment shall be made on the firm as constituted at the time of making the assessment." The first proviso to this section runs in these terms: "Provided that the income, profits and gains of the previous year shall, for the purpose of inclusion in the total incomes of the partners, be apportioned bet- ween the partners who in such previous year were entitled to receive the same." The scheme, therefore, clearly is that while the assessment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee it was con- tended that these are not the profits of the business of the assessee. They were profits received or recovered by the assessee-firm for and on behalf of the old firm, and in distributing the profits, for the purposes of the Income-tax Act under Section 26, the Department itself has divided this sum of ₹ 56,260 and the sum of ₹ 10,503, which was assessed to be the profits of the business of the assessee-firm itself in Samvat year 1996 separately. The first sum they have divided between the two surviving partners and the widow of the deceased partner. The last sum of ₹ 10,503 they have divided between the two survi- ving partners and the three new partners according to the newly arranged shares. In this connection the assessee strongly relies on the unequivocal finding of fact in the statement of case recorded by the Tribunal. In paragraph 5 they have stated as follows:- "In the Income-tax appeal the Tribunal recorded the following findings of fact in its order under Section 33, dated November 4, 1943...." "(5) The profits of the old undertakings were divided between the two original partners and the widow of the deceased pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the profits of ₹ 56,260 are the profits of the business of the assessee firm for the accounting year, i.e., Samvat 1996? For this purpose the change, which occurred in the constitution of the firm in Samvat year 1995, is not material. The one and the only relevant ques- tion is whether this sum is the profit of this new business, that is, the business of the newly constituted firm? The question is: "what are the profits of the business?" Having regard to what is stated in Section 2(5) last proviso, it is clear that in order that different businesses may be considered as one business, they should all be carried on by the same person. That, again, must be as the owner. To put it in other words, the same person must be the owner of the resultant profit or loss of the business. As an illustration one may consider the case of a firm doing business as merchants in cotton for its own benefit. Its business may result in a profit or loss to which the partners are entitled. If that firm was employed by an up country constituent to do business on his behalf, as the merchants in Bombay will not enter into transactions in the name of the up-country constituent, the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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