TMI Blog1945 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership under the style of Seth Balkishan Ramkishan Nathani with its head office at Raipur and several branches at other places. On December 31, 1938, the partners agreed to dissolve the partnership and nominated an arbitrator to divide the business assets and liabilities of the partnership into moieties by means of two awards. From January 1, 1939, Ramkishan as manager of the family consisting of himself and his sons carried on business under the style of Ramkishan Shaligram Nathani, and Balkishan and his sons under the style of Shaligram Laxmichand. The actual division was made by the arbitrator by means of 2 awards dated March 15, and October 11, 1939. The first made an equal division of the bulk of the properties and business assets. The whole of the business was divided into two lots, one lot being picked up by each, except that the stock of cloth in Raipur shop and the paper agency were made over to Seth Ramkishan at a valuation. A similar division of the business was made of the Bhatapara shop. The business at Neora was allotted to Seth Ramkishan together with its books while Baloda Bazar was made over to Balkishan. In the former, Seth Balkishan took over the shop's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a change in the proprietorship of the old business and that it did not amount to a discontinuance of business within the meaning of Section 25(3) of the Income-tax Act. On these grounds, the Tribunal dismissed the assessees' application by an order dated June 9, 1941. The assessees applied to the Tribunal claiming a reference to the High Court, but that application was dismissed on the ground that no question of law was involved. Thereupon the assessees filed 3 applications under Section 66(2) of the Income-tax Act for requiring the Tribunal, Bombay, to state the case and refer it to this Court. The question came up again in the course of the Income-tax assessment of the year 1940-41 and the excess profits tax assessment for the period between the Dewali 1938 and December 31, 1938. The assessees reiterated their: claim under Section 25(3) of the Income-tax Act and claimed the benefit of the second proviso to Section 2(21) of the Excess Profits Tax Act. But their claim was rejected by the Income-tax cum Excess Profits Tax Officer and the Assistant Commissioner of Income-tax. The assessees took their appeals against the four assessments under the Excess Profits Tax Act and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces in which a business may be regarded as discontinued. These cases and others cited by the other side will now be examined. In N.N. Firm case (supra), the facts were that a joint Hindu family consisting of five members which carried on money-lending business decided to partition the family property and referred the partition to arbitration. During the period the arbitration was in progress no fresh loans were advanced. Under the partition, one of the members received 1/5th share of the assets of the money-lending business and the other 4 members carried on the business at the old premises as before the partition. It was held that there was no succession to the money-lending business of the joint family within the meaning of Section 26(2) of the Income-tax Act on the principle that succession signifies that one person takes the place of another and carries on the business as a whole but that where the business is split up and thereafter another person carries on part of the business, he cannot be said to succeed his predecessor in carrying on the business within the meaning of Section 26(2). It was also pointed out that where there is no continuity in carrying on the business a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1938-39 when the assessment came to be made, it transpired that the undivided family had partitioned, and as a result of the partition, two brothers, P and V, carried on the Rangoon business as a contractual partnership while V carried on the Myitkyo business alone. The contractual partnership claimed the benefit of the provisions of Section 25(3) of the Income-tax Act but the Assistant Commissioner held that though the businesses at Rangoon and Myitkyo were separate, the latter was so small that the Rangoon business was substantially the whole business and therefore, there could be a succession to the Rangoon business alone. It is not clear from the judgment whether the learned Judges found that the contractual partnership was a new business or continuation of the old business. To determine whether it was a case of succession it was necessary to find whether the business in Burma was regarded as a separate business by the joint family or as a branch of the joint business. The learned Judges apparently looked at the question from this point of view, namely, that the business in Burma which was a limb of the original joint business with its headquarters at Devakottai must be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for tenders for a contract for 5 years. The members of the joint family and R and G joined in making a common tender and agreed to share profit and loss in certain proportions. Their tender was accepted and they formed themselves into a new firm and supplied coolies from September 1933. No assets or liabilities of the joint family or the partners R and G passed to the new firm but the business was carried on under the name under which the joint family had previously carried on the business in their old premises with most of the old employees being taken over. The question was whether the new firm was liable to be assessed under Section 26(2) of the Income-tax Act as a successor in the business to the previous joint family and the partners R and G, and it was held that they were not successors to the old business as it was not the same business, though similar in nature. The obvious reason was that the old business, depending as it did on the contract which expired on August 31, 1933, had terminated with that contract. The case reported in Best and Co. case (supra), was distinguished on the ground that one of the branches of the business, which Messrs. Best and Co. sold as a goi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and continued by a new company, the liquidators of the old company were not entitled to any refund for the reason that the old business had not been discontinued but only passed to the new company. It was pointed out that the transfer of ownership left the business wholly unaffected. In Kalu Mal v. Commissioner of Income-tax, Punjab [1929] AIR 1929 Lah. 461; 3 ITC 341, a joint family consisting of a father and six sons became divided, the sons separated and started business of their own and the father retained the old business with all the rights appertaining thereto. The father's contention was that the old business, as a consequence of disruption in the family, had discontinue a within the purview of Section 25(3) but the Income-tax authorities held that the father only succeeded to what was formerly a joint family business. The question whether the business discontinued or not in consequence of the breaking up of a family was treated as a question of fact to be determined according to the facts of each case and the view of the Income-tax authorities was accepted. In Commissioner of Income-tax, Madras v. Karuppiah [1941] 9 ITR 1 , there was a partnership of V and K; V reti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would no doubt be a good illustration of the rule. But difficulty arises in its application to a case of division of a business which is run in several branches which are carried on independently but which attain apparent unity only because of common ownership. When there is a division of such a running business and the quondam partners become the exclusive owners of the branches of the original business, can it not be predicated that it is a case of succession for the reason that the original business of the branch continues as before ? The fact that as a result of partition of the parent business, the branches lose their organic relation with each other does not necessarily imply the discontinuance of the business of the branch which passes into the hands of the quondam partner. To be able to say that with respect to the branch that the business has ceased, the parent business must terminate so that the branch which becomes independent should cease to be going concern when it passes into the hands of the quondam partner. The business in his hands would, if it was running independently even though as a factor of a larger unit, change its identity or integrity. To elucidate the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that sub-section because it is, in reality, a case of succession postulating continuity of business as opposed to discontinuity in truth and in fact. Consequently, it indicates that, being an exception to the discontinuity contemplated in sub-section (3), it should be dealt with under subsection (4). The word succession means and includes fractional or partial succession as illustrated in para. 15 above (see Ram Rakha Mal v. Commissioner of Income-tax [1937] 5 ITR 137 ) if the business is carried on as it had been done before partition or dissolution of partnership. Succession, therefore, denotes a change in ownership. Consequently, the form which the issue assumes in such cases is whether the business was discontinued, not whether it was discontinued by joint owners. In the present case, the assessees had perhaps a good case under Section 26(2) of the Income-tax Act but they could not derive any benefit from it as sub-section (4) of Section 25 excluded a case of succession that has taken place before April 1, 1939. Having been denied the benefit of that section, the assessees had no alternative but to take the position which has become untenable in view of the Tribunal' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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