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Mahabir Pershad and Sons Vs. the Commissioner of Income-tax, New Delhi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome Tax Reference No. 32 of 1976
Judge
Reported inILR1981Delhi423; [1982]135ITR775(Delhi)
ActsIncome tax Act, 1922 - Sections 25(3)
AppellantMahabir Pershad and Sons
RespondentThe Commissioner of Income-tax, New Delhi
Advocates: K.N. Kaji and; P.N. Misra, Advs
Cases ReferredEnglish v. Cliff
Excerpt:
income-tax act (1922) - sections 25(3) and 25(4)--succession to the family may be to any person/persons, individual firm or vice versa in order to attract this section including succession by a partnership.; the facts of the present case are : the assessed was a hindu undivided business family. on 31-3-1943 there was a partition of the family properties and business and a registered partition deed was executed on 29-4-1943. on 30-4-1943 a partnership deed was drawn up between some of the erstwhile members of the family. the income tax officer rejected the assessed's claim for the assessment year 1943-44 under section 25(3)/25(4) of the income-tax act, 1922, holding that the claim was time barred and also that as family had been partitioned on 31-3-1943, and the firm had succeed to the.....s. ranganathan, j.(1) the income-tax reference and the letters patent appeal are interconnected and it will be convenient to dispose of both of them by a common order. the subject matter of both is a claim which was made by the assessed-appellant as early as' 24th november, 1947 for relief under section 25(3)125(4) of the indian income-tax act, 1922. for various reasons which will be briefly adverted to hereinafter the final disposal of the claim made by the assessed at the hands of the income-tax appellate tribunal was only in october, 1974. one can only hope that this litigation will terminate at least after the disposal of this reference and letters patent appeal by this court. (2) the assessed is a hindu undivided family styled mahabir pershad & sons. it had been carrying on business.....
Judgment:

S. Ranganathan, J.

(1) The Income-tax Reference and the Letters Patent Appeal are interconnected and it will be convenient to dispose of both of them by a common order. The subject matter of both is a claim which was made by the assessed-appellant as early as' 24th November, 1947 for relief under Section 25(3)125(4) of the Indian Income-tax Act, 1922. For various reasons which will be briefly adverted to hereinafter the final disposal of the claim made by the assessed at the hands of the income-tax Appellate Tribunal was only in October, 1974. One can only hope that this litigation will terminate at least after the disposal of this reference and Letters Patent Appeal by this court.

(2) The assessed is a Hindu undivided family styled Mahabir Pershad & Sons. It had been carrying on business in cement, tiles, marbles, sanitary goods, money lending, contracts etc. for a very long time. It had paid income-tax under the Indian lncomte-taxAct, 1916.

(3) On 31st March, 1943 there was a partition of the family. The terms of this partition however were reduced to writing only by means of a partition deed dated 29th April, 1943 which was got registered on 1st May, 1943. The partition deed mainly contained recitals regarding the allocation of immovable property among the various members of the family. So far as the business was concerned, the income from which alone is in issue at present, the document recited as follows :

'AS we were not interested in keeping the above business in joint ownership thereforee we have dissolved the family business on 31-3-1943 after having understood the accounts regarding goods, bardana, cash, things, utensils and furniture and each of us has taken his share and all the members got separated from the moveable property.'

(4) On 30th April, 1943 an instrument of partnership was drawn up. The partnership deed was executed between the three adult members of the family, Mahabir Pershad, Sham Lal and Ajit Pershad. Two minor sons of Mahabir Pershad, Mahinder Pershad and Vijindra Persjhad, who were parties represented by their Father and guardian for the purpose of a partnership deed were not admitted to the benefits of the partnership though amounts in respect of their shares of the family property were credited to the accounts opened in their names through their guardians. Here again the terms of the preamble to the partnership deed in so far as they are relevant read as follows :

'WHERE A Sours had been an undivided Hindu Family which owned immovable property and which carried on business in Cement, Lime, Tiles, Marbles, S. W. Pipes, Iron-Pipes and Sanitary Fittings....... and conducted other business in the name of Messrs Mahabir Pershad & Sons, Chawri Bazar, Delhi and whereas the joint family after due rendition of accounts disrupted on 31-3-1943, and whereas the immovable property pursuant to a separate Partiion Deed had been divided inter se the constituents of the erstwhile family and whereas the said constituents have taken over their shares and the joint family no longer exists, all the assets have been fully divided. Now, thereforee, with effect from 1st April, 1943, we the parties to this deed start a partnership business in equal shares regarding all business activities of Messrs Mahabir Pershad & Sons, Chawri Bazar, Delhi. . . . '

(5) When the assessment of the family for the assessment year 1943-44 was taken up the family filed an application on 24th November, 1947 for relief under Section 25(3)125(4) of the 1922 Act on the ground that the business carried on by the assessed had been taken over by a partnership firm also known as M/s. Mahabir Pershad & Sons on 1st April, 1943. The Incometax Officer rejected the claim on 21st December, 1948. On appeal the Appellate Assistant Commissioner by his order dated 31st May, 1950 directed the Income-tax Officer to consider the assessed's application and allow appropriate relief. It took twelve years for the Income-tax Officer to give effect to this order. But he did so by rejecting the assessed's claim on 31st March, 1962. He held that the application of the assessed was barred by limitation and also that as the family had been partitioned on 31st March, 1943 and the succession by the firm to the business of the family had taken place on 1st April, 1943 the assessed was not entitled to any relief under Section 25(3)1 25(4) of the Act and in support of this conclusion he relied upon the then recent decision of the Allahabad High Court in Dalsukh Rai Jaidaya's case : [1962]44ITR417(All) (1).

(6) From the order of the Income-tax Officer the assessed filed an appeal to the Appellate Assistant Commissioner on 28th April, 1962. At about the same time he also filed a writ petition being C.W. 349-D[62 in this court contending that the order of the Income-tax Officer was erroneous and praying for directions to the Income-tax Officer and the Commissioner of Income-tax to grant the petitioners appropriate statutory relief under Section 25(3)125(4) of the Income-tax Act, 1922 as amended in 1939 and to direct refund of the entire amount of income-tax and surcharge paid by the petitioners for the period 1st April, 1942 to 31st March, 1943. The appeal of the assessed was disposed of by the Appellate Assistant Commissioner on 11th May, 1966. He dismissed the appeal holding that there was no right of appeal against an order under Section 25(3)125(4). The assessed preferred an appeal to the Tribunal which set aside the order of the Appellate Assistant Commissioner ]and directed him to entertain the assessed's appeal and dispose of it on merits. This appeal was disposed of by the Appellate Assistant Commissioner. The Appellate Assistant Commissioner found: (1) That the assessed family had paid income fax under the Indian Income-tax act, 1918; (2) That there had been a total partition of the family on 31st March, 1943 and that this had been accepted by the department by an order under Section 25A dated 29th January, 1946; and (3) That a firm constituted by three adult male members of the family had taken over the family business as going concern and as such there was a succession to the family in regard to the business. He also held applying the ratio of the derision of the Supreme Court in the case of Commissioner of Income Tax v. R. S. Jodamal Kuthiala : [1966]59ITR753(SC) (2) that the assessed was entitled to exemption from payment of tax on the income for the period 1st April, 1942 to 31st March,. 1943. The order of the Appellate .assistant Com missioner allowing the assessed's appeal was dated 30th November, 1972.

(7) In the meantime on 14th March, 1972 D. K. Kapur J. disposed of C.W. 349-D/62 The learned judge relying on the decision of the Bombay High Court in Ambaram Kalidas v. Cit : [1951]19ITR227(Bom) (3) and the decision of the Allahabad High Court in the case of dalsukh.Rai Jaidayal : [1962]44ITR417(All) and distinguishing the decision of the Supreme Court in the case of Jodamal Kuthiala : [1966]59ITR753(SC) came to the conclusion that the diseas was not entitled to relief under Section 25(3) 125(4). It is indefed' curious that this decision of the learned Judge dated 14th March; 1972 was not brought to the notice of the Appellate Assistant Commissioner when he disposed of the appeal of the assessed on 30th November, 1972.

(8) However, the Income-tax Officer preferred an appeal to the Appellate Tribunal contending that the conclusion of the Income-tax Officer was, and that of the Appellate Assistant Commissioner was not, correct. Here again it is strange that neither in the grounds of appeal nor at the time of arguments before the Tribunal was the attention of the Tribunal invited to the fact that the issue had already been raised and decided against the assessed in the writ petition. The Tribunal considered the matter independently and arrived at the conclusion that the assessed was not entitled to ar.y relief under Section 25(4). A point was raised before the Tribunal that the assessed's claim should be considered under Section 25(3) but the Tribunal refused to entertain this claim observing that the matter had all along proceeded on the footing that it was Section 25(4) that was applicable. That apart the Tribunal pointed out that on the clear findings of fact contained in the order of the Appellate Assistant Commissioner and endorsed by them it was a case of succession to which the provisions of Section 25(4) were applicable and not a case of discontinuance to which the provisions of Section 25(3) were applicable. In the result the Tribunal allowed the revenue's appeal by an order dated 25th October, 1974. The order was made by the learned Accountant Member and was concurred with by the learned Judicial Member 'though not without some hesitation'. The Tribunal also rejected an application for rectification filed by the assessed by its order dated 28th May, 1975.

(9) The assessed, dis-satisfied with the order of the Tribunal has prevailed upon the Tribunal to refer the following two questions for the decisions of this court :

1. Whether on the facts and in the circumstances of the case and on a true inerpretation of the partnership deed of 30-4-1943, it could be rightly said that there was a succession on 1-4-1943 and hence the income for exemption from tax under section 25(4) was the income for the period 31-3-1943 to 1-4-1943?

2.If the answer to the above question is in the negative, whether on the facts and in the circumstances of the case the assessed is entitled to exemption from tax in respect of the income of the period from: 1-4-1942 to 31-3-1943 under section 25(4) of the old Act The assessed has also preferred L.P.A. 211172 from the order of the learned single judge dismissing the writ petition filed by it. The questions for consideration are the same in the income tax reference as well as the appeal.

(10) We have heard Shri K. H. Kajhi, learned counsel for the assessed, as well as Shri P. N. Misra, learned counsel for the department. As the narration of the facts earlier would show there are two decisions, one of the Bombay High Court and the other of Allahabad High Court, which are directly on the point and which go against the assessed. However, after carefully giving our thought to the various arguments addressed before us and the several decisions cited before' us we have come to a different conclusion and we think that it is necessary to set out at some length the object and effect of the relevant statutory provision and also to discuss the decisions cited before us in some detail.

(11) The Indian Income-tax Act, 1922 came into force on 1st April, 1922. Under the said Act the income which was the subject matter of the tax was the income of the previous year. In other words where an assessed kept his accounts on the basis of the financial year the income of the financial year 1921-22 was assessed for the assessment year 1922-23. Before the Income-tax Act, 1922 came into force income tax was charged and collected under the provisions of the Income-tax Act (Act VII), 1918. Under that Act for each financial year the income of that year was brought to tax, in the first instance, on an estimated basis which was later on adjusted towards the end of the year. The result was that under the Indian Income-tax Act, 1918 the income of the period 1921-22 was taxed for the assessment year 1921-22. In other words the income of the period 1921-22 was charged to tax twice, once under the 1918 Act and again under 1922 Act. Instead of granting relief against this double taxation to the assesseds at the time of commencement of the 1922 Act the legislature provided for a different type of. relief. The relief provided for was in Section 25(3) Which reads as follows :

'25(3).Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918 (VII of 1918), is discontinued, no tax shall be payable in respect of the .income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessed may further claim that the incom'e, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and 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.'

In other words the legislature provided that as and when the assesses discontinued the business he would be entitled to exemption from tax of the income of the last accounting period drilling which it was carried on. Thus, for example, if the previous year of the assessed was the financial year and the business was discontinued let us say or. 21st August, 1927, the relief provided was that for the assessment year 1928-29 the assessed could claim that no tax should be collected or charged in respect of the income, profits and gains of the period 1st April, 1927 to 21st August, 1927. Since the relief, thus, granted in such a case would, generally, be in respect of a broken period, the section enabled an assessed, at his option, to claim, in addition to the above relief, that tre profits of the previous year (that is the period from 1st April 1926 to 31st March, 1927) should be deemed to be profits of the broken period from 1stApril 1927 to 21st August, 1927 and so should be exempted from tax. In other words the assessed got exemption in respect of the profits of the last accounting period of the existence of the business with an option to the assesses if he so chose to claim exemption in respect of the profits and gains of one whole previous year. It will at once be seen that the broken period above referred to may extend over only period from one day to 364 days. If, in the illustration given earlier, the business had been discontinued on' 2nd April, 1927 the broken period would only be the single day viz. the 1st April, 1927. On the other hand if the business had been discontinued on 31st March, 1928 the broken period would have been itself the full accounting, year from 1st April, 1927 to 30th April, 1928. This did not make any real difference because by the additional right that was conferred on the assessed he could claim (except perhaps where, though the broken period was short the income earned, therein was much higher than that of the previous year), that he should be entitled to relief in respect of the income of one whole previous year instead of the income of the broken period only.

(12) The Income-tax Act, 1922 was amended in 1939 materially. At this time it was considered necessary that where a business had been charged to tax under 1918 Act and had not been discontinued till 31st March, 1939 a similar relief should be granted in cases of succession also in order to avoid double taxation of the income of the financial year 1921-22. This relief was provided for in Section 25(4) added by the Amendment Act of 1939 which also simultaneously excluded cases falling within the purview of the newly introduced sub-section (4) from the scope of sub-section (3) previously enacted. This sub-section reads as follows : (we quote only the material portion).

'WHERE the person who was at the commencement of the Indian Income-tax (Amendment) Act, 1939 (VIT of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gain's 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............'

(13) It will be seen that the nature and extent of the relief provided for by sub-section (3) and subjection (4) are identical. The only difference is that sub-section (3) comes into operation in cases where a business which was charged under the 1918 Act comes to be discontinued and the person getting the relief will be the person who was carrying on the business at the time of its discontinuance. Sub-Section (4), on the other hand was available in a case where the business charged under the 1918 Act remained intact till 31st March, 1939 and the persons who was carrying on the said business on 1st April, 1939 is succeeded in such capacity by another person.

(14) For purposes of facility of discussion we may take a case where the previous year of an assessed is a financial year preceding the relevant assessment year. From the illustrations given earlier it will be seen that there is no difficulty w giving a proper interpretation to the provisions of sub-section (3) /sub-section (4) where the discontinuance)succession has taken place on any day between 2nd April following the end of one previous year and the 31st March of the succeeding previous year. As stated above the broken period in such a case will vary from one day to ''64 days. A difficulty, however, arises where the date of discontinuance/succession falls on the day immediately following the end of the previous year i.e., in the example given above on 1st April of a particular year. In this case the previous year has ended on 31st March. But discontinuance has taken succession place on 1st April 31st March and 1st April are separated only by a 'zero' .interval of time. In other words while one might say, following the language of the section that the assessed would be entitled to relief in respect of the income earned by him between the end of 31st March and the beginning of 1st April the fact remains that there is no such interval and the assessed would be entitled to no relief. The additional relief provided for in the section would not apply because that only contemplates the substitution by the income of the previous year of the income earned during the broken period which would have been normally entitled to the relief. Since there is no broken period the result would be that the assessed would not also got the further relief envisaged by the two parts of either section 25(3) or Section 25(4). It is this specific situation that has occurred in the present case and which calls for a solution.

(15) In Ambaram Kalidas v. Commissioner of Income Tax : [1951]19ITR227(Bom) a Hindu undivided family was being assessed under the 1918 Act. Its accounting year was the Samvat year and the last of such completed accounting years ended on 17th October, 1944. On 18th October, 1944 the joint family business was taken over by a firm consisting of erstwhile co-partner. The assessed claimed relief under section 25(4). The court pointed out that the relief, if any, under Section 25(4) should have been claimed only in the assessment year 1946-47 and that it would be open to the assessed to make such a claim in the assessment year 1946-47. However, so far as the assessment year 1945-46 was concerned the court pointed out that all the assessed could claim was that its income from 17th October, 1944 till 18th October, 1944 was exempt. After setting out the provisions of section 25(3) and 25(4) Chagla C.J. observed:

'NOW,dealing with the first relief, the relief in this case to which the joint Hindu family would be entitled is that it will not be liable to pay any tax in respect of the income, profits and gains of a period which consists of the end of the previous year and the date of secession. Looking to the plain language of the section, it is clear that this relief had to be claimed by the assesses in the year of assessment in which the succession took place, and the nature of the relief is that he is not entitled to pay tax on that particular specific period which is made up of the last date of the previous year and the date of succession. thereforee, what we have to ascertain in this case is, what was the date of succession, because it is in relation to the date of succession that the relief has to be computed. The period may be anything from one day to 364 days. In this particular case, unfortunately for the assessed, the date of succession is the 18th October, 1944, i.e.. in the assessment year 1946-47. The previous year of the assessed is Samvat year 2000 which is the assessment year 1945-46. thereforee the end of of succession is the very first day of the following assessment year. thereforee, under the section the relief that the assessed is entitled to is the period between the 17th October, 1944, arid the 18th October, 1944, and as the Tribunal has rightly hold that no profits could have been earned between the 17th October, 1944, and the following day, the result may seem to be anomalous. But we cannot construe the section to avoid certain anomalies which are Inevitable depending upon the particular date in a year in which succession takes place. In this very case, instead of the succession having taken place on the 18th October. 1944, if it had taken place on the 18th November, 1944, or the 18th December, 1944, then the assessed would have been entitled to relief with regard to the period between the 17th October, 1944, and the 18th November, 1944, or the 18th December, 1944, periods during which undoubtedly the assessed would have earned some income in the business.'

The case next dealt with a question of limitation which had also been raised by the Income-tax Officer in the present case but it is no longer material as subsequently the Tribunal has held that the assessed's claim was in time.

(16) The Allahabad High Court was also faced with the same situation in the case of Dalsukh Rai Jaidayal : [1962]44ITR417(All) . In that case also a Hindu undivided family had been taxed under the Act of 1918 and its accounting year for the assessment year 1944-45 ended on 7th October, 1943. In the course, of the proceedings for assessment year 1944-45 the assessed claimed relief under Section 25(4) in respect of the income for the period 19th October, 1942 to 7th October, 1943 on the ground that a partnership had succeeded to its business on October 8, 1973. But the High Court hold by a majority of two out of three judges, that the assessed was not entitled to exemption as the previous year had fend on 7th October, 1943 and the assessed had made no income between that date and the date on which succession took place, namely, 8th october 1943. The case was heard by Justice Bhargava and Justice Upadhya who differed and the matter was referred to a third learned Judge, Justice Jagdish Sahai. Upadhya J who was in the minority, took the view that the section should not be so interpretation. The learned judge observed :

'In a case where succession takes place on a date immediately after the end of the previous year thare can be no period at all which might be considered for the purposes of section 25(4). Having regard to the fact that the two points of time for determining the period of exemption are two dates the date on which the previous year ends on the one side and the date of succession on the other side it is obvious that if these two dates follow each ther immediately there can be no period for which relief might be granted. I can sec no reason why the legislature business is succeeded towards the close of the previous year and those whose business is succeeded to immediately after the close of the previous year. The expression 'end of the previous year' in section 25(4) should be construed, in my opinion, in such a way that there shall always be some period of time between 'the end of the previous year' and 'the date of succession'.

I am, thereforee, of the view that a construction should be placed on. the expression 'end of the previous year' in section 25(4) which should be consistent with the object of this provision.'

(17) Answering an objection that this interpretation would be consistent with the decision of the Supreme Court in Srinivasan's case 1953 23 I.T.R. 87 (4) the learned judge observed that it was not fair to attribute to their Lordships of the Supreme Court a construction of section 25(4) which would leave no period at all between the end of the previous year and the date of succession. The learned judge distinguished the decision of the Bombay High Court in Ambaram Kalidas v. C.l.T. : [1951]19ITR227(Bom) as affording no guidance for deciding the question which arose before him and concluded :

'For instance in the case of an assesses whose accounts are maintained according to the financial year if the succession takes place on the 10th of March the period up to that date and commencing after the 31st March preceding the succession would be the period whose income would be exempt from tax. If the succession takes place on the 31st of March the income of the period ending the 30th March, the day immediately preceding the date of succession, and commencing with the 1st of April preceding the succession would be exempt from tax. If instead of succession taking place on the 31st of March it takes place immediately after the 31st March on the 1st of April following, a literal construction of this section would mean that the assessed would get no ' relief at all and obviously for no valid reason. The language of these provisions indicates that it was assumed that in every case there would necessarily be a period, between the end of the previous year and the date of succession. For if there be no period at all the provisions of section 25(4) would be evidently inapplicable completely. The assessed will not get any exemption because there would be no broken period and as there would be no such period no question of his claiming any substitution as mentioned in the second part of section 25(4) can possible arise. This interpretation, thereforee, defeats the very object of the statute.'

(18) We find ourselves in agreement with the view expressed by Upadhyay J. of Allahabad High Court in preference to that of the majority of judges in the Allahabad case. The main part of Section 25(3)/25(4) contemplates a relief in respect of a period between the end of the previous year and the date of discontinuance/succession. There 'is no logical reason for granting relief in a case in which the succession takes place on any day between the second and the last day of a previous year (i.e. where it is of duration between one to 364 days) but not to a case where it happens on the first day of a previous year. We think that the language of the sub-section presents no difficulty if understood in a practical and realistic sense. Though the subsection talks of an exemption in respect of the period between the end of. the previous year and the date of discontinuance/succession it will be seen that, generally speaking, it encompasses only the income of the period starting from the first day immediately preceding the date of succession or discontinuance. To give an illustration, if the financial year is the previous year and an assessed discontinues business on 7th August, 1944 the period of exemption under Section 25(3) will be 1st April, 1944 to 6th August, 1944. So also where succession takes place on 7th August, 1944, the exemption will be for the period April I, 1944 to August 6, 1944 for since the assessed claiming relief has been succeeded to by another person on and from August 7, 1944, he would have been in a position to earn income only up to August 6, 1944. If we literally try to apply this principle to the situation in the present case, the result of the department's stand will be that the assessed would be entitled to exemption in respect of the period from April 1, 1943 the day following the end of the previous year to 31st March, 1943 (the date immediately preceding the date of succession). This would be an absurdity. The proper way to look. at the matter, thereforee is that the succession having taken place on Appril; 1, 1943 the assessed was entitled to exemption in respect of a period which ends with March 31, 1943 and, thereforee, should begin with the end of the preceding previous year. We agree with Upadhya J. that when in Srinivasan's case (supra) explaining the reference to the end of the previous year as the end of the previous year preceding the date of succession, it was not concerned with a peculiar situation of this kind. The Supreme Court was considering and also envisaged a case where there is a broken period preceding the date of succession. That interpretation would not be appropriate to a situation of the type we are faced with where according to the department the starting point as well as the culminating point of the period of exemption referred to in sub-section 3 or 4 would be the same and where if the position as explained by us earlier is correct, the starting point of such a period would be even later than the end point. Since the terminus of the exemption period contemplated by the section is not really the date of succession but the date preceding it, we think that the end of the previous year in the context of such a date would mean the end of the earlier previous year. In other words, in a case the present type, where the date of succession is Aprill, 1943, the exemption period will end on March 31, 1943 and so the commencement of the period should be taken to be the commencement of the earlier previous year, namely April 1, 1942. The assessed would, thus, be entitled to exemption in respect of the entire financial year from April 1, 1942 to March 31, 1943. With respect we would, thereforee, differ from the majority judgment of the Allahabad High Court and the weighty pronouncement of Chagia C. J. in the Bombay case where as pointed out by Upadhya J. the question did not properly arise before the Court for consideration and the learned Chief Justice only expressed what appears to have been a prima facie view. Having regard to the whole scheme of Section 25(3)125(4) and the clear intention of the, legislatture, we have no hesitation in holding that the exemption under the first part of Secion25(3)/ 25(4.) would apply as much to a case where the broken period is 365 days as it will to a 'case where it is 364 days or less. It follows that in such a case the farther claim arising under Section 25(3)125(4) would not arise because the income, profits and gains of the previous year relevant to the assessment year would be exactly the same as the incaome, profits and gains of the period for which relief is due under the first pan of the [Section.

(19) Shri K. H. Kaji, learned counsel for the assessed, in his attempt to get over the decisions of the Allahabad and Bombay High Courts tried to put forward an argument that in the present case the firm must be deemed to have been constituted on 31st March, 1943 itself. He points out. that, in actual point of time, there was no interval between the disruption of the family and the formation of the firm and that if the family is taken to have got disrupted on 31st March, 1943. then a fortiori, the firm was also constituted on the same date. We have extracted earlier the terms of the partnership deed and the partition deed. We.shall later deal with an interpretation of .these two documents on the footing that there is an interval or lapse time between the partition of the family on the one hand and the formation of the firm on the other. But the case has so far proceeded on the footing that there was no such interval and that the firm succeeded the family the moment there was a disruption. The case of the department is that notwithstanding the identity of the moment. that moment was: the dividing line between 31st March, 1943 and the 1st April, 1043 and, thereforee, it would be a truism to say that, while the family was disrupted on 31st March, 1943, the firm was constituted only on 1st April, 1943 and that the succession took place only on that date. Mr. Kaji tried to get over this argument by relying on two decisions.

(20) The first decision relied on by Shri Kaji is that of the Supreme Court m the case of Commissioner of Income Tax . vs. R. B. Jodha Mal Kuthiala (1966-59 I.T.W. 753). In that case, a Hindu undivided family was assessed under the income-tax Act of 1918 'in respect of a timber business at Abdullapur. In 1934 there was a partition in the family and thereafter the five erstwhile members of the family carried on the business in partnership under the name and style of Lala Hakam Mal Tani Mal. This partnership continued till March 31, 1939 on which date the accounts of the partnership were settled. The firm was dissolved and the timber business was taken over by the assessed firm consisting of two partners. The assessed firm drew up a partnership deed on 29th June, 1939 reciting that earlier history stating that the partners of the earlier firm had settled their accounts up to 31st March, 1939 on March 31, 1939; that the partners had become separate from April I, 1939 and that the timber business at Abdullapur had fallen to the share of the present partners and the present partnership firm from 1st April, 1939. This new partnership known as Jodha Mal Kuthiala was dissolved in March, 1943 and claimed relief under Section 25(3) ] (4) of the. 1922 Act. The question that arose was as to whether this firm could be said to have been carrying on business on the date of commencement of the Indian income-tax (Amendment) Act, 1939 which came into operation at a point of time immediately on the expiry of March 31, 1939. Affirming the decision of the Punjab High Court, the Supreme Court held that the question in dispute had to be determined on & time interpretation of the terms of the partnership. The instrument of partnership in the first instance recited that the accounts of the previous firm had been settled on March 31, 1939 and up to March 31, 1939. It then recited that all the partners had become separate from April 1, 1939. This was an ambiguous recital which could mean either that the dissolution had taken place on April 1, .19.39 i.e., the business had continued for the whole or a part on the first of April or it could mean that, from the end of March, 1939, there had been separation. This ambiguity had to be resolved in the context in which that expression occurred and .it had to be decided whether the date mentioned had to be included or excluded. Since there was a recital that the accounts were settled up to March 31, 1939 it implied that the previous firm did not do business after March 31, 1939. There was no evidence regarding the oral agreement constituting a separate partnership but the assessed was constituted to carry on the timber business allotted to it at the time of dissolution of the earlier firm from April 1, 1939. The timber business was an old and running business and an intention to maintain the continuity of the business and its transactions may reasonably be attributed to the assessed. It was, thereforee. held that the assessed commenced doing business immediately after the dissolution of the earlier firm and in the absence of other evidence it could be held that the business of the earlier firm continued till the midnight of March 31, 1939 and immediately thereafter the business of the assessed had commenced. In other words the assessed firm had come into being at the precise point of time at which the Indian Income-tax (Amendment) Act came into force and it could not be said that the assessed. was not carrying on business at the commencement of the said Act. We think that this decision is not of assistance to the assessed in the present case. In that case it was sufficient for the assessed firm to establish that it was carrying on business at the point of time when the 1939 Act came into force. On a construction of the deeds it was found that the points of time (a) of dissolution of the earlier firm (b) of the formation of the subsequent firm (c) of the commencement of the Income-tax (Amendment) Act 1939 were all identical. The Supreme Court did not hold the assessed firm in that case had come into existence on 31st March, 1939 itself, but only held that it had commenced doing business immediately after midnight of 31st March, 1939. That find- ing was sufficient for the purpose of that case. Here, on the other hand, if the Department's interpretation of Section 25 (3)/ (4) is correct, the assessed cannot succeed unless one can given, a positive finding that the succession took place on March 31, 1943.

(21) The other decision died by Shri Kaji, of the Chancery Division in English v. Cliff (1914 2 Ch. D. 376) (5) helps the assesses's case to some extent. There a settlement had been made on May 13, 1892 by which he settler conveyed real estate unto and to the use of two trustees upon certain trusts declared therein. It was further declared that the trustees should stand possessed of the premises during the term of 21 years from the date of the trust upon trust to apply the rents and profits in the manner specified. It was further declared that the said trustees should 'at the expiration of the said term of twenty-one years' sell the said premises as mentioned therein. The validity of this settlement was attacked on the ground that it offended the role of perpetuity. It was argued that an estate or trust in order to be valid and not to infringe the rule against perpetuity, must, where there are no lives of life in being to be taken into account, arise not later than the term of twenty-one years from its creation. It was contended that as the trust for sale in this case arose at the expiration of the term of twenty one years it necessarily followed that it did not arise within this period. Meeting this. argument Warrington J. observed :

'Is that argument sound It is perfectly true that in many of the well-known text-books relating to the rule against perpetuity the rule is stated somewhat in this form, namely, that the estate or the trust or other limitation must arise 'within ' the. period allowed by law, and I am quite willing to accept that statement as being for all practical purposes a sufficient statement of the rule, but when I come to consider what that statement means and to apply it to such a case as he present, then, in my opinion, the trust which is to arise 'at the expiration' of the term of twenty-one years, because I should have to resort to all sorts of subtle, calculations, and distinctions unless I were to hold that an estate or a trust to, arise coincidently with the termination of the period of twenty one years was a valid estate or trust, to put an analogous case which occurred to me in the course, of the argument; there must be many cases in which attestator has fixed the period of twenty one years from his death as that at which a class of beneficiaries is to be ascertained.. . . . . .I think that any lawyer dealing with such a limitation as that would say without doubt what it was 'a good limitation, , yet in that case it is necessary to wait until the last infinitesimally small friction of a minute has expired before it can be said whether a certain number of persons will be living or not at the expiration of that moment of time. The trust in the present case is to arise at the expiration of the term of twenty one years, and if looked at from one point of view that trust arises coincidently with the last moment of the term, although, if looked at from another point of view, it may be said to arise at some infinitesimally small fraction to time after the last moment of the term. In my opinion, however, the only sensible view to be taken of such a limitation is that the term determines and the trust arises at th' very same moment of time, and if looked at in that way it is impossible to say that the trust arises at a later period than that allowed by law. It seems to me thereforee, that the term determines and the trust arises at mathematically and identically the same moment, and so far as that objection goes I am of opinion that the trust is a good one.'

The decision throws some light on the approach in matter of this type. It is not possible for the Court to indulge in differential calculus in cases which deal with a point of time which coincides with the end of one interval and the commencement of another. In such a case it would be as true to say that the partnership commenced on 31st March, 1943 for certain purposes as to say that it commenced only on 1st April, 1943. The fact of the matter is that the succession took place (in the absence of anything definite in the relevant documents) at a zero hour which is as much par of the 31st March as it is of 1st April. In such a situation we do not think it would be equitable to deny relief to the assessed under Section 25(3) on the theoretical assumption that the firm commenced business on 1st April, 1943 and thereforee, the succession took place on that date. If we are' correct in this. view, namely, that the succession could be said to have taken place.on 31.st.March. 19.43 itself then the assessed would be entitled to relief in respect of. the entire period from 1st April, 1942 to 31st March, 1943 even on the Bombay and Allahabad views and it would not be necessary to rest our conclusion on the first point which we have discussed earlier.

(22) It appears to Us that the matter can also be looked at from a different point of .view. From the terms of the partnership deed as well as the partition deed which we have extracted earlier it does appear, that the transactions were put through in two stages and that there was a short interval between the partition of the family and the formation of the firm. Both the partition and the partnership deeds of the firm were executed in close proximity, but the documents were drawn up on two different dates, namely, 29th April, 1943 and 30th April, 1943. As pointed out earlier, the partition deed mentions that the family business bad been 'dissolved' and each of the members had taken his share. The partnership deed (to which all the members of the family are not parties) also refers to the same situation and then states that the parties to the Deed started a partnership business in equal shares with effect from 1st April, 1943. Any analysis would show that there were actually three stages in which the transition took place : (1) the partition of the joint family business, as a result of which the share of each. of the members of the family gets crystallised divided and separated: (2) a short interval of time during which the separated members hold the business as co-owners and (3) some of the members of the family come together to form a partnership with the assets (namely, share in the business) obtained by each of them on the partition. If the business had been split up or. had disintegrated on partition then there would have been a-discontinuance of the business, on 31-3-1943 but that is nobody's case the identity of the business continued throughout and if we take the three stages mentioned above the position will be that on 31st March, 1943 the joint family disrupted and, consequentially, the business which belonged to the family was succeeded to by the erstwhile co-partners of the family who carried en the business as co-owners until, after a -further interval of 'time.it was-converted into a partnership business. If this is interpretation of the document is to prevail the position would be that there was a succession to the business on 31st march, 1943' itself section 25(4) does not require that in order to obtain relief under that subsection there should be a succession to family only by a partnership succession may be to any person or group of persons; a family may be succeeded to by an initial or vice versa; a family may be succeeded to by a firm or vice' versa; a sole proprietory firm may be succeeded to by a firm or vice versa. It 'Would, thereforee, be clear that, quite apart from.the controversy as to the point of time when the partnership came'into being which has been discussed earlier, there can be no doubt that there was a succession to the family on 31st March, 1943 itself as a result of which it became entitled' to the relief under section 25(3).

(23) To sum up 'we are of opinion that the assessed is entitled to relief under Section 25(4) in respect of the entree profits of the financial year 1942-43 on the three following grounds: (1) If it is taken that' the family' got disrupted on 31stMarch, 1943 and the firm commenced of 1stApifl, 1943 the relief' that is contemplated by Section 25(3) is' in respect of the period 1st April 1942 to 3l8t March, 1943; (2)alternatively,since the case of both the parties was that the disruption and' the formation of the partnership were simultaneous, it would be correct to say that the succession took place on the same date as the partition, namely, 31st March, 1943 although the partnership can, from another point of view be said to have commenced only on 1st April, 1943 and (3) Alternatively, on a proper construction of the instruments placed on record there was a disruption of the family on 31st March, 1943 followed by a succession to the business by the erstwhile members of the family as co-owners some of whom subsequently converted it into a partnership business which was run as a firm with effect from 1st April, 1943. In any one of the three situations, as we see it, the assessed is entitled to the relief claimed.

(24) We shall now turn to the questions referred to us which have to be answered in the light of the above decisions. So far as the first question is concerned, we do not give a direct answer because the answer to it will depend on which one of the three interpretations of the documents in this case discussed in detail above is adoptedbut, whichever interpretation is taken, we think that the answer to the second question can only be in the affirmative and in favor of the assessed,. The reference is answered accordingly,But in the circumstances, we do not make any order as to costs.

(25) Turining to the Letter Patent appeal, the assessed has to succeed in view of the answers given earlier. However, as the assessed had also obtained a reference and this has been answered in favor of the assessed with the result that the appropriate relief will be granted in the course of the consequential proceeding under the Income-tax Act6) it is really unnecessary to deal with the issue in the writ petition which can, thereforee, be an alternative remedy and without any prejudice to the relief got by the assessed as a result of the reference. we, thereforee, be dismissed on this short and technical ground of the availability fo an alternative remedy and without any prejudice to the relief got by the assess as a result of the refernce. We, thereforee see no resend to interfere with the discharge of the rule issued in the writ petition, as directed by the learned single Junge, The Letter Patent Appeal will, thereforee, stand dismissed but without costs.


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