B.K. Mehta, J.
1. The petitioner herein by this petition under art. 226 of the Constitution of India, challenges the notice issued by the respondent purporting to act under s. 179(1) and (3) of the I.T. Act, 1961, of December 10, 1973, calling upon the petitioner to show cause why the petitioner should not be treated as successor to the business of M/s. Kalyanji Dhanji & Co. of Mandvi within the district of Kutch. A few facts need be referred to in order to appreciate as to how the petitioner is entitled to challenged the impugned notice at the initial stage when he has been called upon to show cause merely against the proposed action of the respondent for treating him as a successor to the firm of M/s. Kalyanji Dhanji & Co.
2. The said firm was a partnership firm consisting of three partners, viz., (1) Kalyanji Dhanji Shah, (2) Vishanji Kalyanji Shah and (3) Hemchand Kalyanji Shah. The said firm had agency business from the most leading and reputed companies of national and international importance. The firm had agencies in cement, automobiles, automobile spare parts, cigarettes, hydrogenated oil, confectionery, iron, batteries, etc. The firm had a large turnover of as much as about Rs. 1,00,00,000 (Rs. one crore) in Kutch. The said firm was holding the agencies from the following companies :
1. M/s. Jhonson & Company.
2. Western India Match Company, Bombay.
3. Premier Automobiles, Bombay.
4. Cement Marketing Company, Bombay.
5. Hindustan Lever Ltd., Bombay.
6. Imperial Tobacco Co., Ahmedabad.
7. Imperial Chemical Industries, Bombay.
8. M/s. Perry Company, Bombay.
9. Good Year Tyre & Rubber Co., Bombay.
10. Firestone Rubber Co., Bombay.
11. Vulcan Trading Co., Bombay.
12. Shalimar Biscuit Co., Bombay.
13. Asbestos Cement Co., Bombay.
14. Caltex India, Co., Bombay.
15. F. Taxik & Co., Bombay.
16 National Carbon Co., Bombay.
3. The said firm was assessed on the best judgment assessment for assessment years 1959-60 to 1961-62 and income for each year was estimated at Rs. 4,00,000.It appears that for the assessment year 1962-63, the income assessed was Rs. 20,000 on the best judgment assessment on the basis of the turnover of Rs. 5,00,000. The partners of the said firm failed to satisfy their income-tax liabilities with the result that they were adjudged insolvent by the competent court and they were ultimately granted discharge. Surprisingly, however, without disclosing even broadly his belief that the petitioner was the successor to the business of the said firm, the impugned notice was issued.
4. The petitioner, by his letter of December 20, 1973, inquired from the respondent as to the basis and the date on the file of the respondent for the proposed action to treat the petitioner as the successor of the said firm. He also prayed for supplying him with the true copies of all such records and papers for submitting his reply to the show-cause notice. By reply dated December 28, 1973, the petitioner was informed that the petitioner advocate, Shri Vora, attended before the respondent and had discussed with him on December 24, 1973, and he was apprised of the two circumstances which induced the belief that the petitioner was the successor to the business of the said firm. Those two circumstances were stated in the said reply of December 28, 1973. They are : (1) the agreement dated November 5, 1960, between the Associated Cement Company on the one hand and Shri Premji Khimraj Shah (the petitioner) and Smt. Vasantiben J. Lalan on the other, and (2) taking over of the goods dealt with by the said firm. The petitioner was, therefore, called upon to show cause why he should not be treated as a successor and the hearing was fixed on January 7, 1974, for that purpose.
5. The petitioner thereupon again requested the respondent by his letter of January 4, 1974, that he may be furnished specific information which the department had, if any, so as to make his reply to the impugned notice. The petitioner also contended in the said letter that the ITO has no jurisdiction or authority to initiate proceedings under s. 170(3) of the I.T. Act, 1961, since there was no basis whatsoever for treating the petitioner as successor to the said firm. By letter dated January 8, 1974, of his advocate, the petitioner requested the respondent to furnish him with information and record, namely, (1) relevant assessment orders of the firm, (2) amount of tax in arrears due from the said firm, (3) period for which the petitioner was to be treated as successor to the firm, (4) deed of dissolution of the firm, (5) particulars of the business alleged to be succeeded by the petitioner, and (6) copies of the assessment order of the petitioner. The respondent by his letter of January 11, 1974, informed the petitioner that copies of the assessment orders of the firm could not be furnished since they related to third party, and that the petitioner need need not be furnished with the deed of dissolution of the firm for the same reason. As regards the particulars of the business, the respondent stated that these were very much within the knowledge of the petitioner. The respondent gave particulars about the tax in arrears as required by the petitioner. At this stage, the petitioner has moved this court for appropriate writ, order or direction to quash and set aside the impugned notice and to prevent the respondent from proceeding further in pursuance thereof.
6. On rule nisi being issued by this court, Mr. I. P. Patel, ITO, Ward 'A', Bhuj, who has jurisdiction to proceed further in the matter, has filed the affidavit-in-reply resisting the petition.
7. The main contentions on which this petition is resisted are, inter alia, that the respondent was perfectly within his jurisdiction and authority and power to inquire, whether the petitioner was the successor to the business of the firm or not and the court should not exercise its jurisdiction at the stage at which the petitioner has rushed to it, and, therefore, the petitioner is premature, and, in any case, there was prima facie material for the respondent to initiate proceedings under s. 170(3) of the I.T. Act, 1961, and, therefore, also the court should decline to exercise its extraordinary jurisdiction. Prima facie material, as set out in the said affidavit-in-reply, comprises of three broad circumstances, namely, (1), appointment of the petitioner as stockist of cement by the Cement Marketing Co. of India Pvt. Ltd, (the sales agent of the Associate Cement Companies Ltd.) in Kutch by agreement dated November 5, 1960, (2) the petitioner's undertaking under the said agreement to discharge the liability of the previous dealer, viz., the firm, in the sum of Rs. 2,60,000, and (3) taking over of stock-in-trade of the said firm.
8. It is in the backdrop of these facts and circumstances that we have to determine, whether the petitioner is entitled to the reliefs or any of them claimed by him in this petition. It is common ground that the respondent is purporting to act under s. 170(3) of the I.T. Act, 1961. It is under this section that the impugned notice has been issued upon the petitioner to show cause why he should not be treated as successor to the business of the firm of M/s. Kalyanji DhanJi & Co. Section 170 of the said Act provides for the contingencies of a successor of business otherwise than on death. Sub-section (1) provides that where a person carrying on any business or profession (such person for the purposes of the said section is referred to as predecessor) has been succeeded therein by any other person (referred to as successor) who continues to carry on that business or profession, the predecessor would be assessed in respect of the income of the previous year in which the succession took place up to the date of the succession, and the successor would assessed in respect of the income of the previous year after the date of the succession. Sub-section (3), which is relevant for out purposes, reads as under :
'(3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the Income-tax Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and successor shall be entitled to recover from the predecessor any sum so paid'.
9. It is, therefore, with a view to recover the tax dues in arrears of the partners of the aforesaid firm that the respondent has initiated the present proceedings. None the less, the relevant question, which would arise in the first instance for the exercise of the jurisdiction under sub-s. (3) is, whether there was any succession to the business of said firm It should be recalled that the said firm had agencies from different companies of repute and importance. The said firm was not merely a wholesaler or a retail dealer but pre-eminently was carrying on agency business from the different companies producing consumer goods. The term 'succession to business' has a recognized connotation. It involves change of ownership in the sense of successor taking over the whole or substantially the whole business of the predecessor and continuing the same notwithstanding the retention by the predecessor of some assets and liabilities not with a view to run the business but to enable the successor to carry on his succeeding business activities unhampered (vide CIT v. K. H. Chambers : 55ITR674(SC) . Disintegration and division of whole into parts would not permit the parts to be treated as a whole and, therefore, successor to the original business carried on as one integral unit (vide : Sait Nakjee Purushotham & Co. v. CIT : 51ITR849(SC) ). Succession to business, therefore, has a recognised and settled connotation. If there is no prima facie evidence to suggest that there was a transfer of the whole business or substantially the whole business by one person to another so as to suggest an inference that there is an identity and continuity of business, there cannot be any succession within the purview of s. 170(1) of the I.T. Act, 1961, so as to justify initiation of proceedings with a view to achieve the object permitted under sub-s. (3) thereof. In the present case before us, the petitioner is perfectly justified in making the grievance as he did in the letter of his advocate of January 4, 1974, that there was no material whatsoever to warrant an action under s. 170(1) read with sub-s. (3) thereof. The only two broad circumstances, which had been relied upon by the respondent in his letter of December 28, 1973, and to which none has been added in the affidavit-in-reply, were, (1) the agreement between the Cement Marketing Company of India on behalf of Associated Cement Companies on the one hand and the petitioner and Smt. Vasantiben J. Lalan on the other, appointing the petitioner as stockist in cement for the district of Kutch, and (2) taking over of some stock-in-trade by the petitioner from the said firm. Some attempt has been made in the affidavit-in-reply to add to these two circumstances, namely, the petitioner's relationship with one of the erstwhile partners of the said firm. We have not been able to comprehend how these circumstances, even without scanning them in detail, could warrant the action as proposed to be taken by the respondent for treating the petitioner as successor in business of the said firm. It should be noted again that the petitioner was called upon for the first time by the impugned notice of December 10, 1973, to show cause why he should not be treated as successor in business of the said firm of M/s. Kalyanji Dhanji & Co. One of the partners is erstwhile insolvent in Insolvency Petition No. 4 of 1964 by the order of insolvency court of March 8, 1966, and he was given discharge by the insolvency court by an order of January 19, 1968. Another partner, Vishanji Kalyanji Shah, was adjudged insolvent by the High Court of Bombay on June 18, 1963, and had been granted discharge with effect from February 19, 1965. If the firm went into losses, stopped its business and the partners were declared insolvent as far back as in 1965-66, and given discharge in 1965 or 1966, how can that business be succeeded to by the petitioner In spite of the best efforts of the petitioner to solicit the relevant information from the respondent as to when the business of the firm came to a standstill and the date when he succeeded, the respondent tried to put off by giving a vague and evasive reply that this information was within the knowledge of the petitioner. To say the least, this is a formal and an empty way of compliance with the principles of natural justice. Apart from that, the three broad circumstances on which the respondent is trying to rely for issuance of the impugned notice are, in our opinion, no circumstances at all which can justifiably be called some evidence to warrant the action. The agreement which has been relied upon is not an agreement between the predecessor and successor, namely, the partners of the said firm and the petitioner. The agreement is between the petitioner and the Cement Marketing Company of India appointing the petitioner as a stockist in cement for the district of Kutch. It is no doubt true that under the said agreement the petitioner has undertaken to discharge the liability of the aforesaid firm to the Cement Marketing Company of India, which is described as the sales manager of the Associated Cement Companies Ltd., in the agreement between the petitioner and the said company, which is annexed at annexure 'I' to the petition. Clause 10 providing for the said undertaking reads as under :
'10. In the consideration of the company appointing the stockists as the sole stockists for the whole of Kutch area in the State of Gujarat for the fixed period of five years upon the terms and conditions herein contained, the stockists hereby agree and undertake with the company to discharge the liabilities and debts of the previous stockistship firm of Messrs Kalyanji Dhanji & CO. consisting of Kalayanji Dhanji, Vishanji Kalyanji Shah and Hemchand Kalyanji amounting to Rs. 2,60,000 in the manner following that is to say....'
10. We have not been able to appreciate as to how the circumstance would afford prima facie evidence to suggest an inference that the petitioner was the successor in business of the said firm. The Cement Marketing Company of India was appointing the petitioner as a sole stockist for Kutch area only if the amount due and payable by the earlier stockists was paid by the petitioner. That was the consideration which weighed with the Cement Marketing Company of India for appointing the petitioner as sole stockist for the area of Kutch. Neither the firm nor its partners were parties to this agreement. There is no evidence to show any connection between the firm and the petitioner to warrant an inference that it was as a result of some understanding between them that this agreement was effected between the Cement Marketing Company of India and the petitioner. Even assuming that the petitioner undertook to satisfy the liability of the firm at the instance and bidding of the firm, or for that matter as result of some understanding between the firm and the petitioner, it cannot be said that there was succession to the business of the firm by the petitioner since the firm's business was not merely the agency in cement from the Cement Marketing Company of India but was a business of agencies of different companies in different commodities. The said circumstance, therefore, in our opinion, is entirely an innocuous circumstance which cannot afford any basis either singly or coupled with the other two circumstances which we will discuss shortly to confer jurisdiction for initiation of the proceedings.
11. The second circumstances that the petitioner had taken over some stock of the firm is so vague, imprecise and uncertain that it would not justify the respondent to exercise his jurisdiction under s. 170. Apart from the particulars of the items of stock taken over and the value thereof, the real question is, whether there is any material from which it can be suggested that there was an identity and continuity of business by transfer for the whole or substantially whole business. If this initial basis is wanting, the respondent has no authority or jurisdiction to initiate the proceedings.
12. The third circumstances of some relationship between the erstwhile partners of the firm and the petitioner is, to say the least, no circumstance at all.
13. In the ultimate analysis, in our opinion, there is no prima facie evidence whatsoever which will justify initiation of proceedings. It has been strenuously contended on behalf of the respondent that this is merely an inquiry which the ITO concerned is entitled to hold so as to satisfy himself and find out as to whether there is any successor to the business of the firm so that the income-tax dues of the defaulting firm should be recovered. We are afraid that this is too broad a contention to be acceded to, since that would be virtually expowering the ITO to hold a fishing inquiry without any prima facie evidence to justify such an action.
14. In the result, this petitioner is allowed and the impugned notice of 10th December 1973, annexure 'C' to the petition, is quashed and set aside by a writ of certiorari and the respondent is prevented from proceeding further in pursuance of the said notice. The rule is made absolute accordingly with no order as to costs.