Malik, C.J. - (1.) THIS is a reference under Section 66 (1), Income Tax Act, and the question, which has been referred to us for decision, is as follows: "Q. Whether, on the finding of fact that Pandit Lachhman Prasad was, at the commencement of the Indian Income Tax (Amendment) Act of 1939, carrying on the business in his capacity as an 'individual' but was succeeded in his capacity as Karta of an Hindu undivided family by his sons under the award of 31 -3 -1941, the provisions of Section 25 (4) of the Income Tax Act allow any relief to him - In other words, the question for our decision is whether the estate of Lachhman Prasad Pandey is entitled to the benefit under the provisions of Section 25 (4), Income Tax Act.
(2.) PANDIT Lachhman Prasad Pandey had three sons, Chintamani Pandey, Vishnu Datt Pandey and Hari Datt Pandey. He was assessed to Income Tax from the assessment year 1918 -19 to the assessment year 1926 -27. It was not mentioned in what capacity he was being assessed but, from the order of the Income Tax Appellate Tribunal, it appears that he was assessed as an individual. From the assessment year 1927 -28 to the assessment year 1937 -38, Lachhman Prasad Pandey was assessed to Income Tax as representing the Hindu undivided family. It appears that, in 1932 there was some litigation and Civil Suit No. 15 of 1932 was filed in which Lachhman Prasad Pandey had claimed that he was the exclusive owner of the business and that his sons had no interest in it. There was a compromise entered into between the parties which was filed in the Chief Court of Avadh. Under this compromise, it was recognised that Lachhman Prasad Pandey was the sole owner. On 28 -7 -1938, Lachhman Prasad Pandey executed a will, declaring therein that all the properties which were the subject -matter of the will including the business were his self -acquired properties and that he was competent to divide the same. By reason of that compromise and the assertions made in the will, the Income Tax Officer started assessing Lachhman Prasad Pandey as an individual from the assessment year 1938 -39 and the capacity, in which he continued to be assessed, remained the same till his death in 1942. There was some dispute in 1940 or 1941 between the three sons and Lachhman Prasad Pandey and the matter was again referred to arbitration. The sons claimed that they were living with Lachhman Prasad Pandey as members of the joint Hindu family and as they had also worked in running the business, the business must be deemed to be joint family business. On 31 -3 -1941, the arbitrators gave an award, holding that the business belonged to the joint family. They also proceeded to partition the properties, giving the business to the three sons of Lachhman Prasad and the other property to Lachhman Prasad Pandey. On 5 -4 -1942, Lachhman Prasad Pandey died. During the assessment proceedings for the year 1941 -42 against Lachhman Prasad Pandey through Chintamani Pandey, one of his sons, the three sons of Lachhman Prasad Pandey filed an application on 25 -9 -1942, claiming the relief under Section 25 (3), Income Tax Act. They claimed that no Income Tax should be levied for the year 1941 -42. The Income Tax Officer, however, rejected this contention and made the assessment on 5 -3 -1943. There was an appeal before the Appellate Assistant Commissioner of Income Tax who, on 4 -9 -1943, allowed the appeal and sent the case back to the Income Tax Officer, directing him to reconsider whether relief should be given under Section 25 (4), Income Tax Act. On 19 -10 -1943, the Income Tax Officer held that no relief under Section 25 (4) of the Act was claimable and that order was confirmed by the Appellate Assistant Commissioner of Income Tax though on different grounds. There was a further appeal to the Income Tax Appellate Tribunal which proceeded to record -some findings of fact, on the basis of which it wanted to decide the question of law. The facts, which the Tribunal found, were as follows: "(1) that Lachhman Prasad Pandey had paid Income Tax under the provisions of the Indian Income Tax Act of 1918 as an individual on the profits of the business which was being run by him; (2) that he was carrying on the business in the same capacity, i.e. as an individual, at the commencement of the Indian Income Tax Act of 1939; and (3) that the award given on 31st March 1941, "affected his title to the property divesting him of a portion of it and investing the same in his three sons, a succession to Lachhman Prasad as an individual did take place on the date of the award, i.e., 31 -3 -1941." After having recorded these three findings, the Tribunal held that the assessee was not entitled to claim the benefit of Section 25(4) as "the succession of the three sons was not as an heir to an individual but was by virtue of an independent title which was held by the arbitrator to" have accrued to them through their personal efforts to expand the business." This is the only reason given for the conclusion that the three sons had not succeeded in the game capacity.
(3.) THE relevant portion of Section 25 (4), Income Tax Act, runs as follows: "Where the person who was at the commencement of the Indian Income Tax (Amendment) Act, 1939 (7 of 1939), carrying on any business...............on which tax was at any time charged under the provisions of the Indian Income Tax Act, 1918 (7 of 1918), is succeeded in such capacity by another person ............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..............." There can be no doubt that, on the findings of fact recorded by the Tribunal, Lachhman Prasad Pandey was carrying on a business which had been charged to Income Tax under the provisions of the Income Tax Act of 1918. On those findings, it cannot be disputed that Lachhman Prasad Pandey was carrying on the same business in the year 1939 when the amendment came into force.;