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TMI Blog1973 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... onsisted of two partners, viz., Ramdas Khimji and Gopaldas Khimji, and a partnership deed was executed on 26th March, 1936, which is one of the documents on record. Under clause 8 of the said partnership deed, Ramdas Khimji was entitled to 20 cents in a rupee of hundred cents out of the profits of the firm, and Gopaldas Khimji was entitled to 14 cents. Out of the remaining 66 cents, 63 cents were to be kept apart every year to be applied for discharging the liability of Ramdas Khimji to the firm of Ramdas Khimji & Co. when the same was ascertained. In 1941, the Japanese firm being declared an enemy firm, the business of Ramdas Khimji Bros. with the Japanese firm was discontinued and Ramdas Khimji Bros. thereafter continued cotton business on their own. After some changes in its constitution, the business of Ramdas Khimji Bros. was ultimately taken over on the 29th of December, 1951, by Mathurdas Ramdas, one of the partners, as a proprietary concern. The said firm of Ramdas Khimji Bros, claimed to be entitled to relief under section 25(4) of the Indian Income-tax Act, 1922, in respect of the profits from its business for the period from October 1, 1951, to December 28, 1951, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on by the assessee-firm from the 1st of April, 1939, up to the date of dissolution had not been charged to tax under the 1918 Act. From that order of the Tribunal a case has been stated to us, and the question of law which has been referred to us is in the following terms : "Whether, on the facts and in the circumstances of the case, the firm of M/s. Ramdas Khimji Bros. was entitled to relief under section 25(4) of the Indian Income-tax Act, 1922, in respect of the profits from its business for the period from October 1, 1951, to December 28, 1951, relevant to the assessment year 1953-54 ? " It will be convenient at this stage to refer to the provisions of section 25 of the Indian Income-tax Act of 1922 with which the court is concerned in the present case. It may be stated that subsections (1), (2) and (3) of the said section refer to a case in which a business, which his suffered tax under the 1918 Act, has been discontinued. Sub-section (4) of that section then proceeds to deal with a different case, and that is, a case of succession as distinguished from discontinuance, and entitles an assessee, who has succeeded to a business which has paid tax under the 1918 Act, to certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l discontinuance or a succession by Ramdas Khimji Bros. to the business which Ramdas Khimji & Co. had carried on till the said date. It is true that since the assessee claims an exemption, the onus is on him to prove the necessary facts and, according to Mr. Joshi on behalf of the revenue, the assessee has led no evidence at all to prove succession. In my opinion, it is impossible to say that the has placed no evidence on record whatsoever in regard to its case of succession, and the question is only whether the evidence, which it has undoubtedly placed on record, is sufficient to make out a case of succession as understood in law which, it may be stated, is a mixed question of law and fact. As against the material which has been brought on the record on behalf of the assessee with which I will deal later on in this judgment, the Tribunal has relied only on, two facts and they are : (1) there is no reference in the partnership deed dated 26th of March, 1936, about any take-over of business by the new firm from the old firm as a going concern, or any mention of the taking-over of the assets of the old firm and that, in fact, there is " a complete black out about what happened betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner was that it had commenced prior to the said date. It was not disputed in the said case that the assessee-company which had been incorporated on 23rd June, 1943, had succeeded to the same business that was Carried on by the Hindu undivided family, but the question that the court had to consider was, whether the business that was started by the Hindu undivided family as managing agent on 3rd September, 1937, was a new business or whether that family had in its turn succeeded to some earlier business. The facts of the case were that on the 13th July, 1935, Raja Dhanrajgirji had been appointed as the managing agent of the Dhanraj Mills Ltd., that the Hindu undivided family came to be the managing agents on the 3rd September, 1937, and that managing agency was assigned to the assessee-company on the 23rd of June, 1943. It was on those facts that it was contended on behalf of the revenue that the business of the assessee-company had not commenced on or after 31st March, 1936, but had commenced on the 13th of July, 1935, when the managing agency business was initially started by Raja Dhanrajgirji, and the Hindu undivided family had succeeded to that business and the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered on what has, been placed on record before us by the assessee-firm. That brings me to a consideration of the decision of the Supreme Court in the case of Commissioner of Income-tax v. K. H. Chambers . The facts of that case were that one G. A. Chambers (hereinafter referred to as " the father ") was carrying on two independent businesses, one in the export of hides, skins and mica as well as insurance and shipping brokerage under the name of " Chambers & Co. ", and the other under the name of " Chrome Leather Company ". In 1932, he had handed over the sole management of the business of Chambers & Co. to his son, K. H. Chambers (hereinafter referred to as " the son "). On 7th July, 1932, the father wrote a letter to the son informing him that by, the end of August, 1932, the sum of Rs. 40,000 invested by him in the business would run out, and that unless Rs. 60,000 was invested by the father, which he could not afford to risk, the business could not be conducted. The father, therefore, suggested to the son that Chambers & Co. could be wound up and, if the son chose, he could have the goodwill so as to get the advantage of the business connections of Chambers & Co. On 8th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f some of the assets and liabilities, not with a view to enable the transferor to run a part of the business transferred, but to enable the transferee to run the business unhampered by the load of debts or for any other appropriate collateral purpose could not detract from the totality of succession. The main test to determine that there was succession to the business was whether there had been a taking over of the whole business and, in that connection, some other factors which have been used as tests were indicated in the judgment of the Supreme Court as being : (1) whether a similar trade had been carried on after the transfer ; (2) whether the goodwill or other intangible assets were included in the transfer ; (3) whether staff was taken over ; (4) the treatment on transfer of the stock and debts of the transferor ; and (5) whether there was an interval in the carrying on of the trade as a result of the, transfer. In my opinion, however, these other factors which the Supreme Court has referred to are merely illustrative and cannot be considered to be exhaustive. For instance, though in the said case it was held that the reservation of the liabilities by the father did not detra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm as I cannot conceive of any other way in which succession to business could have been effected in respect of the agency of a foreign firm. The second piece of evidence placed on record by the assessee to show that there had been a succession and no break or discontinuance, as alleged by the revenue, was that the income-tax examiner's note of 4th March, 1936 (annexure " Z " to the statement of the case), shows a certain amount in respect of mukadami for the Japanese firm from 11th December, 1933, to 25th March, 1934, out of which, after deduction of expenses and outgoings, a sum of Rs. 15,600 was taken as profit to the account. The said note of the examiner also shows a certain amount by way of brokerage in respect of the business of the Japanese firm which, after deduction of expenses and outgoings, shows a profit of Rs. 19,994. It is significant that both these amounts are shown in the order of the Income-tax Officer for the assessment year 1935-36 as emerging from the first of the two sets of books of account produced bef ore him which set was for the period from 11th December, 1933 to 31st May, 1934. This negatives the Tribunal's view that there is a "complete black out " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ramdas Khimji & Co., dated 2nd June, 1931 (annexure " B " to the statement of the case), Khimji Gooverji and Ramdas Khimji were two of the seven partners till 11th December, 1933. A reference to the income-tax examiner's note of 4th March, 1936, shows that in the firm of Ramdas Khimji Bros., the same two persons were partners during the period from 11th December, 1933, to 31st May, 1934, and that even thereafter Ramdas Khimji continued to be a partner therein. It is true that the mere fact that there are common partners between two firms cannot by itself indicate a succession for the purpose of section 25(4) but the court is entitled to consider this as one of the factors or pieces of evidence which, taken together with the other material on record, which I have already discussed, in my opinion, shows that there was not a discontinuance or a complete break with the past when the old firm has dissolved, as the Tribunal has held, but there was a succession to the business of the old firm within the terms of section 25(4) of the Indian Income-tax Act, 1922. In this connection, it is important to bear in mind that the decision of the Supreme Court in Chambers' case shows unmistakabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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