1. The question referred to this court under Section 66(1) of the Act ran:
'Whether on 28-3-1949 there was a succession to the old business within the meaning of Section 25(4) of the Indian 'Income-tax Act?' Since we propose to rest our answer to that question on a fairly narrow ground, it may not be necessary to set out over again the history of the assessee firm which can be found from the statement of the case submitted by the Tribunal.
2. The assessee firm that claimed relief under Section 25(4) of the Act consisted of four partners, K. P. V. S. Mohammed Meera Rowther of Madras and the three sons of M. M. V. Mohammed Meera Rowther of Nagapattinam, and that was the partnership that continued upto 28-3-1949 when K. P. V. S. Mohammed Meera Rowther died. The deeds of this partnership provided, like the earlier ones that the death of any of the partners should not dissolve the partnership, and that the legal representatives of the deceased partner should be brought into the partnership in his place.
So on 28-3-1949 when K. P. V. S. Mohamed Meera Rowther died, all his ten heirs-at-law including his widow and two sisters became partners in his place. That was recognised and specifically averred in the deed dated 22-7-1949 which purported to dissolve the partnership with effect from 28-3-1949.
3. The claim of the assessee firm was that there was a succession within the scope of Section 25(4) of the Act, on 28-3-1949. The claim apparently was that the firm consisting of six partners, the three sons of M. M. V. Mohammed Meera Rowther and the three of the heirs of K. P. V. S. Mohammed Merra Rowther, his widow and two sisters, succeeded to the business of the assessee firm on 28-3-1949. That partnership of six persons was evidenced by the deed dated 9-8-1949, which declared that that partnership should be deemed to have come into effect from 28-3-1949.
Factually, when K. P. V. S. Mohammed Meera Rowther died on 28-3-1949, the partnership consisted of 13 persons, the three sons, of M. M. V. Mohammed Meera Rowther and the ten heirs of K.P.V.S. Mohammed Meera Rowther. That partnership was dissolved by the deed dated 22-7-1949, which however provided that the dissolution should take effect from 28-3-1949.
4. The Tribunal upheld the view of the Department, that there was no succession despite the dissolution of the partnership evidenced by the document dated 22-7-1949. In the statement of the case the Tribunal recorded:
'The deed of dissolution was relied on to provide that succession had taken place and to found a claim under Section 25(4) of the Act. The Appellate Assistant Commissioner held that the Business had not been dissolved, that the nun continued, that there had been only a change in the partners and so fell within the exception in Section 25 (4) and so no relief was due.' It was that view that the Tribunal upheld.
5. The learned counsel for the assessee firm urged that where there is dissolution of a partnership and a new partnership comes into existence, even if the new partnership consists of some of the members of the dissolved partnership, there is succession within the scope of Section 25(4) of the Act. The learned counsel relied on Jittanram Nirmalram v. Commr. of Incometax, B & O : 23ITR288(Patna) , in which reference was made to Commissioner of Income-tax, Madras v. Karuppiah Pillai : 9ITR1(Mad) . The learned counsel also relied on Himatlal Motilal v. Commr. of Income-tax and E. P. Tax, Bombay North : AIR1951Bom428 . The learned counsel for the respondent referred to Kanniappa Naicker and Co. v. Commr. of Income-tax, Madras : 5ITR49(Mad) , where it was held:
'There can be succession to a business within the meaning of Section 26(2) of the Indian Income-tax Act, only where the same business is carried by a different person, and Section 26(2) is not therefore applicable to a case where a business terminates and a different though similar business is carried on by another person or a newly constituted firm.'
6. It is not necessary for us to pronounce any final opinion now on the question, whether the case of the assessee firm falls within the scope of the rule laid down in : 9ITR1(Mad) , or within that explained in : 5ITR49(Mad) .
7. The claim of the assessee firm was that there was a succession on 28-3-1949. All that happened on 28-3-1949 was that K. P. V. S. Mohammed Meera Rowther died that day. That death did not dissolve the partnership which had consisted of K. P. V. S. Mohammed Meera Rowther and the three sons of M. M. V. Mohammed Meera Rowther. The ten heirs of K. P. V. S. Mohammed Meera Rowther came into the partnership in his place.
That partnership was dissolved only on 22-7-1949 though the deed of 22-7-1949 purported to give effect to that dissolution from 28-3-1949. The learned counsel for the respondent was, in our opinion, right in his contention that however the rights of the partners were regulated inter se by the deed of 22-7-1949, the dissolution of the partnership itself was only on 22-7-1949.
8. The claim of the assessee firm under Section 25 (4) of the Act was in the assessment year 1949-50; the corresponding accounting year ended on 7-7-1948. The learned counsel for the respondent pointed out that 22nd July 1949 was outside the accounting year, and even if the claim of the assessee firm was well founded that claim could not be considered with reference to the assessment year 1949-50. The learned counsel for the respondent referred to Ayrshire Pullman Motor Services & D.B. Ritchie v. Commissioners of Inland Revenue, (1929) 14 Tax Cas 754 and Waddington v. O'Callaghan, (1931) 16 Tax Cas 187. In (1931) 16 Tax Cas 187, Rowlatt J. observed:
'When people enter into a deed of partnership and say that they are to be partners as from some date which is prior to the date of the deed, that does not have the effect that they were partners from the beginning of the deed. You cannot alter the past in that way. What it means is that they begin to be partners at the date of the deed, but then they are to take accounts back to the date, that they mention as from which the deed provides that they shall be partners.'
9. This principle also applies. In our opinion, to a case of dissolution.
10. Was there a succession within the mean-ing of Section 25(4) on 22-7-1949 should have been the real question to which the departmental authorities and the Tribunal had to address themselves. That question could not arise, for consideration in the assessment year 1949-50.
11. Our formal answer to the question as framed by the Tribunal should be in the negative and against the assessee. But the real basis for that answer is that that question did not arise for consideration at all in the assessment year 1949-50.
12. As the assessee had failed, he shall pay the costs of the respondent in this reference. Counsel's fee Rs. 250/-.