Case: Executors Of The Estate Of J.K. Dubash Vs. Commissioner Of Income Tax, Bombaycity

Kania, J.1. This is an appeal from a judgment of the High Court at Bombay delivered on a reference by the Income-tax Appellate Tribunal under the Income-tax Act. The material facts are these. The assessees (appellants) are the executors of the will of Mr. J. K. Dubash who died on 9/4/1942, having made his last will on 8/4/1942. Probate of the will was issued to the executors on 10/8/1942. During his life-time, the testator carried on the business of shipping agents. Clause 13 of the will contains directions about carrying on this business of the testator till its disposal. It directs the executors to carry on the business as a going concern after his death with power to make fresh contracts and discharge the existing and future liabilities and all other usual and necessary powers, unless special circumstances arose which, in the opinion of the executors, made it expedient to sell the business earlier. This business was to be carried on for a period not exceeding twelve months during which time the executors were to ascertain whether or not any of his nephews was willing to purchase the said undertaking. For this purpose and generally for sale purposes, he directed that the executors shall, as soon as possible, after his death, have a valuation made of the said undertaking. The undertaking was to be sold so as to include all. his interest in the premises, the goodwill, the stock-in-trade, plant, furniture, etc., but excluding securities for money and cash in the bank to the credit of the account of that undertaking. If the executors were satisfied before the expiration of one year from the testators death that the said undertaking would not be sold to his nephews because none was willing or able to purchase it or, if it remained unsold at the end of a year, to any of the nephews then (whichever event first happened) the executors were directed to sell the undertaking to such third person on such terms and at such price as they thought proper. The clause ended with the following words:"I expressly declare that in carrying on the said undertaking my trustees shall, in addition to all powers, discretion and authorities vested in them by law, have power to carry or discontinue any part of the said undertaking or to augment or diminish the capital employed and generally to act as absolute owners without being responsible for any loss."The business was sold to one of the nephews on 1-1-1943. The appellants contended that within the meaning of S. 25 (4), Income-tax Act, the succession to the business took place on 1/1/1943 while the taxing authorities contended that the succession was on 9/4/1942 when the testator died. The first question submitted for the High Courts opinion related to this dispute.2. The second question referred to the High Court for its opinion was in respect of an amount paid by the executors to the widow of the testator. That question was answered against the appellant by the High Court. Learned counsel appearing for the appellants intimated that he did not want to contest the High Courts decision on the point. The appeal, therefore, is limited to the first question only.3. Section 25, Income-tax Act, 1939, gives certain concessions in respect of a business where tax had been paid by the person carrying the business under the provisions of the Income-tax Act, 1918. The material part of sub-cl. (4) of S. 25 is in these terms : "Where the person who was at the commencement of the Indian Income-tax(Amendment) Act, 1939, 1939 carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person ."4. The Scheme of S. 25 read with the provisions of S. 26 (2) appear to be to give relief, inter alia to persons who were carrying on business in 1921 and had been taxed on their income under the Income-tax Act, 1918. By a change effected by the Income-tax Amendment Act, 1922, they were subjected to taxation twice on the income of 1921-22. The relief is intended against this levy of tax twice over.5. The rival contentions urged on behalf of the parties are these. The assessee contends that on the death of the testator under cl. 13 of the will of the deceased, the executors were carrying on the business of the deceased only for the purpose of winding it up, and there was no succession to the business on the death of the deceased within the meaning of S.25 (4), Income-tax Act, It is argued that the clause provides for nothing else than a direction to carry on the business with a view either (a) to sell it within a year to one of the nephews, or (b) to sell it to some one else at the end of the year as a going concern. It was pointed out that all directions in the clause permitting contracts to be made, etc., were for the purpose of keeping the business alive and not allowing it to die so that the business which was a valuable asset of the deceased could be sold as a going concern with its goodwill. It was, therefore, argued that the succession to the business took place only on 1/1/1943 when the business was sold by the executors to one of the nephews in terms of cl. 13 of the will. In actual money, the contest is whether the executors are entitled to get the benefit of the exemption from income-tax in respect of the profits earned only for the nine days between 1st April and 9th April 1942 or between 1/4/1942 and 1/1/1943 under S. 25 (4), Income-tax Act. The High Court has answered the question against the assessee.6. In our opinion, the conclusion of the High Court is correct. It cannot be disputed that in the event of a sale or gift of the business by the original owner the succession within the meaning of S. 25 (4) will take place only on the date of such sale or gift and the exemption from liability to tax will be for a period terminating on that day. It cannot again be seriously disputed that if the testator settled his business on trust under a deed of settlement there will be a succession to the business by another person on the day of the settlement. Similarly, in the event of his death intestate his heir-at-law will succeed to the business on the date of his death. The argument advanced on behalf of the appellants that in the present case having regard to the terms of cl. 13 of the will there has been "no succession in such capacity to another person" because the executors were carrying on the business only with a view to sell it as a going concern, cannot he accepted because on the day of the deceased the estate including the business got vested in the executor, and the executors carried on the business within the meaning of S. 3 read with S. 10 of the Act and as such became personally liable as assessee. Thus there came about a change in the assessee and therefore "a succession in such capacity" took place within the meaning of S. 25 (4), Income-tax Act. It seems clear that if the testator had transferred the business to a trustee, although the trustees will not be the beneficial owners, in law there will be a succession of the business to another person within the meaning of S. 25 (4), Income-tax Act. If in such a case that result follows there appears no reason why when the legal estate is transferred by operation of law to an executor there should not be considered a succession to the estate by another person within the meaning of the same S. 25 (4). The words "in such capacity" in that clause further make the position clear. It makes the distinction of legal and beneficial ownership irrelevant. The contention that the business was to be carried on by the executors as such, as a going concern or that it was being carrier on for the benefit or loss of the testators estate is not relevant for the present discussion. The only relevant question under S. 25 (4), Income-tax. Act is whether in respect of the business there is a succession to another person. This is a provision to give relief and the scope of the relief must be governed by the words used in the Act. In our opinion the answer to this question, on the facts of the present case, must be in the affirmative and the date of such succession must be considered to be the death of the testator, which was on 9/4/194

Decision reasoning: 0[ds]6. In our opinion, the conclusion of the High Court is correct. It cannot be disputed that in the event of a sale or gift of the business by the original owner the succession within the meaning of S. 25 (4) will take place only on the date of such sale or gift and the exemption from liability to tax will be for a period terminating on that day. It cannot again be seriously disputed that if the testator settled his business on trust under a deed of settlement there will be a succession to the business by another person on the day of the settlement. Similarly, in the event of his death intestate his heir-at-law will succeed to the business on the date of his death. The argument advanced on behalf of the appellants that in the present case having regard to the terms of cl. 13 of the will there has been "no succession in such capacity to another person" because the executors were carrying on the business only with a view to sell it as a going concern, cannot he accepted because on the day of the deceased the estate including the business got vested in the executor, and the executors carried on the business within the meaning of S. 3 read with S. 10 of the Act and as such became personally liable as assessee. Thus there came about a change in the assessee and therefore "a succession in such capacity" took place within the meaning of S. 25 (4), Income-tax Act. It seems clear that if the testator had transferred the business to a trustee, although the trustees will not be the beneficial owners, in law there will be a succession of the business to another person within the meaning of S. 25 (4), Income-tax Act. If in such a case that result follows there appears no reason why when the legal estate is transferred by operation of law to an executor there should not be considered a succession to the estate by another person within the meaning of the same S. 25 (4). The words "in such capacity" in that clause further make the position clear. It makes the distinction of legal and beneficial ownership irrelevant. The contention that the business was to be carried on by the executors as such, as a going concern or that it was being carrier on for the benefit or loss of the testators estate is not relevant for the present discussion. The only relevant question under S. 25 (4), Income-tax. Act is whether in respect of the business there is a succession to another person. This is a provision to give relief and the scope of the relief must be governed by the words used in the Act. In our opinion the answer to this question, on the facts of the present case, must be in the affirmative and the date of such succession must be considered to be the death of the testator, which was on 9/4/194