TMI Blog1973 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... effect of the whole transaction or arrangement between the old firm and the new firm results in succession to the old business. Viewed in that manner, I have come to the conclusion that the question referred to us must be answered in the affirmative. - - - - - Dated:- 17-11-1973 - Judge(s) : VIMADALAL., S. K. DESAI. JUDGMENT The judgment of the court was delivered by VIMADALAL J.-The facts giving rise to this reference are that there was a firm of the name of Ramdas Khimji Co. doing cotton mukadami business for a Japanese firm called Gosho Kabushiki Kaisha Ltd.(hereinafter referred to as " the Japanese firm ") which was in existence in 1921 and the income from which had been charged to income-tax under the Indian Income-tax Act of 1918. It was first charged to super-tax in 1920-21. The constitution of that firm was changed from time to time and some of the partnership deeds relating to the name are on record. On 11th December, 1933, Ramdas Khimji Co. ceased to act as mukadams for the Japanese firm, and from that date a firm which bore the name of Ramdas Khimji Bros. was appointed as mukadam and broker to the Japanese firm. The constitution of the firm of Ramdas Khimji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lved and its liabilities taken over by one of the partners, viz., Ramdas Khimji in his individual capacity, and an altogether new firm was constituted to carry on the business of mukadami with the result that there was a discontinuance, and not a succession within the terms of section 25(4) of the Act. As far as the first contention was concerned, the Tribunal gave a finding in favour of the assessee-firm and held that it would be unrealistic to take up the position that cotton mukadami was something different from cotton business and to categorise the business in such water-tight compartments, and it, therefore, held that it could not be said that the business which the firm was doing was not the same business which had suffered taxes under the 1918 Act. That is a finding of fact by the Tribunal which must be accepted for the purpose of this reference. As far as the cantention advanced before the Tribunal on behalf of the revenue was concerned, the Tribunal, however, decided in favour of the revenue and held that when the assessee-firm was constituted, there was a complete break with the past and the old firm was dissolved and the new firm started without any assets of the old fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already stated above, that this reference must proceed on the basis of the finding of fact at which the Tribunal had arrived, viz., that the business carried on by the assessee-firm is the Same business as that which suffered tax under the 1918 Act. The area of controversy in the present reference is, therefore, limited and the contention which Mr. R. J. Joshi advanced before us on behalf of the revenue was that Ramdas Khimji Co. was dissolved and closed on the 11th of December, 1933, and there was no evidence to show that there was a succession to the business which it had carried on. In this connection, it may be mentioned that there is a finding of the Tribunal that the firm of Ramdas Khimji Co. was dissolved on the 11th of December, 1933, and, indeed, the assessee's own letter dated 13th March, 1958, addressed to the Income-tax Officer, which is annexure " O " to the statement of the case before us, shows that on that day Ramdas Khimji Co. " went out of existence ", though it proceeds to state, " and M/s. Ramdas Khimji Bros. were appointed as agents of the Japanese firm ". The fact that the firm of Ramdas Khimji Co. was dissolved on, the 11th December, 1933, is, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider what is the legal concept of succession within the meaning of section 25(4) of the Indian Income-tax Act, 1922. Many cases were cited before us in the course of the hearing of this reference, but I propose to refer to only two of them. The first of them is the decision of this court in the case of Ramgopal Ganpatrai Sons Ltd. v. Commissioner of Excess Profits Tax , where the question of succession arose, not in regard to section 25(4) of the Indian Income-tax Act, 1922, but in regard to the second proviso to section 6(1) of the Excess Profits Tax Act, 1940, under which a certain benefit was available to a business which had commenced on or after 31st March, 1936. I am not concerned with the nature of the concession allowed to such business under that proviso, and, indeed, the court in Ramgopal's case was itself not concerned with the same. As stated in the judgment in the said case, the only question that the court had to decide thereunder was whether, for the purpose of the said proviso, it could be said that the business of the assessee-company commenced on or after the 31st of March, 1936. The contention of the assessee-company was that its business commenced on or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anrajgirji, but there had, been a discontinuance on the 3rd of September, 1937, and a new business was commenced. This decision was strongly relied upon by Mr. Joshi in support of his contention that when the Japanese firm by its letters dated 11th of December, 1933, discontinued the appointment of Ramdas Khimji Co. as its mukadams and appointed Ramdas Khimji Bros. as mukadams as from the same day, it must be held that there had been a discontinuance of that business in so far as the old firm had ceased to be the mukadams and the new firm had become mukadams and there had, therefore, been no succession within the terms of section 25(4) of the Act. On first impression, the decision of this court in Ramgopal Ganpatrai's case does seem to support Mr. Joshi's contention, but it is clear that what has been held in the said case is that, " on the facts on the record and on the documents on the record " in that case, it could not be said that there had been a succession. In my opinion, there can be no question of a court being bound by authority as far as the facts before it are concerned. I am, therefore, not prepared to regard the decision in Ramgopal Ganpatrai's case as binding upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same premises, the same telephone number, post box number, private codes and trade marks and the important sections of the staff of Chambers Co. On 23rd Ma y, 1933, the father wrote to the Liverpool and London and Globe Insurance Company, Calcutta, and used his good offices in getting the said insurance company to transfer, the agency of that company to Chambers Co. run by the son. On 1st January, 1948, the son transferred the business to a limited company, and for the assessment year 1948-49, he claimed relief under section 25(4) of the Indian Income-tax Act, 1922, and the question which arose was, whether on the facts stated above, there was a succession to the business within the terms of the said section 25(4). It was held by the Supreme Court, confirming the view taken by the High Court, that there was a succession within the meaning of section 25(4) and the son was entitled to relief under that section. In the course of its judgment, the Supreme Court stated that succession involved "change of ownership ", and implied that "substantially the identity and the continuity of the business are preserved ". It further took the view that if there was a transfer of business, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in Chambers' case, in my opinion, is that in order to constitute succession, there must have been a change of ownership but the substantial identity and the substantial continuity of the business must have been preserved. It is, therefore, important to bear in mind that the test for succession is not an absolute identity or complete continuity of the business of the old firm by the new firm. Turning to the material which the assessee has placed on record in the present case, in the light of the law laid down by the Supreme Court in Chambers' case, the documentary evidence to which I would like to refer first is the two letters, both dated 11th December, 1933, written by the Japanese firm, one to Ramdas Khimji Co. and the other to Ramdas Khimji Bros., discontinuing the mukadami of the former firm and appointing the latter firm as mukadam as from the date of those letters. I am not prepared to accept Mr. Joshi's contention that the said letters must be read as showing a discontinuance of that business, as was held in Ramgopal Ganpatrai's case . These two letters, in the context of the other facts on record to which I will presently refer, in my opinion, show that R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 1962, filed in reply to the affidavit of the Income-tax Officer, Mr. Goswami, in the present case. There is one other factor which must also be considered in judging the question of succession, and that is the provision for meeting the liabilities of the firm of Ramdas Khimji Co., that is to be found in the partnership deed of Ramdas Khimji Bros. dated 26th March, 1936 (annexure "C" to the statement of the case). It is true that the said partnership deed has not, by the terms thereof, taken over the liabilities of, the firm of Ramdas Khimji Co., in which case the question of succession would have been much simpler. What it has, however, done is that the said partnership deed of Ramdas Khimji Bros. makes an indirect provision for meeting the liabilities of the old firm of Ramdas Khimji Co., through the person of Ramdas Khimji who was one of the common partners. This arrangement, in my opinion, though it is not as strong evidence as a transfer of liabilities would be, is also indicative of a succession to the business of the old firm. I do not agree with the view taken to the contrary by the Tribunal in paragraph 11 of its order out of which order the present reference arise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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