Patna High Court
Hassan Kassam And Others vs Commissioner Of Income-Tax, Bihar And ... on 10 September, 1947
Equivalent citations: [1948]16ITR19(PATNA), AIR 1949 PATNA 178
ORDER
MANOHAR LALL, J. - This is a reference under Section 66(1) the Indian Income-tax Act by the Appellate Tribunal, Calcutta Bench, asking the Court to answer the following question :- "Do the terms of Section 25 (4) apply in a case where an assessee admits partners to a business hitherto carried on by himself individually ?"
The admits facts may be shortly stated. The assessee is the legal representative of the deceased Kassam Manji of Chaklia Gunj, Cuttack. The deceased started a busiuess on the 11th November, 1920, under a partnership deed, his partners being his three brothers Karmali, Ratansi and Saleh Mohammad and his so Alidina Kassam. In 1921 the share of Alidina was increased, and Hassan Kassam, another son of the deceased, was admitted into the partnership. Ratansi died in 1922, but the business was continued by the remaining partners. In the next year Alidina restired from the business. In 1926 Karmali and Saleh Mohammad also retired and Hassan Kassam also ceased to be a partner with the result that in and from that year Kassam Manji became the sole proprietor of the business. On these facts it has been found that the partnership was dissolved in 1926. On the 30th of October, 1940, by way of a family settlement, the deceased Kassam Manji admitted his four sons, Hassan, Hussain, Parali and Nazirali, and his son-in-law Hussain Ali, as partners in the business which was carried on by him as the sole owner from 1926.
For the year of assessment 1940-41, the assessee claimed relief under Section 25(4) by urging that the deceased Kassam Manji at the commencement of the Income-tax Act VII of 1939 was carrying on the business on which tax was charged under the previous Act VII of 1918 and was succeeded in such capacity by the assessee.
The Income-tax Officer came to the concclusion that the deed of October, 1940, was "a document drawn up for the purpose of providing against a chaotic disruption of Mr. Kasimbhai Manjis estate when he dies and for continuance of his business in fact after his death. So long as he lives there is no element of true partnership in the business; the capital is all his absoutely." He, therfore, held that there was no succession within the meaning of Section 25(4). On the date of that order Kasimbhia was alive.
The Appellate Assistant Commissioner agreed with the Income-tax Officer that this document was practically in operative as a partnership deed and there was no element of partnership as the control was absolutely in the hands of the father, but he also held that assuming that was a genuine document, there could be no succession in law or in fact in his opinion the new firm did not take over the old business of Kassam Manji as a going concern. He also gave a finding that Kassam Manji had been carrying on the same business at Cuttack, Calcutta and Neulput which was being earried on by the joint family and which was assessed under the Income-tax Act, 1918, and a little later at page 8 that it was difficult to get away from the fact that the same business which was taxed under the old Act, 1918, was in existence for the purpose of Section 25(4). But he added, "the records however are not clear whether Calcutta and Tangi businesses were taxed prior to 1922-23."
The Appellate Tribunal in their order passed under Section 33(4) unfortunately did not decide whether the partnership, evidenced by the document of October 1940, was genuine or not, nor did they decided whether the business which is now sought to be assessed was the business assessed under the Income-tax Act of 1918, nor, it may be observed, did they decided whether the new business is identical with the old business.
In these circumstances it is impossible to give a satisfactory answer to the question raised, and, therefore, under the provision of Section 66 ($) the case must be feferred back to the Appellate Tribunal so that they may, after hearing the parties, submit to us their findings on the following questions :-
(1) Whether the partnership deed of the 30th of October, 1940, is a genuine document in the sense that it evidenced real partnership;
(2) Whether thebusiness which is sought to be assessed was at any time charged under the provisions of the Income-tax Act VII of 1918; and (3) Whether the business which is sought to be assessed is indentical with the business which was carred on by the deceased in 1926.
The costs of todays hearing will be disposed of when the matter comes to be finally heared after the further statements, called for, are received.
FAZL ALI, C.J. - I agree.
JUDGMENT MANOHAR LALL, J. - The circumstances in which this Court referred the case back to the Appellate Tribunal for finding of fact on the points enumerated in that order are clearly set out in the order dated the 14th of December, 1944. In that order all the relevant facts have been clearly stated and it is unnecessary to state the facts over again.
It has now found :-
(1) that the partnership deed of the 30th of October, 1940, is a genuine document and evidences real partnership; (2) that the business which is now sought to be assessed was, in fact, charged under the provisions of the Income-tax Act VII of 1918; and (3) that the business which is not sought is identical with the business which was carried on by deceased Kassam Manji in 1926.
In my opinion on these findings it follows that the terms of Section 25 (4) of the Indian Income Tax Act inserted by section 30 of Act VII of 1939 apply to the assessment under consideration.
The learned standing counsel, however, contended that the finding of facts submitted by the Appellate Tribunal lead to the inference in law that there has not been a complete succession to the business which was being carried on by the deceased Kassam Manji in and after 1926, and he also argued that the whole of the business which had been taxed under the Act of 1918 did not come into the hands of Kassam in 1926. The learned standing counsel cited a number of cases in support of his contention and in particular he relied upon the cases of Commissioner of Income-tax, Burma v. S. Mansookhlal Zaveri and Commissioner of Income-tax, Burma v. A. L. R. P. Firm. Mr. Mazumdar, appearing on behalf of the assessee, cities a number of cases in answer to this contention and contended that the question of the identity of the business is a question of fact - see Alexander Ferguson & Co. and Commissioner of Income-tax, Bombay v. Naraindas & Co.
In my opinion, it is unnecessary to consider the case law because on the facts found in this case there is no room for the contention advanced by the learned standing counsel. I am reading from page 4 of the finding of the Appellate Tribunal : "It is true that before the partnership of 1940 came into existence some of the assets and liabilities of the business were retained by Kassam Manji. It is also true that fresh capital was interdicted by the sons. But this fact does not, in our opinion, appear to be very material. The fact remains, as the books show, that the firm took over the business as a going concern. The same business is carried on at the same place with this little difference that fresh capital was introduced in 1940. In a running business it is not uncommon to find that capital is introduced from time to time by the owners. This does not necessarily imply that the identity of the business is changed. It is important to note at this stage that in connection with the assessment year 1943-44 the legal representatives of Kassam Manji claimed certain loss sustained by the assessee by reasons of the fact that the outstanding which had been taken over could not be recovered and the debts had become bad. The claim was disallowed and the reasons given by the Income-tax Officer were, to use his own words, as follows : Assessee was, at one time, the sole owner of the business at Chaklia Gunj, College Bazar, Neulpur and Calcutta. On 9th December, 1940, he transferred all the businesses as going concern to a firm styled Kassam Manji & Co., and retained to himself the sundry debtors and creditors of Neulpur, mill and head office. No active business has been carried on by the assessee since 9th December, 1940, and he is only collecting the dues from the debtors. Since assessee is not carrying on any business but is only realizing the capital assets, the expenses of realisation and the bad debts are clearly capital losses and hence inadmissible." After this finding, the Appellate Tribunal observed that the view taken by the Department in connection with the assessment year 1943-44 appeared to be correct and there was no material which should warrant the conclusion that the identity of the new business was distinct and separate from the business carried on by Kassam Manji in and after 1926, and accordingly they held that the business which is sought to be assessed is identical with the business which was carried on by Kassam Manji in 1926.
I cannot understand how the learned standing counsel could ask us to hold that his finding is not a finding of fact and that we must disregard this finding and hold that it means that the partnership in 1940 succeeded to a portion of the business which was carried on by Kassam Manji in and from 1926. The learned standing counsel also sought to urge that the entire business which was assessed under the Act of 1918 did not pass to Kassam Manji in 1926 but on disruption it had gone to various members of the family. This is a new question of fact, and at the time we heard the reference on the last occasion this question was never raised on behalf of Department. If it had been raised, we would have asked for a finding on this question of fact also. In may opinion, it is not open to the learned standing counsel to raise this new question of fact at this late stage.
For the reasons given above, the answer to the question is that the terms of Section 25 (4) must be applied to the assessment in the present case.
As the assessee has succeeded, he is entitled to the costs of the hearing in this Court which in this circumstances I would fix at Rs. 400 to be paid by the Commissioner.
AGRAWALA, A. C.J. - I agree.
Reference answered accordingly.