TMI Blog1967 (1) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... o be reopened under section 34 of the Act. At that stage, the assessee claimed exemption under sub-section (3) of section 25 of the Mysore Income-tax Act, 1923. The facts on the basis of which the claim was made were briefly the following : On 2nd November, 1948, the family entered into a regular partition of all its properties and assets. One of the assets was a flourishing business which was till then being carried on by the family. The manner in which the partition was put through was first to list separately different categories of assets belonging to the family, like cash, land, buildings, machinery, book balances, etc., and divide the assets in each of those categories into shares for allotment and to allot to each coparcener specific items. Thereafter, the three male members of the family mentioned above together with one Gopamma, the widowed daughter of the karta, entered into an ordinary partnership to carry on the same business as the family had been carrying on before the partition. The capital contribution to the new partnership by each of the three male members was by way of transfer entries in the books carried out in the following manner : ----------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25(3) of the Mysore Act is the same as the section and sub-section of the same number of the Indian Income-tax Act, 1922, as it stood before the amendment of 1939, and read as follows : " 25. (3) Where any business, profession or vocation..... on which tax was at any time charged under the provisions of the Mysore Income-tax Act, 1920, is discontinued, no tax shall be payable in respect of the income, profits, and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee 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. " The Mysore Income-tax Act, 1920, referred to therein is in pari materia with the earlier Indian Income-tax Act of 1918. Under those Acts, income-tax was paid for each incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imously placed upon an identical statutory provision by the highest courts in the land as well as by the then highest appellate authority, the Privy Council. Even on the footing that discontinuance of business for the purpose of section 25(3) can only be a total cessation of that business, the question is whether, in the case of this assessee and on the facts summarised above, it is not possible for the assessee to contend that the situation was nothing but a discontinuance of business in that sense. It will be noticed that the assessee was an undivided Hindu family and that the business it was carrying on was a family business. In the case of undivided Hindu families carrying on business, the undoubted legal position is that the business itself is regarded as one of the assets of the family and that the same is available for partition like any other asset or property of the joint family. While entering into a partition, it is open to a family either to allot the business as an entire unit to one or more of its members without affecting its integrity or to divide separately assets which may be exclusively identified as business assets and allot those assets separately to differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on by the family. Referring to the money-lending business, his Lordship expressed himself as follows : " In my opinion, it is manifest that there was not a 'succession' within section 26(2) of the Act. In order that a person should he held to have 'succeeded' another person in carrying on a business, profession or vocation, it is necessary that the person succeeding should have succeeded his predecessor in carrying on the business as a whole. Where a business is split up and thereafter another person carried on part of the business I am of opinion that he does not 'succeed' his predecessor in carrying on the business with section 26(2). Further, where there is no continuity in carrying on the business and when one business has come to an end and after a time another business is started, it may be with the same assets and under the same conditions and in the same premises as the old business, the persons carrying on the new business do not 'succeed' those who had carried on the old business within section 26(2) of the Act. " This principle was accepted and applied by the Madras High Court in the case of Annamalai Chettiar v. Commissioner of Income-tax, referred to above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been doing. His Lordship observed that in such a case the business carried on by the purchaser on putting together the subsidiary assets of the insolvent's business was quite a new business and not the original business of the insolvent himself, succeeded to by the purchaser. We have little doubt that the principles stated above are applicable directly to the facts of this case. The only difference or distinguishing feature relied upon on behalf of the department before us was that, in the preamble or the opening paragraphs of the deed of partnership, the parties have permitted themselves to state that the idea of their entering into a partnership was to continue the old family business. That statement may be correct as a statement of fact to this extent, viz., that in spite of the change in legal status and legal title brought about by the partition, there was no apparent change in the outward appearance of the business and the manner in which it was to be carried on. But such is also the position in the case, for example, of a family house allotted to a single person or several coparceners in distinct shares after partition. It is only those that are aware of the partition an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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