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TMI Blog1981 (4) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... n I.T. Act, 1918. On 31st March, 1943, there was a partition of the family. The terms of this partition, however, were reduced to writing only by means of a partition deed dated 29th April, 1943, which was got registered on I St May, 1943. The partition deed mainly contained recitals regarding the allocation of immovable property among the various members of the family. So far as the business was concerned, the income from which alone is in issue at present, the document recited as follows: " As we were not interested in keeping the above business in joint ownership, therefore, we have dissolved the family business on March 31, 1943, after having understood the accounts regarding goods, bardana, cash, things, utensils and furniture and each of us has taken his share and all the members got separated from the movable property. " On 30th April, 1943, an instrument of partnership was drawn up. The partnership deed was executed between the three adult members of the family, Mahabir Pershad, Sham Lal and Ajit Pershad. Two minor sons of Mahabir Pershad, Mohinder Pershad and Vijindra Pershad, who were parties represented by their father and guardian for the purpose of a partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 28th April, 1962. At about the same time, he also filed a writ petition, being C.W.No. 349-D/62, in this court contending that the order of the ITO was erroneous and praying for directions to the ITO and the Commissioner of Income-tax to grant the petitioners appropriate statutory relief under s. 25(3)/25(4) of the I.T. Act, 1922, as amended in 1939, and to direct a refund of the entire amount of income-tax and surcharge paid by the petitioners for the period 1st April, 1942, to 31st March, 1943. The appeal of the assessee was disposed of by the AAC on 11th May, 1966. He dismissed the appeal holding that there was no right of appeal against an order under s. 25(3)/25(4). The assessee preferred an appeal to the Tribunal which set aside the order of the AAC and directed him to entertain the assessee's appeal and dispose of it on merits. This appeal was disposed of by the AAC. The AAC found: (1) that the assessee-family had paid income-tax under the Indian I.T. Act, 1918 ; (2) that there had been a total partition of the family on 31st March, 1943, and that this had been accepted by the department by an order under s. 25A dated 29th January, 1946; and (3) that a firm constituted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ober, 1974. The order was made by the learned Accountant Member and was concurred with by the learned judicial Member " though not without some hesitation ". The Tribunal also rejected an application for rectification filed by the assessee by its order dated 28th May, 1975. The assessee, dissatisfied with the order of the Tribunal, has prevailed upon the Tribunal to refer the following two questions for the decision of this court : " 1. Whether, on the facts and in the circumstances of the case, and on a true interpretation of the partnership deed of 30-4-1943, it could be rightly said that there was a succession on 1-4-1943 and hence the income for exemption from tax under section 25(4) was the income for the period 31-3-1943 to 1-4-1943 ? 2. If the answer to the above question is in the negative, whether, on the facts and in the circumstances of the case, the assessee is entitled to exemption from tax in respect of the income of the period from 1-4-1942 to 31-3-1943 under section 25(4) of the old Act ? " The assessee has also preferred L.P.A. No. 211 of 1972, from the order of the learned single judge dismissing the writ petition filed by it. The questions for considerati ..... 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. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference. " In other words, the legislature provided that as and when the assessee discontinued the business he would be entitled to exemption from tax on the income of the last accounting period during which it was carried on. Thus, for example, if the previous year of the assessee was the financial year and the business was discontinued, let us say, on 21st August, 1927, the relief provided was that for the assessment year 1928-29, the assessee could claim that no tax should be collected or charged in respect of the income, profits and gains of the period 1st April, 1927, to 21st August, 1927. Since the relief, thus, granted in such a case would, generally, be in respect of a broken period, the section enabled an assessee, at his option, to claim, in addition to the above relief, that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and, if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference: ......... " It will be seen that the nature and extent of the relief provided for by sub-s. (3) and sub-s. (4) are identical. The only difference is that subs. (3) comes into operation in cases where a business which was charged under the 1918 Act comes to be discontinued and the person getting the relief will be the person who was carrying on the business at the time of its discontinuance. Sub-section (4), on the other hand, was available in case where the business charged under the 1918 Act remained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any, under s. 25(4) should have been claimed only in the assessment year 1946-47, and that it would be open to the assessee to make such a claim in the assessment year 1946-47. However, so far as the assessment year 1945-46 was concerned, the court pointed out that all that the assessee could claim was that its income from 17th October, 1944, till 18th October, 1944, was exempt. After setting out the provisions of ss. 25(3) and 25(4), Chagla C.J. observed (at p. 231) : " Now, dealing with the first relief, the relief in this case to which the joint Hindu family would be entitled is that it will not be liable to pay any tax in respect of the income, profits and gains of a period which consists of the end of the previous year and the date of succession. Looking to the plain language of the section, it is clear that this relief has to, be claimed by the assessee in the year of assessment in which the succession took place, and the nature of the relief is that he is not entitled to pay tax on that particular specific period which is made up of the last date of the previous year and the date of succession. Therefore, what we have to ascertain in this case is, what was the date of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no income between that date and the date on which the succession took place, namely, 8th October, 1943. The case was heard by justice Bhargava and justice Upadhya who differed and the matter was referred to a third learned judge, justice Jagdish Sahai. Upadhya J., who was in the minority, took the view that the section should not be so interpreted. The learned judge observed (at p. 426): "In a case where succession takes place on a date immediately after the end of the previous year there can be no period At all which might be considered for the purpose of section 25(4). Having regard to the fact that the two points of time for determining the period of exemption are two dates the date on which the previous year ends on the one side and the date of succession on the other side it is obvious that if these two dates follow each other immediately there can be no period for which relief might be granted. I can see no reason why the legislature should have discriminated between assessees whose business is succeeded to towards the close of the previous year and those whose business is succeeded to immediately after the close of the previous year. The expression 'end of the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find ourselves in agreement with the view expressed by Upadhya J. of the Allahabad High Court in preference to that of the majority of judges in the Allahabad case. The main part of s. 25(3)/25(4) contemplates a relief in respect of a period between the end of the previous year and the date of discontinuance/succession. There is no logical reason for granting relief in a case in which the succession takes place on any day between the second and the last day of a previous year (i.e., where it is of duration between one to. 364 days) but not to a case where it happens on the 1st day of previous year. We think that the language of the sub-section presents no difficulty if understood in a practical and realistic sense. Though the subsection talks of an exemption in respect of the period between the end of the previous year and the date of discontinuance/succession it will be seen that, generally speaking, it encompasses only the income of the period, starting from the first day immediately preceding the date of succession or discontinuance. To give an illustration, if the financial year is the previous year and an assessee discontinues business on 7th August, 1944, the period of exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the exemption in respect of the entire financial year from April 1, 1942, to March 31, 1943. With respect we would, therefore, differ from the majority judgment of the Allahabad High Court and the weighty pronouncement of Chagla C.J. in the Bombay case, where, as pointed out by Upadhya J., the question did not properly arise before the court for consideration and the learned Chief Justice only expressed what appears to have been a prima facie view. Having regard to the whole scheme of s. 25(3)/25(4) and the clear intention of the legislature, we have no hesitation in holding that the exemption under the first part of s. 25(3)/25(4) would apply as much to case where the broken period is 365 days as it would to a case where it is 364 days or less. It following that in such a case the further claim arising under s. 25(3)/25(4) would not arise because the income, profits and gains of the previous year relevant to the assessment year would be exactly the same as the income, profits and gains of the period for which the relief is due under the first part of the section. Shri K. H. Kaji, learned counsel for the assessee, in his attempt to get over the decisions of the Allaha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of an oral agreement, constituted the present partnership firm from 1st April, 1939. This new partnership known as Jodha Mal Kuthiala was dissolved in March, 1943, and claimed relief under s. 25(3)/(4) of the 1922, Act. The question that arose was as to whether this firm could be said to have been carrying on business on the date of commencement of the Indian I.T. (Amend.) Act, 1939, which came into operation at a point of time immediately on the expiry of March 31, 1939. Affirming the decisions of the Punjab High Court, the Supreme Court held that the question in dispute had to be determined on a true interpretation of the terms of the partnership. The instrument of partnership in the first instance recited that the accounts of the previous firm had been settled oil March 31, 1939, and up to March 31, 1939. It then recited that all the partners had become separated from April 1, 1939. This was an ambiguous recital which could mean either that the dissolution had taken place on April 1, 1939, i.e., the business had continued for the whole or a part of the day on April 1, 1939, or it could mean that, from the end of March, 1939, there had been separation. This ambiguity had to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent. There a settlement had been made on May 13, 1892, by which the settlor conveyed real estate unto and to the use of two trustees upon certain trusts declared therein. It was further declared that the trustees should stand possessed of the premises during the term of 21 years from the date of the trust upon trust to apply the rents and profits in the manner specified. It was further declared that the said trustees should " at the expiration of the said term of twenty-one years " sell the said premises as mentioned therein. The validity of this settlement was attacked on the ground that it offended the rule against perpetuity. It was argued that an estate or trust in order to be valid and not to infringe the rule against perpetuity, must where there are no lives or life in being to be taken into account, arise not later than the term of twenty-one years from its creation. It was contended that as the trust for sale in this case arose at the expiration of the term of twenty-one years it necessarily followed that it did not arise within this period. Meeting this argument, Warrington J. observed(at p. 380): Is that argument sound ? It is perfectly true that in many of the well-k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculus in cases which deal with a point of time which coincides with the end of one interval and the commencement of another' In such a case, it would be as, true to say'. that the partnership commenced on 31st March, 1943, for certain purposes as to say that it commenced only on 1st April, 1943. The fact of the matter is that the succession took place (in the absence of anything definite in the relevant documents) at a zero hour which is as much part of the 31st March as it is of the I St April. In such a situation, we do not think it would be equitable to deny relief to the assessee under s. 25(3) on the theoretical assumption that the firm commenced business on 1st April, 1943, and, therefore, the succession took place on that date. If we are correct in this view, namely, that the succession could be said to have taken place on 31st March, 1943, itself, then, the assessee would be entitled to relief in respect of the entire period from I St April, 1942, to 31st March, 1943, even on the Bombay and Allahabad views and it would not be necessary to rest our conclusion on the first point which we have discussed earlier. It appears to us that the matter can also be looked at from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce versa; family may be succeeded to by a firm or vice versa; a sole proprietary firm may be succeeded to by a firm or vice versa. It would, therefore, be clear that, quite apart from the controversy as to the point of time when the partnership came into being which 'has been discussed earlier, there can be no doubt that there was a succession to the family on 31st March, 1943, itself as a result of which it become entitled to the relief under s. 25(3). To sum up we are of opinion that the assessee is entitled to relief under s. 25(4) in respect of the entire profits of the financial year 1942-43, on the three following grounds : (1) If it is taken that the family got disrupted on 31st March, 1943, and the firm commenced on 1st April, 1943, the relief that is contemplated by s. 25(3) is in respect of the period 1st April, 1942, to 31st March, 1943 ; (2) Alternatively, since the case of both the parties was that the disruption and the formation of the partnership were simultaneous, it would be correct to say that the succession took' place on the same date as the partition, namely, 31st March, 1943, although the partnership can, from another point of view, be said to have commence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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