SV P N SITHAMBARA NADAR SONS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a firm doing business at Virudhunagar. It is a partnership concern consisting of three partners. Its status under the income-tax law was that of a registered firm. It was assessed to excess profits tax in the chargeable accounting period commencing on January 31, 1941, and ending on January 30, 1942. Now it appears that the same partners of this assessee firm were also carrying on a business at Madurai. Previously that business had been an unregistered partnership of these three persons and one Seeni Nadar. This Seeni Nadar died on the 23rd December, 1940. Subsequently thereto, that business was carried on in partnership by these three persons and the profits were divided in the same ratio as in respect of the Virudhunagar business. In making the assessment to excess profits tax for the chargeable accounting period referred to, the Excess Profits Tax Officer aggregated the profits of the Madurai business along with the Virudhunagar business. From this order of assessment, an appeal was taken to the Appellate Assistant Commissioner objecting to the aggregation of the two businesses. That contention was rejected. In the further appeal to the Tribunal, this objection was further pressed with the same result. During the appeal before the Tribunal, it was also contended that if the aggregation of the profits of two businesses was permissible, the deficiency of profits in respect of the Madurai business for the periods prior to the chargeable accounting period should be taken into account in computing the profits of the chargeable accounting period. THE Appellate Tribunal repelled this contention on the ground that the Madurai business was not the assessee in the appeal before it, that the two businesses were different entities, the constitution of each being also different up to 31st January, 1941. THE Tribunal was of the view that the second proviso to section 2(5) of the Excess Profits Tax Act authorised the aggregation of businesses and that was not an aggregation resulting from an operation of law under section 8 of the Act, and that, therefore, section 8, sub-section (7), would not apply. On the application of the assessee, the Tribunal referred the following two questions for the determination of this court :

(2.) WHETHER 18/27 of the uncomputed deficiency of the Madurai business aforesaid up to 30th January, 1941, is deductible from the assessment of the chargeable accounting period, 31st January, 1941, to 31st January, 1942, as deficiency relief under section 8(7) "" *

(3.) IN the view that we have taken, that by reason of the proviso to section 2(5) all the businesses carried on by the same set of persons must be aggregated and regarded as one business for the purposes of the Act, it follows that section 7 in terms provides for the grant of relief on the occurrence deficiency of profits in respect of the entire business that is, all the businesses which have been so aggregated, by reason of section 2(5) of the Act. We are unable to see how section 8(7) suggests any deviation from the general relief so granted by section 7.Learned counsel for the department placed some stress upon the expression "the same business" occurring in section 8(7) of the Act and contended that the adjustment of the deficiency of profits in any earlier chargeable accounting period towards the profits of a later chargeable accounting period is available only the same business is carried on. If the argument is that by reason of the change in the constitution of the partnership it is no longer the same business, we are unable to agree. The acceptance of that argument would give no rational meaning to the content of section 8(7) of the Act. Clearly, under the ordinary law, where there is a change in the constitution of the firm by the retirement or death of a partner, even if the business is carried on by the new partners, it may not be proper to call it the same business. The Madurai business was previously carried on by four partners one of them died and the remaining three partners continued the same business and shares the profits of that business in the same proportion as in respect of the Virudhunagar business. Though, strictly speaking, the Madurai business as conducted by the three partners, during the chargeable accounting period may not be the same as that previously conducted by the four partners, it was precisely to meet such a contingency that section 8 sub-section (7), has been enacted. As we have pointed out, it operates as an exception to sub-section (1) and provides that "the same business carried on by the surviving partners" is entitled to the deficiency relief specified in the section. To accept the interpretation of the expression 'same business" which is advanced by the learned counsel for the department would be to nullify the effect of this provision of law.