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TMI Blog1970 (12) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... of facts will show. The four sons of Mehtab Shah Nos. 1 to 4 constituted a joint Hindu family at the time when the Income-tax Act, 1918, was in force. In the year 1932, after the coming into force of the 1922 Act, these four sons effected a partition whereby the joint Hindu family ceased to exist. After the dissolution of the joint Hindu family, these four sons constituted themselves into a partnership. On the 25th of March, 1950, Nos. 5 and 6, Manohar Lal and Shadi Lai, sons of Muni Lal and Moti Lai, respectively were taken as partners. The consequence thereof was that the share of each of the partners was redetermined. It may be mentioned that Muni Lai, Moti Lal and Hans Raj constituted joint Hindu families with their respective sons. On the 14th of April, 1956, the joint Hindu families of Muni Lai, Moti Lal and Hans Raj disrupted. As a consequence thereof, the remaining three sons of Muni Lai, Nos. 7, 9 and 11, and two sons of Moti Lai, Nos. 8 and 10, and Sat Pal, No. 12, the only son of Hans Raj, were taken as partners of the firm. The shares of the partners were again re-determined. For the assessment year 1956-57, Muni Lal, Moti Lal and Hans Raj made a claim under section 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Tribunal are reproduced below : " 4. (a) It will be necessary, for a proper appreciation of the case to recall certain features of the scheme of taxation which prevailed prior to 1939. Registered firms were taxed at the maximum rates (viz., the company rates of tax). The partners were allowed refund when their personal assessments were made. (Sometimes to avoid refund, no demand was raised against the firm but necessary adjustments were made). This cumbrous procedure was discarded in 1939, when registered firms were not taxed, but demand was raised direct in the hands of the partners in respect of their shares of income in the firm. (b) (i) The second important feature is that in the year 1918 (and up to 1922) tax was raised on businesses in the current year. In 1922, the previous year basis was adopted. There was, therefore, necessarily a double taxation in 1922, one for the current year and one for the previous year, The legislature consequently designed section 25(3) when it was stipulated that the assessee would not be taxed for a year in the year when the business was discontinued. This was designed to ensure a spread-over in the national revenue. (ii) There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief is meaningless ,for the firm does not pay any incorae-tax in any case. To make the relief effective, one has necessarily to go to the partners. (b) After giving our anxious consideration to the case, the only just and fair interpretation of section 25(4), in our opinion, is that the assessee, Shri Muni Lal (and family) should get the relief as there was a succession in the family on 14th April, 1956." The department being dissatisfied with this order moved an application under section 66(1) of the Income-tax Act, 1922, and at its instance the questions already stated were referred for our opinion. Before we proceed to state our answer to the real question before us, it will be proper to reproduce certain relevant provisions of the Income-tax Act, 1922. Section 2(2) defines 'assessee' in the following terms : " 'Assessee 'means a person by whom income-tax or any other sum of money is payable under this Act, and includes every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the loss sustained by him or of the amount of refund due to him." Section 3 is the charging section and is in these terms : " Where any Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 : Provided that sub-sections (3) and (4) shall not apply- (a) to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either for the year beginning on the 1st day of April, 1920, or for the year beginning on the lst day of April, 1921 ; (b) to a business, profession or vocation on which income-tax was at any time charged in the hands of a company under the Indian Income-tax Act, 1886 (II of 1886), or on which income-tax would have been charged in the hands of a company for the assessment year ending on the 31st day of March, 1918, if the company having been in existence in that year had also been in existence in the year ending on the 31st day of March, 1917." Section 26, which is of some help in the interpretation of section 25(4), is in the following terms : "(1) Where, at the time of making an assessment under section 23, it is found that a change ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership was changed by adding members and redefining their shares, first by two and later on by six. We have deliberately recapitulated the facts for a particular purpose because Mr. Bhagirath Dass, learned counsel for the assessee, strongly contended that the Tribunal's decision was correct in view of the full Bench decision of the, Madras High Court in Kotha Govindarajula Chettiar v. Commissioner of Income-tax So far as this decision is concerned, the facts were that a joint Hindu family was dissolved and its place was taken by those very members as partners. While dealing with this situation, vis-a-vis the applicability of section 25(4) their Lordships of the Madras High Court observed as follows : " When a Hindu joint family separates and its members carry on the family business in partnership, there is change in ownership. The business is no longer owned by the joint family but by the firm, an entirely different entity, and the fact that as before the profits continue to be divided equally between the same persons makes no difference. When such a change takes place, there is succession within the meaning of section 26(2). That being the case, the assessee here is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity carrying on business and its place has been taken by a new entity. If the facts of this case are kept in view, it would be apparent that there has been no change in the entity as such. The change has been merely in the constitution of the firm and that by itself does not permit relief under section 25(4) Mr. Bhagirath Dass drew our attention to O. RM. M. SP. S. V. Meyyappa Chettiar v. Commissioner of Income-tax and Commissioner of Income-tax v. P. E. Polsons, for the contention that there is succession of the business by reason of the disruption of the joint Hindu family of the three claimants. These decisions have no application to the facts of the present case. The only case with which we may deal before parting with this judgment is Dulichand Laxminarayan v. Commissioner Income-tax on which the Tribunal has based its decision. The relevant passage, which seems to have influenced the mind of the Tribunal is at page 541 of the report and is quoted below "It is clear from the foregoing discussion that the law, English as well as Indian, has, for some specific purposes, some of which are referred to above, relaxed its rigid notions and extended a limited personality to a firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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