TMI Blog1936 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... xecuted. At any rate, I find in the file a partnership deed, dated the 9th July, 1930, between Gregory and Jaidayal Kasera, copy appended (marked J) in which it is recorded that the agreement will be only for the jute season 1930-31. The subject matter of the partnership was for buying and selling raw jute . Paragraph 4 states: The agreement between Gregory and Messrs. Champalal Kothari with which we are primarily concerned is the agreement, dated the 2nd July, 1931, a copy of which is appended (marked K). This agreement was to subsist for the jute season 1931-32, the purchasing centre was to be at Baira in Dacca District and according to that agreement Gregory was to receive a monthly salary of ₹ 300/while the profit at the end of the season was to be distributed half and half. Another agreement dated the 28th July, 1931 was executed between Gregory and Sovachand Sohanlal, copy of which is appended (marked L), in accordance with which they were to work as partners in a loose jute business in Kenduakalibari for the jute season 1931-32, Gregory to draw a salary of ₹ 150 per month and the ultimate profit to be shared as 4 annas to Gregory and 12 annas to the capitalis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y outstanding. Paragraph 4: No royalty will be paid to Mr. G.I.M. Gregory for the use of his marks and he will be paid a monthly salary of ₹ 300 for managing the business from Calcutta during 12 months of the year commencing July 1931 and ending June 1932 these monthly payments to be considered a charge on the business. Paragraph 5: All purchases of jute at the agency will be made in the name of Messrs. Champalal Kothari. Paragraph 8: It is agreed between the partners that only a conservative trading will be done and the parties to this agreement bind themselves not to have uncovered sales on their books at any one time exceeding 3,000 B/S and not to hold unsold stocks exceeding 1,500 B/S. These quantities may be modified or increased by the mutual consent of both parties which consent must be in writing. Paragraph 10: Messrs. Champalal Kothari will keep their own cashier at Baira and all the Darwans will be their own men. The cashier will handle all the money supplied by them and they will be responsible for the cash to Messrs. Champalal Kothari. Paragraph 11: Some of the old staff of employees both up country and in Calcutta selected by Mr. G.I.M. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.M. Gregory and his representative at the agency. It is agreed that jute season normally ends about February of each year but that sales are frequently made after that time. The beginning of July is regarded as beginning of the jute season. Now I turn to paragraph 5 of the case. It says: The assessee' case is that the law regarding succession as set out in Section 26 of the Act does not apply in the case, that every year there is a discontinuance and a new firm comes into existence, that no assets or liabilities are transferred form the old firm to the new firm, that no goodwill passes and that the reputation in the market of Gregory or his mark G.I.M. Co. stamped on jute bales has no value. Here it will be convenient to read Section 26 of the Indian Income-tax Act, 1922. Sub-section (1) provides:-- 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 or that a firm has been newly constituted, the assessments on the firm and on the members thereof shall, subject to the provisions of this Act, be made as if the firm had been constituted throughout the previous year as it was constituted at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute would compare with the price of jute sold by well-established European firms but how it would compare with the price obtainable by Indian firms and it is perfectly clear from the answers that jute bearing the Gregory mark will fetch a higher price in the market than jute purchased by Indian financiers and sold without any mark. The third question appears to me to be really irrelevant as the question is not what price, if any, would be fetched by the Gregory jute mark, if put up to auction, but what value, if any, it has in the present circumstances, when packed by Gregory's supervision and with Gregory's reputation behind it, and it is perfectly clear that it has some considerable value. Paragraph 7 of the case states: In this case it is clear that the trade mark and the benefit arising from the connection and reputation of Mr. Gregory have passed from the previous firm to the firm as now assessed though no tangible assets or liabilities have so passed and the question which I would state arising out of this matter may be formulated as follows. Whether in these circumstances there has been a succession within the meaning of Section 26(6) of the Indian Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case, both in the firms of Gregory I and Gregory II the name was the same. Both dealt in jute. Mr. G.I.M. Gregory was the working partner and, as far as one can gather, G.I.M. Gregory's marks were used by both the firms in classifying and selling their jute. From an examination of the case and the agreements it would appear that Mr. Gregory's marks were used by each of these firms in which he had an interest and it would appear that each firm used them by licence from or express agreement with Mr. G.I.M. Gregory. There is, however, one conspicuous difference between the firm of Gregory I and the firm of Gregory II. Gregory I had branches in the Dacca district at Baira and also in the Mymensingh district at Purbadhalla. The firm of Gregory II which is said to be the successor had only one branch and that branch was in the Dacca district at Baira. Whatever else it may be said that Gregory II may have succeeded to in Gregory I, Gregory II has not succeeded to the goodwill of the business done in the Mymensingh area. It would appear from the agreement of 28th July 1931 between Mr. Gregory and Sovachand Sohanlal that Mr. Gregory had agreed to allow the firm of Gregory III, i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits thereof made out of buying and selling jute in the Dacca area on the basis of the profits that Mr. G.I.M. Gregory and Messrs. Jaydial Kasera and Co. made in the year before out of buying and selling jute not only in the Dacca area but also in the Mymensingh area. In my view the income tax authority were wrong in attempting to do this by holding that there was a succession within the meaning of Section 26(2) and in my view it is not open on the evidence before the income tax authority to do so. They can only do so by ignoring the goodwill of the firm of Gregory I in the Mymensingh area. I now pass to the reasons that the Commissioner of Income Tax gives as to the attitude which the authorities take up in this matter. They are set out in para 8 which reads: In my respectful view, in order to constitute succession it is not necessary that any tangible assets should pass from the preceding to the succeeding firm and in this case where the trade name, trade mark, goodwill and reputation of Mr. Gregory as a buyer of raw jute have all been taken over by the new firm there is a succession in law within the meaning of the section. In the alternative I would argue that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay what reverted to him after the life interest of Gregory I, namely, the right to use the trade mark and to form a firm in the name of G.I.M. Gregory and the benefits arising from the reputation of Gregory. After that dissolution at his own will Mr. Gregory transferred a part of what reverted to Gregory II for a limited period and a part of it to Gregory III for a limited period and in my view there was no succession at all. As regards Section 26(1) in my view that section contemplates a business which continues in existence both during the period of the predecessor and during the period of the successor. No such business was in existence continuously during the life of Gregory I and Gregory II and in my view Section 26 (1) can have no application to the facts of this case. My answer to both parts of the question formulated in paragraph 7 of the case is 'no'. COSTELLO, J.--I regret that I am unable to concur in the view which has just been expressed by my Lord the Chief Justice. The question which we are required to answer was formulated by the Commissioner of Income Tax in the alternative and is in these words: Whether in these circumstances there has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the name of Champalal Kothari. These are some of the reasons which led the Income Tax Officer to come to the conclusion that to all intents and purposes the association of Mr. G.I.M. Gregory with Champalal Kothari was in direct succession to the association of Mr. G.I.M. Gregory with Jaydayal Kasera and that therefore one concern was in succession to the other. I should prefer, however, to deal with this matter upon the footing that it falls within the purview of the first part of section 26. Sub-section (1) reads 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 or that a firm has been newly constituted, the assessment on the firm and on the members thereof shall, subject to the provisions of this Act, be made as if the firm had been constituted throughout the previous year as it is constituted at the time of making the assessment, and as if each member had received a share of the profits of that year proportionate to his interest in the firm at the time of making the assessment. In my opinion the real position having regard to the history of the matter was that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for some specified centres of purchase. These have been the conditions of the business throughout and such a business has obviously to be assessed as a firm as has all along been done. Further the business is carried on at 12, Clive Street, as admittedly the controlling power for sales is with Mr. G.I.M. Gregory at 12, Clive Street, and all cheques are made out in favour of Mr. G.I.M. Gregory Co., although to be subsequently endorsed over to Messrs. Champalal Kothari. Besides, all claims and disputes arising from such transactions are to be settled by Mr. G.I.M. Gregory--vide clause 13 of the agreement. Hence the right place for assessment of the firm is District V, where the assessments had all along been made in the past and as a firm. So there was in the view of the Income-tax Officer a firm at any rate in a skeleton form, which carried on business at 12, Clive Street, having a number of regular customers to whom jute was sold year after year, no matter who happened to be the financier for the time being. In connection with this question of continuity I should like to refer to an observation made by Macleod, C.J., of the Bombay High Court in the matter of The Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in my opinion, does not imply that if what is succeeded to is not the same extent of trade or even does not include a particular line or set of customers it necessarily follows that there cannot be a succession to the trade or business, and an authority for that view of the matter is, I think, to be found in that very case of James Shipstone and Sons, Limited v. Morris (ubi supra). There is a passage in the judgment of Mr. Justice Rowlatt in that case which so far had not been referred to. It appears at page 421 of the report and is in these words: Another point Mr. Latter laid some stress on was this. He said you cannot be successor to a part of a trade. He cited Mr. Justice Bray's remarks in a case in the 'Law Times', the name of which I forget for the moment. I think that is quite sound when you get two parts of a trade, as an omnibus business separate from a tramway business as it may very well be, but I do not think it means that if what is succeeded to is not the same extent of trade or even does not include a particular line of customers, it necessarily follows that there cannot be a successor to the trade, looking at it broadly. There must be two businesses, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gap at all, that is to say no period of time, even a small one, when G.I.M. Gregory and Co. was out of existence. The agreement of the 9th day of July 1930 which Jaidayal Kasera which was obviously one for a a full twelve months terminated only at the very end of the month of June 1931. That is indicated by the terms of Cl. 4 of the agreement. The agreement of the 2nd day of July 1931, operated as from the very beginning of the month of July 1931. That is indicated by the provisions of Cl. 4 of that agreement. So that there was, as far as one can see, complete continuity as regards the existence of G.I.M. Gregory Co. and that was the name under which the trading was carried on-whether the financier happened to be Kasera or whether it happened to be Kothari. As I ventured to put it in the course of the argument financiers come and financiers go but Mr. Gregory goes on for ever to use an expression which is commonly used in pleadings in this country, in his firm of G.I.M. Gregory Co. The position therefore was such that I think I ought to say, as Mr. Justice Rowlatt said in the case of Michael Faraday, Rodgers and Eller v. Carter at page 574 it is quite out of the question th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accidental acquisition by a trader, who continues in business, of the custom left by another who goes out of business. A trade might give up or go out of the trade for some reason without attempting to realise or transfer goodwill, and the result of that might be the capture of some custom therefore attached to him by one or more of his competitors who continued to trade. That would not, I think, be a case of 'succession' within the meaning of Rule 11. On the other hand and in the second place--I think the word 'succession' does cover any case of the transfer by one trader to another of the right to that benefit which arises from connection and reputation. The question whether there is in any particular case a 'succession' or not is a question of fact. Those observations of the learned Lord President might be sufficient to enable one to say that in the present case in all the circumstances there really was a succession. However, I will base my judgment upon the view not that there was a succession but that there was throughout a firm which went on continuously year after year carrying on the business of buying and selling jute and that whenever an agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re embodied in the deed of partnership of July 2, 1931. By this deed it is provided that Gregory and Messrs. Champalal Kothari will work as partners a loose jute business at Baira (District Dacca) for the jute season 1931-32. Messrs. Champalal Kothari are to supply the working capital and to receive interest thereon at 9% Clause 4 provides for Gregory's remuneration. Clause 11 provides: Some of the old staff of employees both up-country and in Calcutta selected by Mr. G.I.M. Gregory and Messrs. Champalal Kothari, that have worked for many years for Mr. G.I.M. Gregory's firm (with exception of the cashier and Durwans) will be employed. By clause 13: Sales and shipments will be made in the name of Messrs. G.I.M. Gregory Co. under the mark of the G.I.M. Gregory Co. and complete control of the assortment will be in the hands of Mr. G. I. M. Gregory and his representatives at the agency . Finally the profits for the jute season 1931-1932 are to be divided in the proportion of 8 annas to Gregory and 8 annas to Messrs. Champalal Kothari. A third deed of partnership dated July 28, 1931 is annexed to the case. The parties to it are Gregory and Sovacha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The findings of fact, the point of law for our decision, and the Commissioner's opinion thereon, are to be found in paragraphs 7 and 8. They are as follows: 7. In this case it is clear that the trade name, the trade mark, and the benefit arising from the connection and reputation of Mr. Gregory, have passed from the previous firm to the firm as now assessed though no tangible assets or liabilities have so passed, and the question which I would state arising out of this matter may be formulated as follows:-- 'Whether in these circumstances there has been a succession within the meaning of Section 26(2) of the Indian Income Tax Act or in the alternative whether Section 26(1) applies or on a true construction of the law applicable to the facts of this case it should be held that a change has occurred in the constitution of the firm?' 8. In my respectful view, in order to constitute succession it is not necessary that any tangible assets should pass from the preceding to the succeeding firm and that in this case where the trade name, trade mark, goodwill, and reputation of Mr. Gregory as a buyer of raw jute, have all been taken over by the new firm, there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on the profits of the year of assessment conventionally estimated on the basis of the profits of the previous year, see In the matter of Behari Lal Mullick. In other words, the successor to a business, profession or vocation, is under a statutory liability, imposed by Section 26(2) in respect of the profits earned in the previous year by the person he succeeds. An argument which to my mind is of considerably greater substance is based on the fact that, whereas under the deed of July 9, 1930, the jute business of the old firm was at Baira and Purbadhalla, the jute business of the new firm was under the deed of July 2, 1931, at Baira only. I may say I do not think that the way that the Commissioner has dealt with this point is particularly happy. He says: The business is not that of buying jute at a particular centre, or a number of particular centres in the mofussil, but the business is that of buying jute wherever it can be bought to advantage in the mofussil and selling the jute in Calcutta. It seems inaccurate to say that the business was that of buying jute wherever it could be bought to advantage in the mofussil, when the deed specifically provides that the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy his opinion, we must either refer the case back or decide in favour of the assessees. In my opinion this is an unnecessarily narrow interpretation of our powers under Section 66(5). The point of law to be decided is not a hypothetical point, but a specific point raised by the facts of the particular case. The documents and proceedings annexed to the statement of the case are annexed for our consideration, and we are entitled to look at them. To shut our eyes to them because there is no specific reference to them in the body of the statement, appears to me to be a trifle pedantic. After all, the question of succession is at the bottom a question of fact, though the question, whether a particular set of facts amount to succession within the meaning of the sub-section is a question of law. It ultimately depends on the identity of the business carried on by the assessees with the business to which they are said to have succeeded. In my judgment the admissions and conduct of the assessees with regard to the business are of the greatest assistance in arriving at a decision on this point. The more one looks at the documents, the more difficult it becomes to avoid the conclusion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the use of the word succeeding in the petition of January 19, 1933; but taking the conduct and language of the assessees as a whole, it is to my mind perfectly clear that it never entered in the minds of the assessees that the business of the new firm was not identical with the business of the old firm. In my opinion the assessees treated it as the same business, and it was in fact the same business. In these circumstances I hold that the opinion of the Commissioner is correct and that the assessees succeeded to the business of the firm of G.I.M. Gregory Co., as constituted under the deed of July 9, 1930, within the meaning of sec. 26(2) of the Indian Income Tax Act. I am of opinion that sub-sec. (2) is applicable rather than sub-sec. (1) because I am inclined to the view that sub-sec. (1) has only application when a change occurs in the constitution of a firm or a firm is newly constituted during the currency of a partnership and that the sub-section has no application where, as in this case, the new or succeeding firm comes into existence after the term of the former partnership has come to an end owing to effluxion of time. This however is in the circumstances a questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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