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Sm. Anima Basu and ors. (Sole Executrix to the Will of S.M. Basu) Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 122 of 1968
Judge
Reported in[1978]115ITR272(Cal)
ActsIncome Tax Act, 1922 - Sections 24B, 25(3) and 25(4)
AppellantSm. Anima Basu and ors. (Sole Executrix to the Will of S.M. Basu)
RespondentCommissioner of Income-tax
Appellant AdvocateBiswarup Gupta and ;Sujit Banerjee, Advs.
Respondent AdvocateB.L. Pal and ;Prabir Majumdar, Advs.
Cases ReferredHunter (Inspector of Taxes) v. Dewhurst
Excerpt:
- .....claim for relief under section 25(4) of the act on the ground that there was succession to the business, profession or vocation of the deceased which has been discontinued due to his death. the aac held that section 25 would apply to successions in the case of a business, profession or vocation as a whole, which may be discontinued and not where there was death of a partner of a firm which would not discontinue the business. further, the deceased being a partner in the firm by virtue of his personal qualification as a solicitor, the aac expressed his doubts whether the legal heirs would succeed the deceased in that capacity. he accordingly dismissed the appeal.5. there was a further appeal by the said heirs and legal representatives before the income-tax appellate tribunal where it.....
Judgment:

Banerji, J.

1. This reference under Section 66(1) of the Indian Income-tax Act, 1922, is at the instance of S. M. Basu and others, the heirs and legal representatives of C. C. Basu, deceased. The assessment year is 1958-59, for which the relevant accounting year is the calendar year 1957. The Tribunal has drawn up a statement of the case and has referred the following question to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee was not entitled to the relief under Section 25(3) and/or Section 25{4) of the Indian Income-tax Act, 1922, for the assessment year 1958-59 ?'

2. The facts found and/or admitted are shortly as follows :

C. C. Basu, a well-known solicitor of this court, died on the 9th December, 1967. He was a partner in the firm of Messrs. C. C. Basu & Co., Solicitors, having four annas share therein. The deceased had income from his share in the said firm which was assessed as his professional income. The deceased also had other income from property.

3. In the assessment proceedings the heirs and legal representatives of the deceased claimed relief under Section 25(3) and/or Section 25(4) of the Act in respect of the said professional income of the deceased. The ITO held that discontinuance or cessation of the exercise of the profession by the deceased being due to death, Section 25(3) of the Act had no application.

4. Being aggrieved, the said heirs and legal representatives of the deceased preferred an appeal before the AAC and reiterated their claim for relief under Section 25(4) of the Act on the ground that there was succession to the business, profession or vocation of the deceased which has been discontinued due to his death. The AAC held that Section 25 would apply to successions in the case of a business, profession or vocation as a whole, which may be discontinued and not where there was death of a partner of a firm which would not discontinue the business. Further, the deceased being a partner in the firm by virtue of his personal qualification as a solicitor, the AAC expressed his doubts whether the legal heirs would succeed the deceased in that capacity. He accordingly dismissed the appeal.

5. There was a further appeal by the said heirs and legal representatives before the Income-tax Appellate Tribunal where it was contended on their behalf that there was discontinuance of the business of the deceased as a partner in the said firm due to his death. The Tribunal was of the view that there could be succession to business, profession or vocation carried on by a firm but there could not be any succession to a share of a partner in a firm on his death. The Tribunal found that all the heirs and legal representatives of the deceased were not qualified solicitors and as such they were not entitled to be partners of the firm in place of the deceased. On the death of the deceased there was only a reconstitution of the firm and there was no succession. The Tribunal held that the claim of the heirs and legal representatives for relief under Section 25 of the Act has been rightly rejected by the authorities below.

6. Daring the pendency of this reference, S. M. Basu, one of the heirs and legal representatives of the deceased, died and Sm. Anima Basu was brought on record in his place as his sole executrix.

7. Mr. Biswarup Gupta, learned counsel for the applicants, based his arguments solely on Section 25(3) of the Act. He contended that on the death of C. C. Basu, admittedly, there was discontinuance of the profession or vocation of solicitor which was being carried on by him and the income which the deceased had been deriving by exercise of such profession or vocation as a partner in the said firm also ceased.

8. It is convenient to set out here the provisions of Section 25(3) of the Indian Income-tax Act, 1922:

'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, then, unless there has been a succession by virtue of which the provisions of Sub-section (4) have been rendered applicable 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 o! such discontinuance, and the assessee 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.'

9. In support of his contention Mr. Gupta cited the following decisions :

CIT v. N. C. Mandal : [1949]17ITR591(Cal) . In this case, Mr. N. C. Mandal had been carrying on business or profession as an attorney of this court. In 1924, he entered into a partnership with another solicitor and thereafter the two partners carried on business as attorneys of this court under the name and style of N. C. Mandal Co. On the 1st March, 1944, two new partners were taken in and the shares were redistributed. On the 16th March, 1944, Mr. N.C. Mandal retired from his profession. Relief was claimed by Mr. N. C. Mandal under Section 25(3} of the Act before the ITO on the ground that the business or profession carried on by him was discontinued by him. This court held that Mr. N. C. Mandal was entitled to relief under Section 25(3) in respect of his share of income in the firm of N.C. Mandal & Co. for the period from 1st March, 1943, to 15th March, 1944. This court observed as follows (page 594):

'He (Mr. N.C. Mandal) practised as an attorney of this court indisputably up to 1924. From 1924, though he entered into partnership with another solicitor, it cannot possibly be said that he ceased to be an attorney of this court. Because a solicitor becomes a member of a firm of solicitors, he does not give up his profession of solicitor but really enters into a venture with other members of his profession in order to work jointly as attorneys. Qua partner of the firm of Messrs. N. C. Mandal & Co., Mr. Mandal did practise as a solicitor from 1924 to 1944. In fact from the records, it appears that apart from the firm, Mr. N. C. Mandal sometimes did carry on his profession independently.

A firm of solicitors cannot possibly function unless all the partners are qualified solicitors on the rolls of this court. A firm is not a juristic entity and a partnership of non-professional gentlemen cannot possibly function as a firm of attorneys. It can only function as such provided its partners are solicitors qualified to practise as such.'

10. CIT v. Swat Chandra Bose : [1950]18ITR669(Cal) . This case relates to the assessment of Mr. Sarat Chandra Bose, the assessee, a barrister and an advocate practising on the original side of this court. In December, 1941, he was arrested by the then Government and was kept in detention till September, 1945, during which period the assessee ceased to carry on his profession. The question arose whether the assessee had discontinued his profession and, therefore, entitled to relief under Section 25(3). The income-tax authorities contended that the assessee had not discontinued but had only suspended his profession during the period of his detention. Before the Appellate Tribunal, the revenue contended that the practice which the assessee carried on in 1941, was not a practice which had been charged to income-tax under the Indian Income-tax Act of 1918, as the earlier practice had been discontinued in 1932, and relief had been given in respect of such discontinuance. The Tribunal, however, did not allow this point based on new facts to be urged by the revenue. There was a reference to this court, and this court rejected the contentions of the revenue and held that there need not be a complete cessation of the profession for the rest of a man's life in order to constitute discontinuance of a profession within the meaning of Section 25(3) of the Act.

11. Mr. B. L. Pal, learned counsel for the revenue, argued that 'discontinuance' within the meaning of Section 15(3) of the Act should be of the business, profession or vocation as a whole. Discontinuance of practice or profession by a partner in the firm would not be discontinuance within the meaning of the said section as there may not be any discontinuance of the business or profession by the firm. There can also be no succession to the business or practice of a partner in the firm and as such Section 25(4) of the Act would also have no application.

12. On the death of a partner there could only be a re-constitution of the firm. Mr. Pal sought to distinguish the decision in the case of N. C. Mandal : [1949]17ITR591(Cal) on the fact that Mr. Mandal originally carried on his profession individually as a solicitor and had been assessed under the 1918 Act as an individual and only subsequently became a partner of the firm and as such he was allowed relief under Section 25(3) of the Act. There was no finding in the instant case that C, C. Basu ever carried on business or profession independently or that he was ever assessed individually on his professional income under the 1918 Act. Mr. Pal urged that Section 25(3) would apply only in the case of retirement from profession or business or some other voluntary act on the part of the partner and not discontinuance on account of death. The relief under Section 25(3) of the Act could be claimed only by the assessee himself and not by his heirs or legal representatives.

13. We are unable to accept the contentions of Mr. Pal. Section 25(3) speaks of discontinuance of business, profession or vocation but does not enumerate the grounds of discontinuance. Nor does the section say that the person who would discontinue the business and the person who claims relief under the section must be one and the same. In income-tax law the heirs and legal representatives of a deceased assessee are liable to pay tax on income of the deceased-assessee prior to his death under Section 24B of the Indian Income-tax Act, 1922.

14. In the instant case, C. C. Basu, the deceased, was a practising attorney of this court and only as such he could carry on the profession or business as a partner of the said firm. Unless the deceased was qualified 'and enrolled as an attorney of this court he could not have joined the said firm.

15. The same view was taken by this court in N. C. Mandal : [1949]17ITR591(Cal) . The relief under Section 25{3) of the Act, in our opinion, is available to the heirs and legal representatives of the deceased.

16. Mr. Pal in his usual fairness has also drawn our attention to a decision of the Privy Council in Speldewinde v. J. L. D. Peiris [1958] AC 1. In this case, a claim was made under Section 11(6) of the Income Tax Ordinance (Legislative Enactments of Ceylon, 1938, c. 188) which is more or less similar to the provisions of Section 25(3) of the Indian Income-tax Act, 1922. Their Lordships of the Privy Council observed as follows (page 7) 3

'Their Lordships have had some difficulty in deciding which of these contentions-should be upheld. The respondent contends that the words person ceases to carry on a business' (to be found, among others, in Subsection (6)) would be language unusual, if not inappropriate, to describe an occasion where a cessation of business is caused by death. This argument has some weight. But in their Lordships' opinion it must give way to the consideration that a person on death undoubtedly ceases to carry on business. It was said in Hunter (Inspector of Taxes) v. Dewhurst [1932] 16 TC 605 (HL) that 'you cannot vacate an office better than by dying in it'. It appears to their Lordships that on death a person does vacate his office, and, equally, that on death a person ceases to carry on a business which he , had been carrying on previous to death.'

17. The above observations of the Privy Council demolish to a great extent the argument of Mr. Pal that death cannot be construed as discontinuance of business, profession or vocation under Section 25(3) of the Act.

18. For the above reasons, we are of the opinion that the applicants are entitled to relief under Section 25(3) of the Indian Income-tax Act, 1922, as claimed. We, therefore, answer the question in the negative and in favour of the applicants. There will be no order as to costs.

Sen, J.

I agree.


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