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Commissioner of Income-tax Vs. Smt. Saroj Agarwal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 44 of 1965
Judge
Reported in[1972]83ITR875(All)
ActsIncome Tax Act, 1961 - Sections 72, 73, 74 and 78(2); Indian Partnership Act, 1932 - Sections 42, 46, 47, 48 and 50; Income Tax Act, 1922 - Sections 35
AppellantCommissioner of Income-tax
RespondentSmt. Saroj Agarwal
Appellant AdvocateB.L. Gupta and ;R.R. Misra, Advs.
Respondent AdvocateShanti Bhushan and ;R.K. Gulati, Advs.
Excerpt:
- - 17. a perusal of the aforesaid authorities clearly brings out that in order that it may be said that a person carrying on business has been succeeded in such capacity by another person it is necessary that the person succeeding should continue to carry on the same business which was being carried on by his predecessor. it may be that, even after dissolution, it is necessary to carry on certain activity of the firm for the purposes of effectively winding up its affairs. for this purpose, section 47 of the act provides that, after dissolution of the firm, the authority of the partners to bind the firm and other mutual and like obligations of the partners continues notwithstanding the dissolution, so far as it may be necessary for winding up the affairs of the firm. the assessee.....h.n. seth, j.1. this is a reference under section 256(2) of the income-tax act, 1961. at the instance of the commissioner of income-tax, the appellate tribunal has referred the following question for the opinion of this court:' whether, on the facts and in the circumstances; of the case, the assessee was entitled to the set-off of speculation losses brought forward from earlier years against the speculation profits of the assessment year under appeal '2. assessee in this case is smt. saroj agarwal and the assessment year in question is the year 1962-63.3. one prem shanker was a partner in three partnership firms styled as (1) hari shanker gauri shanker, (2) m/s. hari shanker gauri shanker rice and dal mills and (3) hari ram mahadeo mills. he died on 24th of july, .1959, leaving behind his.....
Judgment:

H.N. Seth, J.

1. This is a reference under Section 256(2) of the Income-tax Act, 1961. At the instance of the Commissioner of Income-tax, the Appellate Tribunal has referred the following question for the opinion of this court:

' Whether, on the facts and in the circumstances; of the case, the assessee was entitled to the set-off of speculation losses brought forward from earlier years against the speculation profits of the assessment year under appeal '

2. Assessee in this case is Smt. Saroj Agarwal and the assessment year in question is the year 1962-63.

3. One Prem Shanker was a partner in three partnership firms styled as (1) Hari Shanker Gauri Shanker, (2) M/s. Hari Shanker Gauri Shanker Rice and Dal Mills and (3) Hari Ram Mahadeo Mills. He died on 24th of July, .1959, leaving behind his widow, Smt. Saroj Agarwal, as his heir and legal representative. On 27th July, 1959, Smt. Saroj Agarwal adopted one Sudhir Kumar as her son. It is said that, on the same date, she joined the afore-mentioned firms in place of Prem Shanker as partner and Sudhir Kumar was admitted to the benefits of partnership in those firms. Prem Shanker, while he was a partner, had an unabsorbed loss of Rs. 25,914 (from speculative business) suffered by him as a partner in the two firms, M/s. Hari Shanker Gauri Shanker and M/s. Hari Shanker Gauri Shanker Rice and Dal Mills, as per orders of the Income-tax Officer passed under Section 35 of the Income-tax Act, 1922, for the assessment years 1958-59, 1959-60 and 1960-61. During the assessment year 1962-63, the assessee was found entitled to a share in the speculation profits of the two firms M/s. Hari Shanker Gauri Shanker and M/s. Hari Shanker Gauri Shanker Rice and Dal Mills. She claimed that the speculation losses suffered by her husband in the earlier years should be set off against her speculation profits of the assessment year in question. The Income-tax Officer, however, did not accept the contention raised on behalf of the assessee and declined to adjust the unabsorbed losses suffered by Prem Shanker in speculation business, amounting to Rs. 25,914, in the assessee's share of speculation profits for the assessment year 1962-63.

4. The assessee went up in appeal before the Appellate Assistant Commissioner and claimed that she was entitled to have the speculation losses of the earlier years set off against her share of speculation profits from the firm for the assessment year 1962-63 as per provisions of Section 78(2) of the Income-tax Act, 1961. The Appellate Assistant Commissioner held that there could be no succession or inheritance in respect of the membership of a firm arid that on the death of Prem Shanker, Smt. Saroj Agarwal was made a partner in the firm by the remaining partners not because she inherited the right to join the firm but because she entered into fresh partnership agreement. On the death of Prem Shanker, Smt. Saroj Agarwal might have inherited the capital left by the deceased in the firm but she did not inherit any right to join the partnership on the basis of that capital. In the circumstances, the Appellate Assistant Commissioner held that the assessee was not entitled to adjust the speculation losses suffered by Prem Shanker in earlier years in her share of speculation profits, earned during the year 1962-63.

5. The assessee then went up in appeal before the Appellate Tribunal. The Appellate Tribunal observed that the circumstances appearing in the case indicated that Smt. Saroj Agarwal was admitted to various partnerships after the death of Sri Prem Shanker because she was his heir. After the death of Prem Shanker, various firms in which he was a partner were not dissolved but they were continued. In the end, it held that Smt. Saroj Agarwal succeeded to the deceased, Prem Shanker, in her capacity as partner by inheritance. The Appellate Assistant Commissioner, therefore, was not right in holding that the speculation losses suffered by Prem Shanker when he was a partner in the respective firms could not be carried forward and set off against speculation profits of the assessee and/ or of the minor son for the assessment year under appeal.

6. The Commissioner of Income-.tax then moved an application under Section 256(i) of the Income-tax Act, 1961, and got the aforesaid question referred to this court.

7. The subject of ' set-off ' or 'carry forward and set off' has been dealt with in Sections 70 to 80 of Chapter VI of the Act. A perusal of Sections 72 to 74 of the Act indicates that the right to carry forward and set off losses is available only to the person who has suffered the loss and to no one else. Section 78(2), however, runs as follows:

' Where any person carrying on any business or profession has been succeeded in such capacity by another person otherwise than by inheritance, nothing in this chapter shall entitle any person other than the person incurring the loss to have it carried forward and set off against his income.'

8. This section implies an exception to the general rule. According to it if a person who carries on any business or profession is succeeded in such capacity by another person by inheritance, the person so succeeding may claim to have the losses of his predecessor carried forward and to set them 00 against his income.

9. In order io claim the benefit of this section the assessec has to show that-

(1) a person carrying on a business or profession has been succeeded by him in such capacity ; and that

(2) the succession has taken place because of inheritance and not otherwise.

10. Learned counsel for the assessee argued that in the present case it cannot be disputed that Sri Prem Shanker was carrying on a business. He died and was succeeded by his widow, Smt. Saroj Agarwal, and adopted son, Sudhir Kumar. This succession was by way of inheritance. If it is found that Smt. Saroj Agarwal succeeded to Prem Shanker in ' such capacity ' as contemplated by Section 78(2) of the Act, she and her minor son will be entitled to carry forward and to set off the speculation losses suffered by Prem Shanker as against their profits of speculation business.

11. In this connection learned counsel for the assessee relied upon the case of Commissioner of Income-tax v. Mansooklal Zaveri, [1937] 5 I.T.R. 664 (Rang.). In this case the learned judges of the Rangoon High Court were concerned with the interpretation of the provisions of Section 26(2) of the Income-tax Act, 1922, as it stood at that time. That section also made a provision about the cases where at the time of assessment under Section 23 of the Act it was found that the person carrying on any business, profession or vocation had been succeeded in such capacity by another person. The decision given by the Rangoon High Court seems to imply that where a person carrying on a business is succeeded by another person who also carries on that very business, the other person is said to succeed in such capacity within the meaning of the expression as used in that section.

12. Similarly, in the case of Commissioner of Income-tax v. N.N. Firm, [1934] 2 I.T.R. 85, 87, 88 (Rang.) the learned Chief Justice observed as follows :

' Upon these facts the income-tax authorities have held that there was a ' succession ' to the money-lending business of the undivided joint family within Section 26(2) of the Income-tax Act. In my opinion it is manifest that there was not a succession within Section 26(2) of the Act. In order that a person can be said 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. '

13. In the cace of Jupudi Kesava Rao v. Commissioner of Income-tax, [1935] 3 I.T.R. 33 (Mad.) [F.B.] a Full Bench of the Madras High Court, while dealing with the provisions of Section 26(2) of the 1922 Act, observed as follows:

' The word 'succession' as used in Section 26(2) of the Income-tax Act connotes a transfer of ownership and the person who succeeds another must have by such succession become the owner of the business which his predecessor was carrying on and which he, after the succession, carries on in such capacity.'

14. Similar expression has been used in Section 25(4) of the Income-tax Act, 1922, which provides that in certain cases where a person carrying on business is succeeded ' in such capacity ' by another person no tax will be payable by the first mentioned person in respect of the income, profits and gains for the period between the end of the previous year and the date of such succession.

15. In the case of Commissioner of Income-tax v. A.W. Figgies and Co., [1953] 24 I.T.R. 405 ; [1954] S.C.R. 171 (S.C.). the Supreme Court held that where the business that was being carried on by a partnership firm was taken over and run by a limited company, the limited company succeeded the firm in such capacity and that the company was entitled to the benefits of Section 25(4) of the Act.

16. In the case of Executors of the Estate of J.K. Dubash v. Commissioner of Income-tax, [1951] 19 I.T.R. 182; [1950] S.C.R. 989 (S.C.). the Supreme Court had an occasion to consider a case where the assessees were the executors of a will of a person who died on 9th April, 1942. Under the will the executors were directed to carry on the business of the testator as a going concern without being responsible for the losses for a period not exceeding one year. The will provided that during the period the business was not sold to any of the testator's nephews, the executors were to sell it to any person on such terms as they thought proper. The executors sold the business to one of the nephews of the testator on January 1, 1943. A question that arose for consideration was whether the executors had succeeded to the business of the testator ' in such capacity ' within the meaning of the expression as used in Section 25(4) of the Act. It was argued that as the executors were carrying on the business of the testator only with a view to sell it as a going concern, it could not be said that the executors succeeded to the testator 'in such capacity' as contemplated by Section 25(4) of the Act. Kania C.J., delivering the judgment for himself and Dass J., repelled the argument and observed that on the date of the death of the deceased, the estate including the business got vested in the executors and, thereafter, the executors carried on the business. Thus, there came about a change in the assessee and therefore succession ' in such capacity ' took place within the meaning of Section 25(4) of the Act. The learned Chief Justice further observed that, if a legal estate is transferred by legal operation of law to an executor, there is succession to the estate of another person within the meaning of Section 25(4). According to him, the only relevant question that arises for consideration under Section 25(4) of the Act is whether in respect of the business there is succession to another person. In this connection Patanjali Shastri J. observed that the words 'in such capacity' in Sections 25(4) and 26(2) mean nothing more than the capacity of a person who carries on the business as a predecessor so carrying it on, i.e., under a liability to tax on its profits and gains.

17. A perusal of the aforesaid authorities clearly brings out that in order that it may be said that a person carrying on business has been succeeded in such capacity by another person it is necessary that the person succeeding should continue to carry on the same business which was being carried on by his predecessor. In other words, there should be a continuity in the carrying on of the business activity and that the only change that should occur is that the ownership in respect of the business activity is transferred from one person to the other. Section 78(2) will apply to such cases where succession to a person carrying on the business is in such capacity by inheritance and not otherwise.

18. It is in the light of the aforesaid discussion that we have to judge whether, in the circumstances of the present case, the assessee can be said to have succeeded to Sri Prem Shankar in such capacity and to carry forward his unabsorbed losses and to adjust them against the profits earned by her. The two businesses with which we are concerned and in respect of which the assessee claims to have succeeded in such capacity after the death of Prem Shanker were the businesses that were being carried on in the names of (1) Hari Shanker Gauri Shanker and (2) Messrs. Hari Shanker Gauri Shanker Rice and Dall Mills. Under a partnership deed dated November 12, 1951, three persons, namely, Sarvasri Hari Shanker, Gauri Shanker and Prem Shanker, constituted a firm styled as Hari Shanker Gauri Shanker. This deed provided that the partners were to share profits and losses equally, i.e., to the extent of As. 0-5-4 each. It mentioned that the partnership was at will and that the provisions of the Indian Partnership Act, 1932, applied to it. These very three persons established another firm by the name of Hari Shanker Gauri Shanker Rice and Dall Mills, Kanpur, by executing a partnership deed dated 13th of July, 1957. This deed also contained provisions similar to those contained in the partnership deed dated November 12, 1951, except for the share of each of the partners in the firm. According to this deed the three partners were to share the profits and losses of the firm in the following proportions. Sarvasri Hari Shankerand Gauri Shanker each had a share of As. 0-5-3 in a rupee, whereas Prem Shanker had a share of As. 0-5-6 in a rupee, Sri Prem Shanker died on 24th of July, 1959, leaving behind the assesses, Smt. Saroj Agarwal, his widow, as his heir and legal representative. On 12th August, 1959, fresh partnership deeds in respect, of the two businesses were executed. Parties to the new partnership deed in respect of the business of Hari Shanker Gauri Shanker Rice and Dal Mills were Sri Hari Shanker, Smt. Shakuntala Agarwal, wife of Sri Gauri Shanker, and Smt. Saroj Agarwal, widow of Prem Shanker. According to this doed, Smt. Saroj Agarwal joined the firm and her minor son was admitted to its benefits from July 27, 1959. Smt. Shakuntala Agarwal joined the firm in place of her husband, Gauri Shanker, who retired and her minor son, Uavi Agarwal. was also admitted to the benefits of the firm with effect from July 27, 1959. The executants of the partnership deed dated August 12, 1959, in respect of the business of Hari Shanker Gauri Shanker were, (I) Gauri Shanker, (2) Smt. Shanti Agarwal, wife of Hari Shanker, and (3) Smt. Saroj Agarwal, widow of Prem Shanker. This deed also recited that after the death of Prem Shanker, his widow Smt. Saroj Agarwal joined the partnership in place of Prem Shanker and that her minor son, Sudhir Kumar, had been admitted to the benefits of the firm with effect from 27th July, 1959. Shri Hari Shanker retired from the firm on 25th of July, 1959, and in his place Smt. Shanti Agarwal joined the firm since 27th July, 1959. Under this deed, Sri Gauri Shanker and Smt. Shonti Agarwal, wife of Hari Shanker, were to share the profits and losses of the business in the proportion of As. 0-5-4 in a rupee each. Smt. Saroj Agarwal and Sudhir Agarwal were to share the profits in the proportion of As. 0-2-8 each but only Saroj Agarwal was to share the losses to the extent of As. 0-5-4 in a rupee.

19. It is significant to note that, although Prem Shanker died on 24th of July, 1959, the two partnership deeds dated August 12, 1959, indicated that the assessee happened to join the two firms on 27th of July, 1959, i.e., she had no concern with the business of the firms between 24th of July, 1959, and 27th of July, 1959.

20. Learned counsel for the assessee argued that, on the death of Sri Erem Shanker on 24th of July, 1959, the two firms constituted under the partnership deeds dated 12th January, 1951, and 30th July, 1957, did not dissolve. They continued to exist. Smt. Saroj Agarwal and Sudhir Kumar succeeded to the interest of Prem Shanker who was carrying on the business in partnership with the other in the name and style of these two firms ' in such capacity ' by inheritance. The two partnership deeds dated August 12, 1959, merely indicated that Smt. Saroj Agarwal entered into an agreement with other partners of the two firms to carry on the business from 27th July, 1959. He contended that, in the circumstances, the assessee along with herson succeeded to Prem Shanker ' in such capacity ' and as such she was entitled to carry forward the unabsorbed losses of her husband and to set them off against her income in the relevant assessment year.

21. First question that arises for consideration is as to what was the effect of the death of Sri Prem Shanker on the constitution of the two firms, created by the partnership deeds dated 12th June, 1951, and 30th July, 1957. According to Section 42 of the Indian Partnership Act, subject to a contract between the parties, a firm is dissolved on the death of a partner. It follows that, unless there was a contract to the contrary between Sarvasri Gauri Shanker, Hari Shanker and Prem Shanker, the two firms, constituted under the partnership deeds dated 12th January, 1951, and 30th July, 1957, stood dissolved on 24th of July, 1959, when Sri Prem Shanker died. Learned counsel for the assessee argued that 'the contract', stipulated by the section, need not be in writing, and it may be inferred from the conduct of the parties. If it is found that on the death of a partner the remaining partners and the heirs of the deceased acted in a manner which indicated that the old firm was not dissolved and they continued to carry on the business, it is possible to infer that the original partners had entered into an agreement that on the death of one of them the firm would not be dissolved. In support of this contention he relied on two decisions of the Calcutta High Court in the cases of Gokul Krishna Das v. Shashi Mukhi Das, [1912] 16 C.W.N. 299. and Hari Mohan Potdar v. Sudarshan Potdar, I.L.R [1921] Cal. 583.. Reliance was also placed on a decision of this court in the case of Ram Kumar v. Kishori Lal, I.L.R. [1946] All. 259. It was contended that, in the present case, conduct of the parties shows that after the death of one of the partners the two firms were not dissolved and that the heirs of the deceased partners became partners in the firm in his place. Learned counsel pointed out that, in the new partnership deeds there was express recital that the parties shall continue to run the business in the original firm name. Smt. Saroj Agarwal and her minor son were brought in as partners and admitted to the benefits of the firm in place of the deceased, Prem Shanker, As between themselves they were to share profits and losses of the business carried on in the name of firm, Hari Shanker Gauri Shanker, in the same proportion in which Prem Shanker was liable to share them. So far as firm, Hari Shanker Gauri Shanker Rice and Dal Mills, is concerned, Smt. Saroj Agarwal and her minor son together became entitled to receive almost the same share in the profits to which Prem Shanker, deceased, was entitled. The two businesses were continued even after the death of Prem Shanker with his heirs and legal representatives as partner or person admitted to the benefits of the firm. All these facts went to show that there was an agreement amongst the original partners that on the death of one of them the two firms were not to be dissolved. It is true that the three cases cited by the learned counsel lay down that under the law it is not necessary that the 'contract' contemplated by Section 42 of the Partnership Act must be in writing. Such a contract can be inferred by conduct of parties. It may, however, be noticed that in none of the three cases cited by the learned counsel was there a partnership deed in existence. In such circumstances, the courts held that the terms of contract may be gathered from the conduct of the parties. In the case before us, the two deeds dated January 12, 1951, and 30th July, 1957, incorporate the points on which there was specific agreement between the contracting parties. So far as the points on which there was no specific agreement, the deeds mentioned that the provisions of the Partnership Act, 1932, were to apply. If the parties had specifically agreed that the firms were not to be dissolved on the death of a partner, there is no reason why this fact also was not mentioned in the two deeds. The contracting parties knew that, on matters which were not covered by the agreement between them, and which were not mentioned in the partnership deeds, they would be governed by the Partnership Act. In these circumstances, it is not possible for us to agree with the contention raised by/the learned counsel for the assessee that there was an agreement between the executants of the two deeds dated 12th January, 1951, and 30th July, 1957, and that the two firms were not to be dissolved on the death of one of the partners. In the absence of such an agreement the two firms constituted under the deeds dated 12th January, 1951, and 30th July, 1957, stood dissolved on 24th July, 1959, when Prem Shanker died.

22. Learned counsel for the assessee then argued that, even if it be held that on the death of Prem Shanker the two partnerships constituted by the deeds dated 12th January, 1951, and 30th July, 1957, stood dissolved on 24th July, 1959, it will not make any difference as even after the death of Prem Shanker the same business was continued. In his lifetime, Shri Prem Shanker was running these businesses in partnership with Gauri Shanker and Hari Shanker. After his death the two businesses were being run by the successor of Prem Shanker, namely, Saroj Agarwal and Sudhir Kumar in partnership with Gauri Shanker and, Smt. Shanti Agarwal in the case of Messrs. Hari Shanker Gauri Shanker, and in partnership with Hari Shanker and Sakuntala Agarwal, wife of Gauri Shanker, in the case of Messrs. Hari Shanker Gauri Shanker Rice and Dal Mills. He contended that this right to run the two businesses that were being run by Prem Shanker devolved upon Smt. Saroj Agarwal and her minor son, Sudhir Kumar, because of inheritance. The question whether, on the death of Prem Shanker, his right to run the business which he was carrying on in partnership with Gauri Shanker and Hari Shanker devolved upon his widow or not, will again have to be considered keeping in view theprovisions of the Indian Partnership Act. As stated earlier, Section 42(c) of the Partnership Act provides that a partnership is dissolved by the death of a partner. According to Section 46 of the Act, on the dissolution of a firm, every partner or his representative is entitled as against all other, partners or their representatives to have the property of the firm applied in payment of the debts and liabilities of the firm and then to have the surplus distributed amongst the partners or their representatives. This means that after dissolution of a firm the right which remains in the partners or their representatives is to get the business of the firm liquidated and thereafter to divide the surplus amongst the partners and their representatives according to their rights. It may be that, even after dissolution, it is necessary to carry on certain activity of the firm for the purposes of effectively winding up its affairs. For this purpose, Section 47 of the Act provides that, after dissolution of the firm, the authority of the partners to bind the firm and other mutual and like obligations of the partners continues notwithstanding the dissolution, so far as it may be necessary for winding up the affairs of the firm. The partners are further authorised to complete transactions begun but unfinished at the time of the dissolution. A perusal of this section shows that, after dissolution of a firm, a very limited right is given to the partners to do something by way of continuing the business of the firm for the purposes of winding it up. No such right has been given to a representative of a partner who has died. Section 48 provides the manner in which the accounts of a firm are to be settled after dissolution. According to Section 50 of the Act, where a partner or the representative of a deceased partner derives any profit for himself from any transaction of the firm or the use of the property or business connection of the firm or the firm name after the dissolution of a partnership he shall account for the profits and pay it to the firm. This is also to happen in a case where the partner or the representative of a deceased partner carries on any business of the same nature after the dissolution of the firm but before its affairs have been completely wound up. All these provisions go to indicate that, if a firm dissolves on the death of a partner, his' representative gets no right to carry on the business which was being carried on by the deceased. These provisions further indicate that on the death of a partner his representative merely becomes entitled to receive the share in the surplus left after the winding-up of the affairs of the firm. It is, therefore, obvious that on the death of Sri Prem Shanker on 24th July, 1959, Smt. Saroj Agarwal and Sudhir Kumar did not inherit the right of Sri Prem Shanker to carry on the business which he was running in partnership with Gauri Shanker and Hari Shanker. Even if the same business was carried on by the representatives of Prem Shanker in partnership with other partners, they get this right to carry on thebusiness not because they succeeded to the interest of Prem Shanker, but because of new contracts entered into by them as evidenced, by the two deeds dated August 12, 1959. Smt. Saroj Agarwal is carrying on the very same business now in partnership with Hari Shanker and Sakmitala Agarwal in one case and Gauri Shankar and Shanti Agarwal in the other case, it may bo said that she has succeeded to the two businesses which were being carried on by the deceased, Prem Shanker, in partnership with Gauri Shanker and Hari Shanker, but then it cannot be said that this succession is by inheritance. As stated earlier, the right of Smt. Saroj Agarwal to carry on these two businesses is derived from the contract which she entered into with others, as evidenced by the partnership deeds dated 12th August, 1959, and not by inheritance.

23. According, to the two deeds dated 12th August, 1959, Smt. Saroj Agarwal became entitled to run the partnership business with effect from 27th of July, 1959. The deed is quite clear that she did not have any such right to run the business between 24th and 27th of July, 1959. This shows that the assessee did not succeed to the right of Prem Shanker to run the two businesses as if she had so succeeded by inheritance, she would have got the right to run the two businesses immediately on the death of Prem Shanker, and the gap of 3 days would not have been there. As a matter of fact whatever right the assessee acquired, it was under the two partnership deeds dated August 12, 1959, and not because she inherited any of the rights of Prem Shanker.

24. Learned counsel for the assessee relied upon a case of the Bombay High Court, Commissioner of Income-tax v. Bai Maniben, [1960] 38 I.T.R. 80 (Bom). In that case H and J carried on business in partnership. H died leaving his widow. Next day an agreement was entered into between J and the widow of H to continue the business. A question arose whether the widow succeeded' to H in ' such capacity ' within the meaning of Section 24(2)(ii) of the Income-tax Act, 1922. It was held that, in such circumstances, the assessee succeeded to her husband in his capacity as a partner by inheritance. It may be noticeA that in this case the question whether on the death of a partner the firm stands dissolved and the right of the representative to inherit the business that was being carried on by the deceased partner was not considered. Moreover, in this case there was a continuity of the business and the widow of the deceased partner became entitled to carry on the business left by the deceased immediately after his death. In the case before us, however, the material produced on the record indicates that the assessee was not entitled to participate in the business of the firm at least for three days after the death of Prem Shanker. The aforesaid case is, therefore, distinguishable.

25. Learned counsel for the;assessee then relied upon the case of the Gujarat High Court in Sita Ram Moti Ram Jain v. Commissioner of Income-tax, [1961] 43 I.T.R. 405 (Guj.). That was a case where a person carried on business as a sole proprietor and he agreed that it may be taken over by a firm of which he was one of the partners. He claimed that he had a right to have the losses carried forward and set off under Section 24(2) against his share of profits in the new firm. The Gujarat High Court came to the conclusion that the business activity which was being carried on by the aseessec before the constitution of the firm was the same. The assessee carried on the business activity before as well as after the formation of the partnership. The identity of the business did not change merely because the person who originally carried it on singly began carrying it on in partnership. In the circumstances, as the assessee was still carrying on the business that he was carrying on before, he was entitled to carry forward and adjust the losses in his share of profit in the firm. The facts of this case are quite different from the facts of the present case. Similarly, reliance was placed on the case of Dwaraka Das Liladhar v. Commissioner of Income-tax, [1963] 47 I.T.R. 619 (Ker.). There, a registered firm which was working at a loss was dissolved and one of the partners continued the same business as sole proprietor. It was held that the partner who carried on the business as a sole proprietor was entitled to carry forward and adjust his losses under Section 24(2) of the Income-tax Act. The ratio of this decision was that as the assessee had all through been carrying on the business, first in partnership with others and thereafter himself, the losses which he wanted to be carried forward and set off were his own losses of business and, therefore, the provisions of Section 24(2) were applicable. The question, whether there was a succession to a person carrying on business as such, was not considered in this case. The ratio of this case is therefore distinguishable and does not apply to the facts of the present case.

26.he result, we answer the question referred to us in the negative and against the assessee. The Commissioner of Income-tax is entitled to his costs which we assess at Rs. 200. Counsel's fee is also assessed at the same figure.


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