TMI Blog1939 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... s of depreciation arising under section 10(2) (vi), proviso (b) which wiped out the tax which would otherwise have been payable. The question is whether or not this loss of ₹ 77,236 can be deducted from accumulation of depreciation. Now the question to my mind turns on the construction of Section 26(2) of the Act, which provides :- Where at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profit for that year. The meaning of that section seems to me to be plain. If at the time of the assessment the Income Tax Officer finds that there has been a succession to a particular business, then it is the successor who must be assessed, and the predecessor cannot be assessed. The successor is to be assessed on the basis of two hypotheses. First, that he had been carrying on the business for the whole of the previous year, and secondly, that he had rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment could not have been passed upon the successors. However, Mr. Justice Mukherjea undoubtedly based his judgment on the view that Section 26(2) does not apply where there no profits for the year on which the assessment is based. He thought, as I understand him, that applying the section to such a case would lead to great hardship where, as in the present case, the predecessor has made substantial profits under other heads against which but for the assignment, he could have set off the loss in respect of the business assigned. He thought it was unreasonable to suppose that the Legislature could have intended to deprive the assignor of that right. But as against such consideration must be set the case which might very easily arise because a going concern often acquires a deficit business, of a successor who has made large profits in respect of other heads and has incurred loss, partly actual and partly notional in respect of the particular business acquired. In such a case, if he is not the assessee under Section 26 (2), he must lose the benefit, which he would otherwise have possessed, of setting off his loss against profits under Section 24. To my mind all that the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies the determination of the question must depend on the true construction of Section 26(2). The section in terms states that when there is succession in business the assessment shall be made on the person succeeding. It is therefore clear that when there is a transfer or succession to a business the assessee is the transferee or the successor. The next question which will arise is on what footing is he to be assessed. That is laid down in the latter part of Section 26(2). It is there provided that he is to be assessed as if he had been carrying on business throughout the previous year . That sets at rest the controversy as to what is to happen when a business is transferred in the middle of a year. Then follow the words which have given rise to a difference of opinion. The words are as if he had received the whole of the profits for that year . One reason for inserting those words in the section is obviously to set at rest the question what is to happen when the predecessor had received in fact part of the profits and the successor had received the rest. The section provides that in that event the successor has to be assessed on the footing that he had received the whole of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the correct way to approach the interpretation of the section, when the words of the section are plain and unambiguous. In In re B. K. Paul Co., on which the assessees strongly relied the facts were that the assessees, a Hindu undivided family owned real property, securities, shares and 17 business. During the accounting year 1932-33, which ended on 13th April 1933, the assessees received income from real property, securities and shares but there was a loss in business. Assessment proceedings started in 1933-34 but were not completed until 31st March 1934. On 14th April 1934 sixteen out of the seventeen businesses were transferred to four new limited companies. The Income Tax authorities came to know of it and when passing the assessment order on 28th September 1934 they refused to allow the assessees to set off the loss incurred in business against their other incomes. The question submitted for the opinion of the Court was : Where an assessment proceeding for 1933-34 is started but not completed during that year and during its pendency in the next year the assessee hitherto carrying on business is succeeded in such capacity by another person whether set off under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the applicability of Section 26(2) when there was a loss only but under the circumstances the statements found in the judgment are all mere expressions of opinion which were not necessary for the determination of the question before the Court. The terms of the question put to the Court clearly indicate the question was deliberately framed on the special facts of that case and was not a general question. Having regard to the clear words of Section 26(2) and for the reason that there cannot be two assessees in respect of the same business the contention of the Taxing authorities should be upheld in this case. On second question I think that the answer should be as stated by the learned Chief Justice. The right to claim deportation is not a personal right of the party who has parted with the ownership of the property in respect of which depreciation is to be assumed. The Order of the Court was a follows :- ORDER Upon the Reference of the Commissioner of Income Tax for the Bombay Presidency, Sind and Baluchistan dated the tenth day of July one thousand nine hundred and thirty nine arising out of the order of the Assistant Commissioner of Income Tax, Bench Division, Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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