Case: Sait Nagjee Purushotham And Co Vs. Commissioner Of Income-Tax, Madras

document of December 6, 1918 was carried were revoked and not the head agreement to do business in partnership. The fact that an express agreement to carry on the business in partnership was made (for which see the third recital in Annexure C II) further indicates that the agreement to that effect in the instrument December 6, 1918 was no longer subsisting. In this case the term providing for the continuance must refer to the continuance of the business and not to the continuance of the partnership agreement because that was expressly revoked. If this is not the correct view, then Cl. 20 would be inexplicable. That clause states that the partners in their individual capacity would be partners with Hemchand in another business the terms of which partnership appear in another partnership agreement of the same date and which is Annexure C I. This would show that the old partnership of 1918 had given up doing some of its existing businesses and it was decided to carry them on under a new partnership agreement. This would support the view that the old partnership was dissolved for it would not have otherwise given up those businesses.17. The two instruments Annexures C I and C II, therefore, clearly establish that in October/November 1937 the business that was carried on by the firm of Sait Nagjee Purushotham and Co. till that date, was discontinued and its businesses were split up into two and carried on by two independent partnerships then brought into existence. When this happens it is impossible to say that the pre-existing business was continued. This view finds support from S. N. A. S. A. Annamalai Chettiar v. Commissioner of Income-tax, Madras, 1951-20 ITR 238 (Mad), where it was held that when a business carried on in one unit is disintegrated and divided into parts, the parts are not the whole even though all the parts taken together constitute the whole. That was a case of a joint family business which on partition was split up between different members of the family. It was held that as a result of this splitting up there was a discontinuance of the original business at the date of the partition and on such discontinuance the family became entitled to relief under S. 25 (3). It is of some significance to point out that the partners constituting the appellant at the moment of the transfer in 1948 also thought that in 1937 the old firm ceased to exist and its business was carried on thereafter by two independent firms, for the document of October 30, 1943 has referred to Annexures C I and C II as constituting two independent partnerships and proceed to revoke them both and provided that the parties to the instrument "have agreed to carry on and continue as one single partnership business the existing partnership businesses for Sait Nagjee Purushotham and Co., Bankers, Piece-goods and Yarn Merchants, Sait Nagjee Purushotham and Co., Soap and Umbrella Merchants."18. Now when the business on which tax was charged under the Act of 1918 - which, it is not disputed, happened in this case - was discontinued in 1937 it could not have been carried on April 1, 1939. What was then carried on must have been some other business. So one of the conditions on which relief under S. 25 (4) of the Act could be claimed was not satisfied and the claim would not be maintainable.19. Further, more for the reasons earlier stated, it must be held that on April 1, 1939 the business, assuming its identity to have continued in spite of the splitting up, was being carried on by two persons, namely, two firms with different partners. Now the person who transferred the business which caused the succession in 1948 on which the appellant relies for relief under S. 25 (4) was a single firm. This latter firm could not have brought about by a change in the constitution of an existing firm, for there were two existing firms and they could not become one by simple changes in their constitution. Indeed the instrument of October 30, 1943 which brought the transferor firm, the appellant before us, into existence, expressly states that "The Agreements of Partnerships, dated 30th May 1939..........are hereby revoked." It follows that at the date succession relied upon can be said to have taken place, the business was being carried on by a person different from those who carried it on April 1, 1939. So another condition of the applicability (of) S. 25 (4) of the Act is not satisfied. The claim for relief under that Section must fail on this ground also.20. If it were to be said that the partnerships were brought into existence on May 30, 1939, by Annexures C I and C II instead of in October/November 1937 then also the appellants claim must fail. Whenever the new partnerships were brought into existence, the result would, in our view, necessarily be that the business of the old partnership which was taken over by the two new firms must be deemed to have been discontinued. On the principle stated in Annamalai Chettiar case, 1951-20 ITR 238 (Mad), there could not in such a case be succession of a business from one to another. That being so, there can be no question of the succession to business carried on at the commencement of the Indian Income-tax (Amendment) Act, 1939, i.e., April 1, 1939 and on which tax was charged under the Act of 1918 having taken place in 1948 as claimed by the appellant. What was discontinued could not be succeeded to. Even if it was held that on May 30, 1939, there was a succession to the business which we do not think is a correct view to take, that also would disentitle the appellant to relief under sub-s. (4) of S. 25 in the years 1948-1949 and 1949-50, for it should, in such an event, have claimed the relief in the year 1939-40.

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

Explanation:
1[ds]20. If it were to be said that the partnerships were brought into existence on May 30, 1939, by Annexures C I and C II instead of in October/November 1937 then also the appellants claim must fail. Whenever the new partnerships were brought into existence, the result would, in our view, necessarily be that the business of the old partnership which was taken over by the two new firms must be deemed to have been discontinued. On the principle stated in Annamalai Chettiar case, 1951-20 ITR 238   (Mad), there could not in such a case be succession of a business from one to another. That being so, there can be no question of the succession to business carried on at the commencement of the Indian Income-tax (Amendment) Act, 1939, i.e., April 1, 1939 and on which tax was charged under the Act of 1918 having taken place in 1948 as claimed by the appellant. What was discontinued could not be succeeded to. Even if it was held that on May 30, 1939, there was a succession to the business which we do not think is a correct view to take, that also would disentitle the appellant to relief under sub-s. (4) of S. 25 in the years 1948-1949 and 1949-50, for it should, in such an event, have claimed the relief in the year 1939-40.Applying this test to the present case, it is quite clear that the identity of the entity was never lost and there was never a succession till the year 1948. It must be remembered that this was initially a business of a family but not in the sense in which a Hindu joint family is said to have a business. From the very start, certain members of the family along with a stranger (Bhagwanjee) carried on the business in piece goods etc. In 1918, and in 1934 different deeds were executed but the basic deed was that of 1918. By that time, Bhagwanjee had retired and the business was in the hands of only the members of the family. Hemchand was then taken on in 1937 and in 1939, the original business was separated from the businesses newly started after 1922. Hemchand was given a share only in the newly started businesses to which S. 25 could not possibly apply. When Hemchand retired, those businesses were also taken over and merged with the original business. In other words, the original business continued till 1943 in the hands of Narayanjee and Maneklal who were partners as for back as 1918 and three younger members of the family. In 1948, Maneklal and those three other members of the family sold this business to the company. It cannot be said these changes were not covered by the expression "a change in the constitution of the firm" and were comprehended in the term succession. No question of the dissolution of the firm Sait Nagjee Purushotham and Co. ever arose. It continued right through; even the newly started businesses were owned by it and though for a time the newly started businesses and the other businesses were kept distinct so that the stranger Hemchand could not get the benefit of partnership in the Head firm, it cannot be said that the old firm had either discontinued or had been succeeded to by another person. Hemchand was merely taken on as a working partner. His rights in the firm were extremely slender; he had to make a deposit of Rs. 15,000/- with the Head Firm and he was to get a remuneration of Rs. 400/- p. m. which was to go up or down according to the profits.