Venkatarama Ayyar, J. - (1.) The firm of Bhagat Ram Mohanlal which is the appellant before us, was constituted on 23-8-1940, and registered under S. 26-A, Indian Income-tax Act. The Partners of the firm, according to the registration certificate, were (1) Bhagat Ram Mohanlal, Hindu undivided family, (2) Richpal and (3) Gajadhar, their shares being respectively 8 annas, 4 annas and 4 annas. Mohanlal was the karta of the aforesaid joint family, which consisted of himself and his two brothers, Chhotelal and Bansilal, and he entered into the partnership as such karta. The firm carried on business at Drug in Madhya Pradesh as the agent of the Government for the purchase of foodgrains, and during the accounting years ending 1943 and 1944, it made profits on which it was assessed to excess profits tax respectively of Rs. 10,023-5-0 and Rs. 13,005-5-0. During the year 1944-1945 it sustained a loss of Rs. 15,771, and adding it to the sum of Rs. 37,800 which was the standard profit for the business, the Excess Profits Tax Officer determined the deficiency of profits for the year at Rs. 53,571. Section 7, Excess Profits Tax Act, hereinafter referred to as the Act, provides that when there is a deficiency of profits in any chargeable accounting period in any business, the profits of that business, during the previous years shall be deemed to be reduced 'eo extanti' and that the relief necessary to give effect to the reduction shall be given by repayment of the tax paid or otherwise. Acting under this section, the Excess Profits Tax Officer passed an order on 23-12-1946 whereby after setting off the profits of the firm for the years ending 1943 and 1944 against the deficiency of profits during the year ending 1945, he directed a refund of Rs. 23,028-10-0 which had been paid by the appellant as excess profits tax for those years.
(2.) It should be mentioned that at the commencement of the assessment year 1944-45 there was a partition in the joint family of which Mohanlal was the erstwhile karta, as a result of which he and his brothers, Chhotelal and Bansilal, became divided in status. Consequent on this disruption of the joint family, the appellant firm was reconstituted under an agreement dated 17-10-1944. Under this agreement, the partners of the firm were five in number, Richpal, Gajadhar, Mohanlal, Chhotelal and Bansilal, the two former being entitled to 5 annas share and the latter three to 2 annas each. There was thus a reconstitution of the firm both with reference to the persons who were its partners and the shares which were allotted to them. Now S. 8(1) provides, omitting what is not material, that as from the date of any change in the persons carrying on a business, the business shall be deemed to have been discontinued and a new business commenced". If this section applied, then no relief could have been granted to the appellant under section 7 of the Act.
(3.) The facts relating to the reconstitution of the firm having come to the knowledge of the Commissioner of Excess Profits Tax on examination of the record, he issued a notice on 19-2-1948 calling upon the appellant to show cause why the order of the Excess Profits Tax Officer dated 23-12-1946 should not be set aside on the ground of mistake. This notice was issued under S. 20 of the Act, which confers on the Commissioner authority to rectify "any mistake apparent from the record". The mistake, according to the Commissioner, consisted in the Excess Profits Tax Officer failing "to take into consideration the change in the constitution of the firm which took place on 17-10-1944, consequent on the disruption of the joint Hindu family of one of the partners". The appellant appeared in response to the notice, and contended that on the facts the proceedings under S. 20 were misconceived. The facts on which the proceedings were taken were not themselves disputed. By his order dated 15-3-1950 the Commissioner held that on the facts disclosed on the record, there was a change in the persons carrying on the business, and that the award of relief under S. 7 by the Excess Profits Tax Officer was a mistake. He, however, maintained the order dated 23-12-1946 with reference to Richpal and Gajadhar, and set it aside only so far as "Bhagat Ram Mohanlal, Hindu undivided family" which was registered as partner on 23-8-1940, was concerned. He further directed that Rs. 11,514-5-0 which had been refunded to it should be collected.;