M SUBBARAYA IYER Vs. COMMISSIONER OF INCOME TAX MADRAS

JUDGEMENT

(1.) THE assessee, Sri M. Subbaraya Iyer, has been a practitioner in matters connected with income-tax. He commenced practice in 1910 and was an assessee under the Income Tax Act, 1922. By 1952, he had established a voluminous practice. On March 30, 1952, he entered into a partnership with four juniors of his, one of whom is his son. It was agreed that the five persons should carry on in partnership the business or profession of lawyers and advocates as from the March 30th, 1952, the profession heretofore carried on by the first partner, Sri Subbaraya Iyer, with the help of partners 2 to 5. On and after the formation of the above firm, all the pending professional engagements of Subbaraya Iyer were handed over to the firm. It is common ground that there were no such professional engagements of the other partners which were so transferred to them. It is also common ground that on and after the formation of this partnership, all the fees recoverable in connection with the professional engagements subsequent to the date of the creation of the partnership, were realised by the firm. On the basis of these facts, the assessee informed the Income-tax Officer that the firm referred to had succeeded to the business or profession which he had been carrying on, and applied for relief under section 25 (4). THE Income-tax Officer denied the relief holding that though the profession carried on by the assessee had been transferred as a whole to the partnership, the assessee had

(2.) IN appeal, the Appellate Assistant Commissioner also held that there was no succession. The Tribunal, in its order dismissing the appeal of the assessee, while accepting the genuineness of the partnership, yet hold that since the practice depended purely on the skill and ability of the assessee, that could not be transmitted that there was no cessation of the assessee's professional activities and consequently, no succession could be spelt out of the transaction.It is on these facts that we have to decide the question referred to us under section 66 (1) of the INdian INcome-tax Act, viz.

(3.) THE conditions requisite for the application of section 25 (4) of the Act are that the person seeking the relief must, at the commencement of that amending Act VII of 1939, have been carrying on the profession. On the profits and gains earned by the exercise of such profession he must have been charged to tax under the provisions of the Indian Income-tax Act, 1918. He should have been succeeded in such capacity by another person. An exception is found in a case where a partnership had been originally carrying on the profession and complies with the first two conditions set out above and which partnership yields place to another partnership, the change in the partnership being nothing more than a change in the constitution of the first mentioned partnership. In such a case only is it laid down in the section that there would be no succession within the meaning of the provision. It is conceded that the person, the assessee in this case, was being charged to income-tax under the provisions of the 1918 Act on the earnings of his profession. It is also conceded by the department that he was carrying on that same business at the commencement of the amending Act VII of 1939. THE first two conditions obtain in the present case and the only dispute is whether THEre has or has not been a succession to that business of that person by the partnership which came in to existence on the 30th of March, 1952. We may at the outset deal with one aspect of the view taken by the Tribunal, which is expressed in its own words, as appearing in paragraph 13 of the statement of the case :