KANIRAM GANPATRAI Vs. COMMR OF INCOME TAX

JUDGEMENT

(1.) This case relates to the assessment made on Messrs. Kaniram Ganpatrai for the assessment year 1944-45. The previous year was the Diwali year ending with Kartik Badi 15 which corresponded to the period 8/11/1942 to 27/10/1943. The firm was constituted of two partners, via., Inderchand Kerjriwal who had ten annas share and Mahadeolal Jwalaprasad who had six annas share. Inderchand Kejriwal and Mahadeolal Jwalaprasad were partners in their capacity as kartas of the respective Hindu undivided families. In or about the year 1941, the Hindu undivided family, of which Mahadeolal was partner, became divided but Mahadeolal Jwalaprasad continued to hold the six annas share of the partnership of Kaniram Ganpatrai. On 27/10/1943 Mahadeolal Jwalaprasad retired from the partnership. On the next date a new partnership composed of Inderchand Kejriwal and Ramniranjan Kejriwal was formed. The name of the new firm was Kaniram Jankidas, of which Inderchand had 12 annas share and Ramniranjan had four annas share. The stock in trade and most of the book debts and liabilities of the old firm of Kaniram Ganpatrai were transferred to the new firm of Kaniram Jankidas who continued to carry on the same business in grain, cloth and lac. All the assets and liabilities were taken over by the new firm except the assets of a defunct cloth business to the extent of Rs. 3,09,878.00 and a portion of the assets of the existing shops to the extent of Rs. 4,90,737.00. As the old firm of Kaniram Ganpatrai had been assessed to income tax under the 1918 Act, the partners Inderchand and Mahadeolal applied during the course of the assessment for relief under Sec. 25 (3) and Sec. 25 (4), Income-tax Act 1922. It was claimed that relief ought to be granted under Sec. 25 (3) as the assessee firm had discontinued its business with effect from 28/10/1943. It was contended in the alternative that if it should be held by the Income tax department that business had not been discontinued, relief should be given under Sec. 25 (4) as there was succession to the business carried on by the assessee. The income-tax officer rejected the claim for relief either under Sec. 25 (3) or Sec. 25 (4). An appeal was preferred on behalf of the assessee to the Appellate Assistant Commissioner but the appeal was dismissed. The assessee further appealed to the Income-tax Appellate Tribunal contending that there was either discontinuance of business under Sec. 25 (3) or there was succession under Sec. 25 (4) and in either case the assessee was entitled to claim relief. The Appellate Tribunal held that in view of the fact thst 'all the live accounts' had been taken over by the new firm with the stock in trade there was no discontinuance of the business. As regards the alternative claim under Sec. 25 (4) of the Act the Tribunal said :

(2.) At the instance of the assessee, the High Court directed the Income tax Appellate Tribunal to state a case on the following question of law :

(3.) On behalf of the assessee, Mr. Dutt presented the argument that upon the facts found the Income tax Appellate Tribunal should have held that there was succession to the assessee firm within the meaning of Sec. 25 (4), Income-tax Act. Learned counsel referred to the important finding of the Appellate Tribunal that the stock in trade and most of the debts and liabilities of the assessee firm were transferred to the new firm Kaniram Jankidas. In their order dated 13-4-1951 the Appellate Tribunal states that the new firm took over the assets and liabilities of the old firm and continued the business without cessation. The Tribunal has observed: