1. This is a Reference under Section 66(1) of the Indian Income-Tax Act and the question on which we are required to express our opinion has been formulated in the following words:
'In the facts and circumstances of the case, was the firm as constituted on 31st May 1947, entitled to the relief under section 25(4) of the Indian Income-Tax Act?'
2. Section 25(4) is as follows: .
'Where the person who was at the commencement of the Indian Income-Tax (Amendment) Act, 1939 (VII 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 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.'
3. The assessee is a partnership concern. When the tax was paid under the Act of 1918 it consisted of three partners: Mathew, Figgis and Notley. The name of the firm was A. W. Figgis & Co., and the business was that of tea brokers. There were several changes in the constitution of the firm as noted below:
1924.- (1) A. W. Figgs. (2) N. G. Notley. 1926.- (1) A. W. Figgs. (2) N.G. Notley.(3) L. Squire. 1932.- (1) N. G Notley. (2) L. Squire. 1-4-1939 - (1) N. G. Notley. (2) L. Squire.(3) F. E. Hilman1-4-1943 - (1) L. Squire. (2) F. E. Hilman. 1-4-1945 - (1) L. Squire. (2) F. E. Hilman.to (3) L. H. Gilbert.31-5-47
4. On the 15th April, 1939 a partnership deed was made between Notley, Squire and Hilman which provided that the partnership would be for a fixed term of five years commencing from 1st April 1939, unless it was previously determined under the provisions contained in the partnership deed. The deed further provided that the retirement of any partner during the continuance of the partnership would not determine the partnership as between the remaining partners.
5. It is not disputed that after the expiry of the term, the partnership continued to carry on business as before. The law is that where a partnership constituted for a fixed term continues to carry on business after the expiry of the term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will.
6. In 1947 the partnership was converted into a private limited company. For the assessment year 1947-48 the firm consisting of Squire, Hilman and Gilbert as partners claimed relief under Section 25(4) on the ground that the partnership had been succeeded by a private limited company. The Income-Tax Officer disallowed the claim on the ground that the partners of the firm in 1939 being different from, the partners of the firm in 1947, no relief could be given to the assessee. The Appellate Assistant Commissioner took the same view.
7. Further he held that the claim of the assessee was premature, since it involved two distinct periods, one ending 31-3-1947, and the other from 1-4-47 to 31-5-1947. He thought that the claim could only be made for the assessment year 1948-49 and not for the year 1947-48.
8. The Tribunal did not support this part of the Appellate Assistant Commissioner's finding. It held that the claim had been made in proper time. This matter was not further agitated and we need not say anything more on it.
9. On the question of relief to be given to the assessee, Dr. Pal who appeared before the Tribunal for the assessee laid stress o.n the word ' person' which appears in Section 25(4). He said that partnership was nothing but an association of persons and the partners of 1939 were the same as the partners of 1947 when the firm was succeeded by the company. He also drew the Tribunal's attention to the definition of 'person' as given in the Income-Tax Act as also in the General Clauses Act. The Tribunal held that reading Section 25 as a whole the relief contemplated in that section should be given to the assessee. It was never disputed that the business of the firm continued as tea-brokers right from the inception till the time it was succeeded by the limited company, and the case was decided on the footing that it was the same firm all throughout though there was change in the personnel from time to time. It was never contended at any stage before that by reason of the change in personnel there was a change in the constitution of the firm.
10. Before us, Dr. S. K. Gupta who has appeared for the Income-Tax Commissioner has taken a different line of argument. He says that there was change in the firm. It was not the same firm throughout. The change in the personnel necessarily effected a change in the constitution of the firm. This point was not taken before the Tribunal, the Income-tax Officer or the appellate Assistant Commissioner and this point could not have been taken in view of Section 25(4) which I have already set out. The firm was taxed under the Income Tax Act of 1918. There is no dispute as to this fact. If the firm is regarded as a different firm as has been contended by Dr. Gupta, how could it possibly be taxed under the Act of 1918? Dr. Gupta now seeks to take up an inconsistent position. He tries to make out a case for his client which he had never made before. We cannot allow Dr. Gupta to make an entirely new case Dr. Gupta has referred us to a partnership document, dated 1945, between Squire, Hilman and Gilbert and said that in 1945 a different firm was constituted. But it is to be noted that there is no reference of this document in the; records except in the schedule to the statement of the case. We do not know how the document came in, but we have no doubt that this document was never discussed before any of the authorities before, and therefore we are not prepared to allow Dr. Gupta to rely on this document in support of his argument. We shall consider this case on the basis that it was the same firm that continued throughout, though there was change in the personnel and that being the case we think that under Section 25(4) of the Indian Income-Tax Act there was succession in 1947 when the private company was formed. Therefore, the provisions of that section are attracted and the firm should get the relief in accordance with it.
11. We answer the question submitted to us in the affirmative.
12. The assessee is entitled to the costs of this Reference. Certified for two Counsel.