Case: Commissioner of Income Tax, Bangalore Vs. M/s. R. Hanumanthappa &amp; Son

elaborately the case law relating to sub-ss. (3) and (4) of S. 25 of the Indian Act in Income tax Appellate Tribunal, Bombay v. Bachraj Nathani of Raipur (1946) 14 ITR 191 = (AIR 1946 Nag 54). The observations made there are pertinent for the purpose of the present case. This is what was said:"It must be observed that sub section (3) is concerned with business, profession or vocation and sub-s. (4) with person. When an owner of a business dies or transfers his business or when partners dissolve their partnership, there is discontinuance so far as the person dying or transferring or the separating partners are concerned but there may be no discontinuance of the business as such. Thus the word discontinuity is capable of double interpretation according as it is vis-a-vis the owners or vis-a-vis the business. In the former case, the discontinuity is notional or jural and in the latter case, it is real or factual."8. All the above decision proceed on the footing that the requirement of sub-s. (3) of S. 25 is that the business should be discontinued and not that the person or person who own the business should cease to be the same. The discontinuity as pointed out in Bachraj Nathanis case, (1946) 14 ITR 191 = (AIR 1946 Nag 54) must be real and factual and it has to be of the business and not of its owner or owners of the business.9. A great deal of emphasis has been laid on behalf of the respondent-assessee on the integrity of the business carried on by the H. U. F. having been broken by the disruption of the family and it is claimed that the business of the family must be deemed to have totally ceased or discontinued on such disruption. Reliance has been placed on a number of decisions out of which mention may be made only of S. N. A. S. A. Annamalai Chettiar v. Commr. of Income tax, Madras, (1951) 20 ITR 238 (Mad) in which a H. U. F. consisting of a father and son carried on money lending business under different vilasams. There was a partition in 1939 under which some of he vilasams were allotted to the father and the rest were allotted to the assessee. The Madras High Court held that as the assets of the H. U. F. were split up on partition the family business no longer continued its existence but was terminated and there was, therefore, a discontinuance within the meaning of S. 25 (3) of the Indian Act. It was observed by the court that the mere fact that after continuing the same books of account and the customers of the money lending business were to some extent identical, would not make the business of the father a continuation of the old business when once what was a single unit was split up into various component parts. The parts separated were distinct and separate parts of a unified whole but the unity and integrity between parts were no longer possible unless there was a reunion or partnership. It is apparent that the facts of this case were different and clearly distinguishable from those of the present case. Here apart from the circumstances and facts which have been found and established the partnership deed itself made it clear that the three coparceners who had effected partnership desired to continue the family business as partners after the partition of the family. Nothing could be clearer than the language used in sub-clause (1) of cl. (3) of the partnership deed that the partnership shall carry on as successor to the business originally carried on by the H. U. F. of cotton ginners and pressers. Thus there was no factual cessation of business or its discontinuance. All that happened was that previously the owner of the business was the H. U. F. and subsequently the partnership, became the owner. There was merely a change of ownership and the business as such continued. In other words the business was never discontinued so as to attract the provision of S. 25 (3) of the Mysore Act. The judgment of the High Court cannot thus be sustained. The answer given by it in favour of the assessee will have to be discharged and in its place the question referred is answered in favour of the Revenue.10. We may mention a preliminary objection that was raised on behalf of the respondent. It was argued that the matter related to the pre-Constitution period under the Mysore Act by which the Mysore High Court had been constituted as the highest court and no appeal lay to any higher court. The decision of the Mysore High Court, therefore, was final and no appeal could be entertained by this court. We find no force in this objection. By section 3 of the Finance Act 1950, the Indian Act was amended. The following amendment is relevant for our purposes:S. 3 "Amendment of Act XI of 1922 - With effect from 1st day of April, 1950, the following amendments shall be made in the Income tax Act,-(a) for sub-section (2) of section 1 the following sub-section shall be substituted, namely:(2) It extends to the whole of India, except the State of Jammu and Kashmir..............."The effect of S. 13 of the Finance Act dealing with repeals and savings was that the Mysore Act ceased to have any effect except to the extent mentioned in the section.11. In the present case the judgment of the Mysore High Court was delivered on January 4, 1967 and the appeal which has been brought to this court is by leave granted under Article 136 of the Constitution. We are unable to see how under Art. 136 special leave to appeal could not be granted against the judgment of the Mysore High Court when the language of Art. 136 (1) is very wide and expressly covers any judgment etc. passed or made by any court or Tribunal in the territory of India.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It was pointed out that under the Indian Act before it was amended in 1939, S. 25 (3) gave relief in the event of discontinuance. The amendment only introduced a qualification that if there was a succession in respect of which relief was given there should not be any relief upon discontinuance. It did not enlarge or alter the meaning of "discontinuance". In the first case referred to by their Lordships, a company went into voluntary liquidation and the liquidator transferred the business to a new company which continued that business. It was held that the business was not discontinued within the meaning of S. 25 (3) of the Indian Act. (This was before the amendment made in 1939). Macleod C. J. analysed the scheme of the Indian Act and emphasised the fact that under its provisions tax was chargeable on the profits of a business and it made no difference if there was any change in the persons who carried on the business so long as the business was continued. In the next case i. e. Kalumal Shorimal there had been a partition of the H. U. F. The assessee got the family business as its share. The other coparceners relinquished their fights therein and started separate business of their own. The assessee carried on the business under the old name and style. The assessees contention was that the family firm had ceased to exist because the family had disrupted. This was rejected by the High Court on the ground that the business of the family could continue in spite of its disruption. The question really was whether the business was discontinued or not in consequence of the breaking up of the family. It is unnecessary to refer to the third case as a similar principle was laid down therein. Grille C. J., and Niyogi J., discussed elaborately the case law relating to sub-ss. (3) and (4) of S. 25 of the Indian Act in Income tax Appellate Tribunal, Bombay v. Bachraj Nathani of Raipur (1946) 14 ITR 191 = (AIR 1946 Nag 54). The observations made there are pertinent for the purpose of the present case. This is what wasmust be observed that sub section (3) is concerned with business, profession or vocation and sub-s. (4) with person. When an owner of a business dies or transfers his business or when partners dissolve their partnership, there is discontinuance so far as the person dying or transferring or the separating partners are concerned but there may be no discontinuance of the business as such. Thus the word discontinuity is capable of double interpretation according as it is vis-a-vis the owners or vis-a-vis the business. In the former case, the discontinuity is notional or jural and in the latter case, it is real or factual.All the above decision proceed on the footing that the requirement of sub-s. (3) of S. 25 is that the business should be discontinued and not that the person or person who own the business should cease to be the same. The discontinuity as pointed out in Bachraj Nathanis case, (1946) 14 ITR 191 = (AIR 1946 Nag 54) must be real and factual and it has to be of the business and not of its owner or owners of the business.9. A great deal of emphasis has been laid on behalf of the respondent-assessee on the integrity of the business carried on by the H. U. F. having been broken by the disruption of the family and it is claimed that the business of the family must be deemed to have totally ceased or discontinued on such disruption. Reliance has been placed on a number of decisions out of which mention may be made only of S. N. A. S. A. Annamalai Chettiar v. Commr. of Income tax, Madras, (1951) 20 ITR 238 (Mad)   in which a H. U. F. consisting of a father and son carried on money lending business under different vilasams. There was a partition in 1939 under which some of he vilasams were allotted to the father and the rest were allotted to the assessee. The Madras High Court held that as the assets of the H. U. F. were split up on partition the family business no longer continued its existence but was terminated and there was, therefore, a discontinuance within the meaning of S. 25 (3) of the Indian Act. It was observed by the court that the mere fact that after continuing the same books of account and the customers of the money lending business were to some extent identical, would not make the business of the father a continuation of the old business when once what was a single unit was split up into various component parts. The parts separated were distinct and separate parts of a unified whole but the unity and integrity between parts were no longer possible unless there was a reunion or partnership. It is apparent that the facts of this case were different and clearly distinguishable from those of the present case. Here apart from the circumstances and facts which have been found and established the partnership deed itself made it clear that the three coparceners who had effected partnership desired to continue the family business as partners after the partition of the family. Nothing could be clearer than the language used in sub-clause (1) of cl. (3) of the partnership deed that the partnership shall carry on as successor to the business originally carried on by the H. U. F. of cotton ginners and pressers. Thus there was no factual cessation of business or its discontinuance. All that happened was that previously the owner of the business was the H. U. F. and subsequently the partnership, became the owner. There was merely a change of ownership and the business as such continued. In other words the business was never discontinued so as to attract the provision of S. 25 (3) of the Mysore Act. The judgment of the High Court cannot thus be sustained. The answer given by it in favour of the assessee will have to be discharged and in its place the question referred is answered in favour of the Revenue.10. We may mention a preliminary objection that was raised on behalf of the respondent. It was argued that the matter related to the pre-Constitution period under the Mysore Act by which the Mysore High Court had been constituted as the highest court and no appeal lay to any higher court. The decision of the Mysore High Court, therefore, was final and no appeal could be entertained by this court. We find no force in this objection.In the present case the judgment of the Mysore High Court was delivered on January 4, 1967 and the appeal which has been brought to this court is by leave granted under Article 136 of the Constitution. We are unable to see how under Art. 136 special leave to appeal could not be granted against the judgment of the Mysore High Court when the language of Art. 136 (1) is very wide and expressly covers any judgment etc. passed or made by any court or Tribunal in the territory of India.