Commissioner of Income-Tax, Bangalore
Vs. M/S. R. Hanumanthappa and Son [1971] INSC 186 (10 August 1971)
GROVER, A.N.
GROVER, A.N.
HEGDE, K.S.
CITATION: 1972 AIR 175 1972 SCR (2) 94 1971
SCC (3) 592
ACT:
Mysore Income-tax Act, 1923, s. 25(3)-Hindu
undivided family carrying on family business-After partition, the same coparceners
with another formed partnership and was carrying on the same business-Whether
discontinuance of the family business within the meaning of s. 25(3)-Mysore
Income-tax Act, 1922-Finance Act, 1950-Whether appeal lay from a judgment of
Mysore High Court arising out of pre-constitution matter Interpretation of Art.
136(i) of the Constitution.
HEADNOTE:
After the partition of a Hindu undivided
family the coparceners formed into a partnership and carried on the same
business which was being done by the Hindu undivided family.
A clause in the deed of partnership was that
"the partnership shall ,carry on as a successor to the business originally
carried on by the Hindu undivided family". The assessment of the Hindu
undivided family for the year 194950 was completed on December 29, 1949. The
previous assessment year was November 30, 1947 to November 1, 1948.
This assessment was sought to be reopened
under s. 34 of the Mysore Income-tax Act, 1923 and an additional demand was
raised by the order of the Income-tax Officer. On behalf of the disrupted Hindu
undivided family, an exemption was claimed under s. 25(3) of the Mysore Act of
1923 which provided that where any business etc. was discontinued 'no tax shall
be payable in respect of the income, profits and gains of the period between
the end date of the previous year and the date of such discontinuance.' The
assessee claimed the benefit under s. 25(3) of the Mysore Act on the ground
that after partition there was a discontinuance of the business and so no tax
was payable.
The Income-tax Officer relied on the
succession clause which showed that the business which was being carried on by
the Hindu undivided family continued to be carried on by the partnership firm
and also the cash balance, book account and the stocks of the family business
had been transferred from the books of the family to that of the firm. The
Appellate Assistant Commissioner and the Tribunal upheld the view of the Income-tax
Officer. On reference, the High Court answered the question in favour of the
assessee. In ,appeal to this Court it was contended by the Revenue, that there
was ,discontinuance of the business within the meaning of s.25(3) of the Mysore
Act. The respondent raised a preliminary objection that since the matter
related to pre constitution period and the Mysore High Court being the final
authority under the Mysore Act, no appeal lay to any higher Court.
HELD: (i) The requirement of sub-s. (3) of s.
25 is that the business should be discontinued and not that the person or
persons who own the business should cease to be the same;
the discontinuity must be real and factual
and it has to be of the business and not of its owner or owners of the
business. There was no factual cessation of business or its discontinuance in
the present case. All that happened was that previously the owner of the
business was the Hindu undivided family and subsequently the partnership became
the owner. There was merely a change of ownership and the business as such
continued. Therefore, there was no discontinuance of the business within the
meaning of s. 25(3) of the Act. [102B-C, 101B] (ii) Since the Indian Income-tax
Act, 1922 was introduced in the erstwhile State of Mysore and since this Act
was amended by s. 3 of the Finance Act, 1950 (by which it was made applicable
to whole of India except Jammu & Kashmir), the Mysore Act therefore has
ceased to have any effect except for the purposes of levy, assessment etc.
mentioned in the section. Further the judgment of Mysore High Court was
delivered on January 4, 1967 and the appeal was brought by special leave under
Art. 136 of the Constitution. The language of Art. 1-36 (i) is very wide to
cover any judgment, including the impugned judgment of the Mysore High Court,
dealing with a pre-constitution matter. [103B] C.I.T. Bombay v. P.E. Polson, 13
I.T.R. 384, Income-tax Appellate Tribunal v. Bachraj Nathani of Raipur, 1946
I.T.R.
191 and S.N.A.S.A. Annamalai Chettiar v.
C.LT. Madras, 20 I.T.R. 238, referred to.
CIVIL APPELLATE JURISDICTION: Civil appeal
No. 704 of 1968.
Appeal by special leave from the judgment and
order dated January 4, 1967 of the Mysore High Court in I.T.R.C. No. 43 of
1965.
Jagdish Swarup, Solicitor General A. N. Kirpal
and B. D. Sharma for the appellant.
M.C. Chagla, K. R. Ramani and T.A.
Ramachandran for the respondent.
The Judgment of the Court was delivered by
Grover, J. This is an appeal by special leave and is directed against the
judgment of the Mysore High Court rendered in its advisory jurisdiction on a
case stated by the Commissioner of Income tax Mysore under S. 66 (2) of the
Mysore Income tax Act, 1923, hereinafter called the 'Mysore Act'.
The facts are not in dispute. The family of
R. Hanumanthappa and son was being assessed in the status of Hindu undivided
family with late R. Hanumanthappa as 96 its karta till there was a partition
and all the family assets including the cotton business were divided after the
disruption of the joint family which took place on November 2, 1948. The
division took place among the following three coparceners, (1) R.
Hanumanthappa, Karta, (2) R. Rama Setty his son and (3) R.R. Sreenivasa Murthy
his grandson. After the disruption of the family the partnership firm was
formed on November 22, 1948, the partners being the aforesaid erstwhile three
coparceners of the Hindu Undivided family, hereinafter referred to as 'H. U.
F.' and R. Gopamma a widowed daughter of R. Hanumanthappa. The partnership
worked under the name and style of R. Hanumanthappa & Son, Cotton
Merchants. It is common ground that it did the same business which wasbeing
done by the H. U. F. The business assets and liabilities falling to each
coparcener's share were entered in their personal accounts and then retransferred
to the partnership firm as contribution of capital with the exception of a few
trade debts. In the deed of partnership it was stated in paras 2 and 3 follows:(2)
"WHEREAS the aforesaid R. Hanumanthappa, R. Rama Setty and R. R.
Srinivasamurthy were carrying on, as members of a Hindu undivided family, a
family business as cotton merchants, till they became divided on 2-11-1948 and
the said three parties desire to continue the family business constituting
themselves into a partnership.
(3) WHEREAS it is agreed that the aforesaid
Sreemathi Gopamma shall also be admitted into the partnership constituted for
the purpose of the carrying on the family business after the partition of the
family as aforesaid.
NOW IT IS AGREED BETWEEN THE FOUR PARTIES
HERETO :(1)-That the partnership shalt carry on, as successor to the business,
originally carried on by the Hindu Undivided Family of Cotton Merchants Ginners
and Pressers." 97 The assessment for the assessment year 1949-50 was
completed on December 29, 1949 on the H. U. F. The previous year was the
Deepavali year ie. November 30, 1947 to November 1, 1948 This-assessment was
sought to be reopened under the provisions of s. 34 of the Mysore Act and an
additional demand of Rs. 2,25,942/was raised by the order of the Income tax
Officer dated September 23, 1959. Before the Income tax Officer an exemption
had been claimed on behalf of the disrupted H. U. F. under s. 25 (3) of the
Mysore Act.
This provision which was in the same terms as
s. 25 (3) of the Indian Income tax Act, hereinafter called the ' Indian Act',
as it stood before the amendment of 1939 was as follows :"Where any
business, profession or vocation ... on which tax was at any time charged under
the, provisions of the Mysore Income tax Act 1920, is discontinued, no tax
shall be payable in respect of the income, profits and gains of the period'
between the end date of the previous year and the, date of such discontinuance,
and the assessee may further claim that the income, profits and gains of the
previous year shall be deemed to have been the income profits and gains of the
said period. Where any such claim is made, an assessment shall be made on the
basis of the income profits and gains of the said period, and if an amount of
tax has already been paid in respect of the income profits and gains the
previous year, exceeding the amount payable on the basis of such assessment, a
refund shall be given of the difference." The Mysore Income tax Act 1920
referred to in the above, provision was in pari materia with a similar
provision in he earlier Indian Income Tax Act of 1918. Under those Acts the
income tax was paid for each income tax year in respect of the income of that
year. As pointed out by the High Court the position was changed with the
introduction of the Indian Income tax Act 1922 in British India and the Mysore
Act 1923 in the erstwhile State of Mysore according to which during each
assessment year tax was )aid in respect of the income earned during the
previous ear. A situation, therefore, arose that upon the introduction of the
new Act the assessee had to pay tax in 98 respect of the income of the same
year both under the earlier Statute and under the later enactment. It was with
a view to removing this hardship and saving the assessees from double taxation
that provision was made in sub-s. (3) of S. 25 of the new Act to give relief to
the assessees to the extent possible. The assessee, in the present case, was
being assessed under the Mysore Income tax Act 1922 and it could certainly
claim the benefit of S. 25 (3) of the Mysore Act provided it could prove
discontinuance of the business within S. 25 (3).
In support of the contention that there had
been discontinuance of the assessee's business as contemplated by S. 25 (3) of
the Mysore Act it was urged, inter alia, before the Income tax authorities that
on partition the business, had disintegrated into several parts which had been
allotted individually to each coparcener thereby connoting discontinuance of
the business. The assets which had beer acquired by the firm were of the
divided members and did not belong to the H. U. F. and a fourth partner had
joined the partnership. This showed that the partnership ha( not succeeded to
the business of the H. U. F. The Income tax Officer rejected these contentions.
Apart from other matters he relied on the clause in the partnership deed which
showed that the business which was being carried on by the H. U. F. continued
to be carried on by the partnership firm and that the cash balance, book
account and the stocks of the family business had been transferrer from the
books of the family to that of the firm.
In appeal the, Appellate Assistant
Commissioner upheld the view of the Income tax officer. It may be mentioned
that the appellate authority under the Mysore Act was designated as Deputy
Commissioner but since that A( was no longer in force the appeal was heard by
the Appellant' Assistant Commissioner. He took the view that the case was one
of succession and not of discontinuance an affirmed the order of the Income tax
Officer. The Con-, missioner agreed with the reasons of the Appellate Assistant
Commissioner. On application being made under S. 66 (2) of the Mysore Act the
following question was referred for the opinion of the High Court:"Whether
on the facts and in the circumstances of the case, the assessee is entitled to
exemption 99 under Section 25 (3) of the Mysore Income-tax Act?" The High
Court answered the question in favour of the assessee and against the Revenue.
There are numerous decisions relating to the
question as to what is meant by business being discontinued as also of their
having been a succession with reference to s. 25 (3), of the Indian Act. The
language of s. 25 (3) of the Mysore Act was different and was the same as of
the Indian Act before its amendment in 1939. We have to ascertain the correct
scope and ambit of the words "business is discontinued" which Would
mean discontinuance of business for: the purpose of s. 25 (3) of the Mysore Act
In Commissioner of Income tax Bombay v. P.E. Polsonl' it was observed as
follows:"Before the amending Act came into force the words
"discontinued" and "discontinuance" in Section 25 of the
1922 Act had been the subject of numerous decisions in the Courts of India,
among them Commissioner of Income tax, Bombay v. Sanjana & Co. Ltd. (1925)
50 Bom.87, Kalumal Shorimal v. Commissioner of Income tax, Punjab (1929) 3 1.
T. C. 341 and Hanutram Bhuramal v. Commissioner of Income Tax, Bihar (1938) 6
I.T.R. 290 and it had been uniformally decided that these words did not cover
mere change of ownership but referred only to a complete cessation of the
business.
Their lordships entertain no doubt of the
correctness of these decisions,. which appeal to be in accord with the plain
meaning of the section and to be in line with similar decisions upon the
English Income Tax Acts.
Nor has their correctness been challenged in
the judgment under appeal or in the argument before their Lordships." 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.
(1) 13 I.T.R. 384.
100 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 a s its share. The other
coparceners relinquished their rights therein and started separate business of
their own. The assessee carried on the business under the old name and style.
The assessee's 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 there Grille C.J., and Niyogi J.,
discussed elaborately the case law relating to sub-s. (3) and (4) of s. 25 of
the Indian Act in Income tax Appellate Tribunal Bombay v. Bachraj Nathani of
Raipurl. 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 (1) (1946)
I.T.R. 191.
101 owners of vis-a-vis the business. In the
fromer case, the discontinuity is notional or jural and in the latter case, it
is real or factual." All the above decisions 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 persons who own the business should
cease to be the same. The discontinuity as pointed out in Bachraj Nathani(1)
case must be real and factual and it has to be of the business and not of its
owner or owners of the business.
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. Commissioner of Income tax, Madras(2) 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 the 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 partner (1) (1946) LT.R. 191.
(2) 20 I.T.R. 238.
102 ship deemed itself made it clear that the
three coparceners who had effected partnership desired to continue the family
business as partner after the partition of the family. Nothing could be clearer
than the language used in sub-clause (1) of clause (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.
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 S. 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 of the following
sub-section shall be substituted, namely :(2) It extends to the whole of India,
except the 'State of Jammu & 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.
103 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 Art.
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.
In the result the appeal is allowed and the
question is answered as mentioned above. Owing to the previous order of this
court dated February 2, 1968 the appellant, shall pay the costs of the
respondent in this Court.
S.C. Appeal allowed.
8-MI245Sup.CI/71.
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