- (1.) This is an appeal by special leave and is directed against the judgment of the Mysore High Court rendered in its advisory jurisdiction on a case stated by the Commissioner of Income-tax Mysore under Section 66 (2) of the Mysore Income-tax Act, 1923, hereinafter called the 'Mysore Act'.
(2.) The facts are not in dispute. The family of R. Hanumanthappa and Son was being assessed in the status of Hindu undivided family with late R. Hanumanthappa as its karta till there was a partition and all the family assets including the cotton business were divided after the disruption of the joint family which took place on November 2, 1948. The division took place among the following three coparceners, (i) R. Hanumanthappa, Karta, (2) R. Rama Setty his son and (3) R. R. Sreenivasa Murthy his grandson. After the disruption of the family the partnership firm was formed on November 22, 1948, the partners being the aforesaid erstwhile three coparceners of the Hindu undivided family, hereinafter referred to as 'H. U. F.' and R. Gopamma a widowed daughter of R. Hnumanthappa. The partnership worked under the name and style of R. Hanumanthappa and Son, Cotton Merchants. It is common ground that it did the same business which was being done by the H. U. F. The business assets and liabilities falling to each coparcener's share were entered in their personal accounts and then retransferred to the partnership firm as contribution of capital with the exception of a few trade debts. In the deed of partnership it was stated in paras 2 and 3 as follows: (2) "Whereas the aforesaid R. Hnumanthappa, R. Rama Setty and R. R. Srinivasamurthy were carrying on, as members of a Hindu undivided family, a family business as cotton merchants, till they became divided on 2-11-1948 and the said three parties desire to continue the family business constituting themselves into a partnership. (3) Whereas it is agreed that the aforesaid Sreemthi Gopamma shall also be admitted into the partnership constituted for the purpose of the carrying on the family business after the partition of the family as aforesaid. Now it is agreed between the four parties hereto: (1) That the partnership shall carry on, as a successor to the business, originally carried on by the Hindu Undivided Family of Cotton Merchants Ginners and Pressers."
(3.) The assessment for the assessment year 1949-50 was completed on December 29, 1949 on the H. U. F. The previous year was the Deepavali year i. e. November 30, 1947 to November 1, 1948. This assessment was sought to be reopened under the provision of S. 34 of the Mysore Act and an additional demand of Rupees 2,25,942/- was raised by the order of the Income tax Officer dated September 23, 1959. Before the Income tax Officer an exemption had been claimed on behalf of the disrupted H. U. F. under S. 25 (3) of the Mysore Act. This provision which was in the same terms as S. 25 (3) of the Indian Income tax Act, hereinafter called the 'Indian Act', hereinafter called the 'Indian Act', as it stood before the amendment of 1939 was as follows: "Where any business, profession or vocation....on which tax was at any time charged under the provisions of the Mysore Income tax Act 1920, is discontinued, no tax shall be payable in respect of the income, profits and gains of the period between the end date of the previous year and the date of 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." The Mysore Income tax Act 1920 referred to in the above provision was in pari materia with a similar provision in the earlier Indian Income tax Act of 1918. Under those Acts the income tax was paid for each income tax year in respect of the income of that year. As pointed out by the High Court the position was changed with the introduction of the Indian Income-tax Act 1922 in British India and the Mysore Act 1923 in the erstwhile State of Mysore according to which during each assessment year tax was paid in respect of the income earned during the pervious year. A situation, therefore, arose that upon the introduction of the new Acts the assessee had to pay tax in respect of the income of the same year both under the earlier statute and under the later enactment. It was with a view to removing this hardship and saving the assessee from double taxation that provision was made in sub-s. (3) of S. 25 of the new Act to give relief to the assessee to the extent possible. The assessee, in the present case, was being assessed under the Mysore Income tax Act 1922 and it could certainly claim the benefit of S. 25 (3) of the Mysore Act provided it could prove discontinuance of the business within S. 25 (3).;