Case: Commissioner Of Income-Tax, Madras Vs. K. H. Chambers, Madras

2. One G. A. Chambers was carrying on two businesses, one in the name and style of "Chambers and Co." and the other in the name and style of "Chrome Leather Company. The first business was concerned with export of hides, skins and mica, insurance and shipping brokerage. The said Chambers and Co. was an assessee under the Indian Income-tax Act, 1918. As the business was in a bad way, in or about 1931 G.A. Chambers handed over the management of the said business to his son, K.H. Chambers. The change of management did not bring about any favourable turn in the affairs of the business. The appellants case is that towards the end of 1932, G. A. Chambers transferred the business to his son, K. H. Chambers, and that after the said transfer, K. H. Chambers carried on the business in his own name till January 1, 1948, when the business was taken over by a limited company. For the assessment year 1948-49 K. H. Chambers claimed relief under S. 25(4) of the Act on the ground that the business had been assessed under the old Act of 1918 when it was carried on by his father, G. A. Chambers, and that the said Chambers transferred the business to him towards the end of 1932. The Income-tax. Officer, by his order, dated March 18, 1949, held that K. H. Chambers did not take over the business of his father carried on in the name of "Chambers and Co. "as a whole running concern" and, therefore, the assessee was not entitled to relief under S. 25 (4) of the Act. On appeal the Appellate Assistant Commissioner agreed with the Income-tax Officer and held that the business carried on by K. H. Chambers was not the same business which was originally assessed under the old Act of 1918 in the hands of his father. On a further appeal, the Income-tax Appellate Tribunal came to the same conclusion and found that the identity of the business carried on by the father was lost in the hands of the son, as the entire business was not transferred to him. Ultimately the Tribunal referred the following question to the High Court of Madras for its opinion under S. 66(1) of theon the facts and in the circumstances of the case the Tribunal was right in law in refusing relief under S. 25 (4) of the Indian Income-tax Act to theHigh Court answered the aforesaid question in the negative in favour of the assessee: it held that the son succeeded to the business of his father after November 1932 and, therefore, there was succession within the meaning of S. 25 (4) of the Act. Hence the appeal.

Reasoning: This is an authority for the position that if a business was taken over as a going concern the mere fact that some assets, which were not required by the successor for carrying on of the business, were not transferred to him would not make it any the less a succession in law. It is not necessary to multiply decisions. Succession involves change of ownership; that is, the transferor goes out and the transferee comes in; it connotes that the whole business is transferred; it also implies that substantially the identity and the continuity of the business are preserved. If there is a transfer of a business, any arrangement between the transferor and the transferee in respect of some of the assets and liabilities not with a view to enable the transferor to run a part of the business transferred but to enable the transferee to run the business unhampered by the load of debts or for any other appropriate collateral purpose cannot detract from the totality of succession.5. In the present case, the export business of the father was carried on by the son. The whole of the business was transferred, the identity was preserved and the same business was continued. The father reserved for himself some assets for the purpose of discharging the debts. He did so not for the purpose of running the same business by himself but only to help the son to carry on the same business more effectively. If so, it follows that on the facts found or admitted there is a clear case of succession in the present case.In the case of pure questions of fact, the inference from proved facts being itself a question of fact can be attacked as being erroneous in law only if there is no evidence to support it or if it is perverse.The said decisions did not lay down that in every case the finding of succession is one of fact. Indeed, the first two decisions clearly maintained that a finding on a question whether a succession is one within the meaning of a particular provision or whether it is vitiated by any error of law is not final. The English view is also in accord with that expressed by this Court.11. The question, therefore, is whethera finding that a person succeeded another in his business within the meaning of S. 25 (4) of the Act is a finding offact. The expression "succession", as stated by Simon in his book on Income-tax, has acquired a somewhat artificial meaning. The cases we have considered supra and similar others have laid down some tests, though not exhaustive, to ascertain whether there is succession in a given case or not. The tests of change of ownership, integrity, identity and continuity of a business have to be satisfied before it can be said that a person "succeeded" to the business of another. Unless the facts found by the Tribunal satisfy the said tests, the finding cannot be conclusive. The tests crystallized by decisions have given a legal content to the expression "succession" within the meaning of S. 25(4) of the Act and whether facts proved satisfy those tests is a mixed question of law and fact. If so, it follows that a question of law arose out of the Tribunals order and the High Court has jurisdiction to ascertain the correctness of the finding given by the Tribunal on the question ofis an authority for the position that if a business was taken over as a going concern the mere fact that some assets, which were not required by the successor for carrying on of the business, were not transferred to him would not make it any the less a succession in law. It is not necessary to multiply decisions. Succession involves change of ownership; that is, the transferor goes out and the transferee comes in; it connotes that the whole business is transferred; it also implies that substantially the identity and the continuity of the business are preserved. If there is a transfer of a business, any arrangement between the transferor and the transferee in respect of some of the assets and liabilities not with a view to enable the transferor to run a part of the business transferred but to enable the transferee to run the business unhampered by the load of debts or for any other appropriate collateral purpose cannot detract from the totality of succession.