Supreme Court of India
M/ S. BADRI PRASAD JAGAN PRASADversusCOMMISSIONER OF INCOME TAX, U.P., LUCKNOW
- Citation
- 1985 INSC 200
- Decided
- 20 September 1985
- Disposal
- Appeal(s) allowed
- Bench
- V D TULZAPURKAR
Holding
The Supreme Court held that the assessee was entitled to relief under section 25(4) for the assessment year 1949-50 because succession of the business took place on 11 October 1948.
Summary
The assessee, a Hindu undivided family (HUF) carrying on business, claimed relief under section 25(4) of the Income Tax Act, 1922 for the assessment year 1949-50, asserting that a partial partition of the HUF on 11 October 1948 and the formation of a partnership firm on 12 October 1948 constituted a succession of the business. The Tribunal held that succession occurred on 12 October 1948, limiting relief to the assessment year 1950-51, a view affirmed by the High Court. The Supreme Court examined the statutory scheme of section 25(4), held that the date of succession is a factual question, and concluded that the intention and entries in the books showed succession effectively on 11 October 1948, making the assessee eligible for relief in AY 1949-50. Consequently, the appeal was allowed and the assessee was granted the benefit of section 25(4) for the earlier year.
Issues considered
- Whether the Tribunal was justified in holding that the assessee was not entitled to relief under section 25(4) of the Income Tax Act, 1922 for the assessment year 1949-50.
- Whether the date of succession was 12 October 1948, thereby restricting the relief to the assessment year 1950-51.
Legislation cited
- Income Tax Act, 1922s. 25(1), s. 25(3), s. 25(4), s. 25(5), s. 25(6)
- Indian Income Tax Act, 1918
Subjects
Hindu undivided familysection 25(4)succession of businesspartial partitionassessment yeardouble taxation reliefIncome Tax Act 1922
Judgment
879
rI A
M/ S. llADRI PRASAD JAGAN PRASAD
t V•
COMMISSIONER OF INCOME TAX, U.P., LUCKNOW
SEPrEM!lER 20, 1985.
B
[V.D. TUUAPURKAR AND SABYASACHI MUKHAR.Jl, JJ.]
Income Tax Act, 1922, s.25(4) - Hindu undivided family -
carrying on business - Assessed under Act of 191~ - Partial
partition of family on 11th October, 1948 - Partnership firm
succeeding family business on 12th October, 1948 - Succession - c
When takes place - Intention to carry on business ~ Relevancy of
- Assessee whether entitled to relief under s. 25(4).
The Assessee, a Hindu undivided. family, carrying on
business was assessed under the Indian Income Tax Act, 1918. In
the assessment year 1949-50 the assessee contended that there was D
partial partition of the family on 11th October 1948 and various
businesses owned by the family were divided through entries made
in the account books. A partnership firm was constituted to carry
on those businesses and it succeded the family. The assessee
filed an application before the Income-tax Officer claiming the
benefit of s. 25(4) of the Act, which was rejected. E
On appeal, the Appellate Assistant Commissioner set aside
the order and called for a remand report. The remand report set
out that the partnership firm succeeded to the business of the
family on the 12th October, 1948. The ·Appellate Assistant Commis-
sioner held that as the succession took place on a day of the
previous year relevant to the assessment year 1950-51 the claim F
co11ld not be considered in respect of the assessment year
1949-50.
The assessee's appeal to the Tribunal was dismissed.
The High Court, on the Reference made to it, held that
there was a definite finding by the Tribllllal that succession took G
place on 12th October 1948, that the date marked the c011111encement
of the previous year relating to the assessment year 1950-51,
that no tax was chargeable for any profits that might have
accrued on 12th October, 1948, the date on which ·the succession
took place, and that the Tribunal was right in holding that the
assessee was not entitled to the benefits of s. 25(4) in the year H
1949-50 but he could avail of that benefit in the year 1950-51.
880 SUPREME COURT REPORTS [1985] SUPP.2.s.c.R.
A
Allowing the appeal to this Court,
HELD: 1. The assessee was entitled to relief under s. 25(4)
of the •Income Tax Act, 1922 in the assessment year 1949-50.
[897 CJ
2. Section 25 sub-a. (1) dealt with the case of a business
which was discontinued and which had not been suojected to double
taxation having paid tax under the provisions of the Indian
Income Act, 1918, and that the provisions of sub-a. (1) was that
if a business was discontinued in the middle of a year, then the
c business which was discontinue.d had to pay tax both with re1;ard
to the whole of its previous year and also for the broken period
of the year of assessment. The scheme of the section seems to be
that instead of the business·· being assessed again for a broken
period, the business should pay tax not only for the previous
year which it ordinarily would do, but also for the additional
period being the period up to its discontinuance. Sub-a. (4)
D dealt with a business which had paid tax under the Indian Income
Tax Act, 1918, and that the sub-section dealt not so much with
the mode of taxing a business which was discontinued as with
giving relief to a business from double taxation. It dealt with a
situation where one business was succeeded by another, and the
first relief to which the business which ceased to continue and
which had been succeeded by another, was entitled, was that no
~ tax should be payable by the first mentioned person, that is, the
person whose business had come to an end, in respect of the
income, profits and gains of the period between the end of the
previous year and the date of such succession; and the second
relief to which such person was entitled was that he might
further claim that the income, profits and gains of the previous
F year should be deemed to have been the income, profits and gains
of the said period. Looking at the plain language of the section,
it was clear that the first relief had to be claimed by the
assessee in the year of assessment in which the said succession
took place, and the nature of the relief was that he was not
obliged to pay tax on that particular specific period which was
· G made up of the last date of the previous year and the date \)f
succession. Therefore, it was necessary to ascertain what was the
date of succession, because it was in relation to the date of
succession that the relief had to be computed. The period might
be anything from one day to 364 days. [ 886 C-H, 887 A-C]
H Ambaram KaHdas V• CoomiSBioner of Iocome Tax, Bombay
North, 19 I.T.R. 227, approved.
BADRI PRASAD v. c.r.T.,U.P. 881
A
Coamissioner of Income-tax, Madras v. K. Srinivasan and K.
Gopalan, 23 r.T.R. 87, re Dalsukh Kai Jaidiyal, ¥ 1.T.R. 417,
Coamissiooer of lDcome-tax v• ·Teja Singh 35 I.T.R. 408, Mahabir
Persbad & Sons v. Coalldssioner of Income-tax, Delhi ~35, I.T.R.
775, English v. Cliff [1914] 2 Ch. D. 376, referred to.
B
3. On which date the succession takes place is a question of
fact to be determined on the facts and circtDDStances available in
each case. In this case, there was a disruption of HUF. The
entries in the account books indicated that there was a partial
partition of HUF and the various businesses owned by the family
were divided through entries made in the account books. The c
partnership ·account 'books indicated that and that is what
happened on 11th October, 1948. The partnership deed recited to
carry on the business With effect from 12th October, 1948. There
were in the facts of this case two stages - one partial partition
of the assets of HUF business and there was evidence that various
businesses owned by the family were divided through entries made D
in the account books, and next the succession, the partnership
firm carried on the said business immediately. No vaccum was
intended because the clear expression of intention in the deed of
partnership indicated that disruption and succession were
intended by the parties to be simultaneous; There was continuity
of the disrupted assets, With which the partnership business was
carried on ·as an integrated whole and there was transfer of
ownership - these are the two essential conditions required to be
fulfilled in order to be entitled to relief under s. 25(4) of the
Act. And all were intended to happen on the same day. Though the
deed stated that partnership would come on 12th October, 1948,
the intention to carry on business jvintly from the date of the
division of assets is writ large - it is clear in this case that F
succession took place on 11th October, 1948. In these matters one
should adopt a pragmatic approach and not get enmeshed in
technicalities. [896 A-EJ
4. In the facts of this case and in view of the entries in
the account books, there was succession on 11th October 1948 -
succession not only of the assets of the business as co-owners G
but succession of the business. The succession of the assets with
which the business was carried on and the assent of the co-owners
to carry on the business in partnership from the very next day is
evidenced by the document of partnership. It is to be presumed
what was divided was not merely assets but business. The purpose
of s. 25(4) contemplates, inter alia, that no tsx shall be H
• payable in respect of the income of the period between the end of
882 SUPREME COURT REPORTS [1985] SUPP.2.s.c.R.
A
the previous year the date of succession to the business. If the
assets were succeeded to or divided as business sssets amongst
the erstwhile co-parceners then there was succession within the
relevant assessment year 1949-50. [896 F-1!, 897 A-BJ
ll
CIVIL APPELLATE JURISUICTION : Civil Appeal No. 182 (NT) of
1974.
From the Judgment and Order dated 4.2.1971 of the Allahabad
High Court in Income Tax Reference No. 460 of 1964.
c T.A. Ramachandran and A.G; Ratnaparkhi for the Appeilant.
G.C. Sharma, K.C. Dua and Miss A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
j)
SABYASACHI MUKllARJI, J, This appeal by special leave arises
from a judgment and order of the High Court of Allahabad in
respect of a reference under Section 66(1) of the Income-Tax Act,
1922 (hereinafter referred to as the 'Act'). The appeal relates
to the assessment year 1949-50, the relevant previous year being
the year commencing 24th October, 1947 and ending on 11th
October, 1948. The following questions of law were referred to
E
the High Court under Section 66[1] of the Act:
"l. Whether, on the facts and in the circumstances of the
case, the Tribunal was justified in holding that the
assessee. was not entitled to the relief under section
25(4) in the year 1949-50?
F
2. Wl)ether, on the facts and in the circumstances of the
case, the Tribunal was right in holding that the
succession took place on 12th October, 1948 and
consequently the benefit of 3ection 25(4) could be
availed of only in the year 1950-51?"
G
There was another question not conn~cted with the first two
which was answered in favour of the assessee and is not the
subject matter of this appeal and need not be considered.
In the relevant year, the asses see was a Hindu undivided
H family carrying on business under the name and style M/s. Badri
Prasad Jagan Prasad, Agra. It had a branch styled as M/s. Jagan
BADRI PRASAD v. c.r,T. ,u.P. [SABYASACHI MUKHARJI, J.] 883
A
Prasad Shiv Prasad of Achnera. The assessee was assessed under
the .Indian Income-Tax Act, 1918.
In the assessment year in question, the assessee contended
that there was partial partition of the family on 11th October, B
1948 and various business owned by the family were divided
through entries made in the acount books. A partn~rship firm was
constituted to carry on those businesses and succeeded the family
on 12th October, 1948, according to the High Court. The asses see
filed an application before the Income-tax Officer claiming the
benefit of Section 25( 4) of the Act. The Income-tax Officer C
rejected the application. On appeal, the Appellate Assistant
Cormnissioner set aside .the order and called for a remand report
from. the Income-tax Officer. The remand report submitted by the
Income-tax Officer set out that the partnership firm succeededto
the business of the family on the 12th October, 1948. The Appel-
late Assistant Commissioner held that ·as the succession took D
place on a day qf the previous year relevant to the assessment
year 1950-51, the claim could not be considered in respect of the
assessment year 1949-50. There was an appeal by the assessee. The
Tribunal held that the date of succession was 12th October, 1948
and hence the claim of the assessee to the benefits wider Section
25(4) could be considered only in the course of assessment
proceedings for the year 1950-51. The High Court held that so far
as the first question referred . to hereinbefore, the.re was a
definite finding by the Tribunal that the succession took place
on 12th October, 1948. The date marked the commencement of the
previous year relating to the assessment year 1950-51. The High
Court was of the opinion that no tax was chargeable for any
pro.fits that might have accrued on 12th October, 1948, the date
on which the succession took place. The pro.fits of the broken
period are exempt from tax. The Tribunal had also found that an'
application was made within time by the assessee that the profits
of the previous year should be substituted by the profits of the
broken period. It was held by the Tribunal that the benefit so
applied for was available to the assessee, not in the assessment
year 1949-50 but in the assessment year 1950-51. 1be High Court G
was of. the view that the Tribunal was right having regard to the
decision of the Bombay High Court in the case C?f Ambaram Kalidas
v. Comnissioner of Income-Tax Bombay North, 19 I.T.R. 227.
Reliance was also placed on the obser11ations of this Court in the
case of Coomissioner of Income-Tax, Madras v. K. Srinivasan and
K. Gopalan, 23 I. T.R. 87. ·The High Court was of the opinion that H
in. view of these observations, upon the finding of the Tribunal
that the succession took place on 12th October, 1948, the
/
884 SUPRC:ME COUKT REPORTS [1985] SUPP.2.s.c.R.
A
Tribunal was right in holding that the assessee was not entitled
to the benefit of Section 25[4J in the year 1949-50 but he could
avail of that benetit in the year 1950-51. The first two
questions were accordingly answered in the affirmative and in
favour of the revenue.
jj
The moot question is when did the succes.sion, if at al.l,
takP.. place. There was no controversy in that there. was
succession. The Tribunal had recorded that -the succession took
place on 12th October, 1948. If this is a question of fact as
held by the Tribunal and the High Court and as contended by the
c revenue, then relief can only be given in the assessment year
1950-51. But: is it a pure question of fact or is it a mixed
question of law and facts haying regard to the .relevant scheme of
the· Act?
Section 25 of the Act deals with assessment in case of
discontinued business. Sub-section (1) of that section provided
LJ that where any. business, profession or vocation to which
sub-section (3) was not applicable, was discontinued in any year,
an asssessment might be made in that year on the basis of the .
income, profits or gains of the period between the end of the
previous year and the date of such discontinuance in addition to
the assesswent, if any, made on the basis of the income, p~ofits
or gains of the previous year. Sub-section (2) of Section 25
stipulated that any person discontinuing any such business,
profession or vocation should give to the Income-tax Officer
notice of s:-ich discontinuance within fifteen days thereof, and,
where any p"ei:'son failed to give the notice required by this sub-
section, the Income-Tax Officer might direct that a sum shall be
recvV"ered from him by way of penalty not exc~eding the amount of
tax subsequently assessed on. him ' in respect of any income,
profits or gains of the business, profession· or vocation upto the
date of its discontinuance. Sub-section (3.) stipulated that where
any business, profession or vocation on which tax was at any time
charged under the provisions of Income-tax Act 1918, was dis-
cOntinued, then, ·unless there was a succession by virtue of which
G the· provisfons of sub-section (4) have become applicable no tax
shall be pajable in respect of the income, profits or gains of
the period between the end of the previous year and the date of
such discontinuance, and the assessee might further claim that
the income, profits and gains of the previous year should be
deemed to have been the income, profitS and gains of th~ said
H period. Where any such claim was made, an assessment should be
made on the basis of the income, profits or gains of the said
BADRI PRASAD v. C.I.T. ,U.P. [SABYASACHI MIJKHARJI, J.] 885
A
period, and if an amount of tax had already been paid in respect
of the income, profits and gains of the previous year exceeding
the amount payable on the basis of such assessment, a refund
should be given of the difference.
Sub-section (4) of Section 25 is relevant and the material B
portion was as follows:-
, " ( 4) Where the person who was at the connnencement of
the Indian Income-tax (Amendment) Act, 1939 (Vli of
1939), carrying on any business, profession or vocation
c
on which tax was .at any time charged under the
provisions of the Indian IIlcome-tax Act, 1918, is
succeeded in such capacity by another person, the
change not being merely a change in the constitUtion of
a partnership, , no tax shall be payable by the firs_t
mentioned person in respect of the income, prof its and
gains of the period between the end of the previous D
year and the date· of such succession~ and such person
may further claim that the income, prof its and gains of
the previous year shall be deemed to have be(;!n the
income, profits and gains of the said period. Where any.
such claim is made, an :issessment shall be made on the
basis of the income, profit3 and gair:is of the said
period, and, if an amount of tax has already been paid
in respect of the income~ profits and "gains of the
previous year eKceeding the ~mount payable on-the basis
of such assessment, a refund shall be given of the
I
difference:-"
~ It is not necessary to deal with provisos which make F
i sub-section (4) inapplicable in certain cases as these are not
applicable to the facts of this case. Sub-sections (5) and (6)
are also not relevant for the controversy in this appeal.
I
' 'Illree aspects are important - (1) discontinuance (2) succes-
~ sion, (3) date of succession. All these relate only to the busi-
ness, profession or· vocation. Certain aspects of this aspect of .G
I law have been considered in the decisions of the Courtsw Some of
these may ,be briefly considered.
Before the Bombay High Court in Ambaram Kalidas v.
Commissioner of Income-Tax, Bombay Nor.th (supra), the ass~ssee, a
Hindu undivided fami_ljr, was a dealer in Cloth and was taxed under H
the provisions of the Indian Income-tax Act, 1918. Its accounting
886 SUPREME COURT REPOkTS [1985] SUPP.2 s.c.R.
A year was Samvat year. The assessee disrupted on Aso Vad 30th,
~vat year 2UUO (17th Uctober, 1944) and on Kartak Sud 1st.
Samvat year 2U01 (13th October, 1944) the joint family business
was taken over by a firm consisting of the erstwhile
coparceners. In the assessment year 1945-46 the question was
raised whether the assessee was entitled to relief under Section
ll 25(4) of the Act. It was held inter alia (1) that the relief
under Section 25(4) could not be granted to the assessee in the
assessment year 1945-46, but it could only be granted in the
assessment year 1946-47 and it would be open to the assessee to
make a claim under Section 25( 4) in the assessment year 1940-47;
(2) that the income of the assessee from the 17th October, 1944
till the 18th October, 1944, was exempt, that the assessee need
C not make a claim for this relief and that the period of limita-
tion provided in Section 25(5) did not apply to this relief.
Chagla, C.J, of the Bombay High Court set out the scheme of
Section 25 and observed that it dealt under sub-section (1) with
the case of a business which was discontinued and which had not
been subjected to double taxation having paid tax under the
U provisions of the Indian Income-tax Act, 1918, and that the
provisions of sub-section (1) was that if a business was discon-
tinued in the middle of a year, then the business which was
discontinued had to pay tax both with regard to the whole Gf its
previous year· and also for the broken perio.d of the year of
assessment. According to the learned Chief Justice, the scheme
E seemed to be that instead of the business being assessed again
for a broken period, the business should pay tax not only for the
previous year which it ordinarily would do, but also for the
additional period being the period up to its discontinuance. So
far as sub-section (4) was concerned, the Chief Justice was of
the view that it dealt with a business which had paid tax under
F the India11 Income-tax Act, 1918, and that the sub-section dealt
not so much with the mode of taxing a business which was dis-
continued as with giving relief to . a business from double
taxation. Sub-section ( 4) dealt with a situation . where one
business was succeeded by another, and the first relief to which
the business which ceased to continue and which had been succee-
G ded by .another, was entitled, was that no tax should be payable
by the first mentioned person, i.e., the person whose business
had come to an end, in respect of the income profits and gains of
the period between the end of the previous year and the date of
such succession; and the second relief to which suCh person was
entitled was that he might further claim that the income, profits
and gains of the previous year should be deemed to have been the
ltlCOIYl€.. profit.s and gains of the said period. •
BADRI PRASAll v. C.I.T. ,U.P. [SABYASACHI MUKliARJI, J.] 887
So far as the first relief was concerned, in the facts_ of A
the case before the 8ombay High Court that the joint Hindu family
would be entitled to which it would not be liable to pay any tax
in respect of the income, profits and gains of a period which
consisted of the end of the previous year and the date of
succession, the Bombay High Court was of the view that looking at
the plain language of the section, it was clear that this relief B
had to. be claimed by the assessee in the year of assessment in
which the said succession took place, and the nature of the
relief was that he was not obliged to pay tax on that particular
specific period which was made up of the last date of the
previous year and the date of succession. µte Bombay High Court,
therefore, felt that it was necessary to ascertain what was the c
date of succession, because it was in relation to the date of
succession that the relief had to be computed. The period might
be anything from one day to 364 days. In the facts of the
particular case, before the 8ombay High Court, the date of
succe.ssion was the 18th October, 1944, i.e. assessment ye.ar
1946-47. Therefore, the end of the previous year was the 17th D
October, 1944 and the date of succession was the very first day
of the foll9wing assessment year. Therefore, under this section
the relief that the asses see was entitled to was the period
between the llth October, 1944, and the 18th October, 1944°, and
as the Tribunal had held that no profits could have been earned
between that period, the result might seem to be anomalous. The
JJombay High Court held accordingly• The other controversy about E
the limitation does not arise in the facts of the present case
before us. So it need not be discussed.
This Court in the case of Collloissiooer of Income-Tax Madras
v. K. Srinivasan and K. Gopalan (supra) held that the expression
'end of the previous year' in sub-section (3) and (4) of Section F
25 of the Act in the context of those sub-sections meant the end
of an accounting year \a period of full .12 months) expiring
immediately preceding the date of discontinuance or succession.
In that case the assessee was carrying on in partnership a
business the profits of which had been charged to income-tax in
their hands under the Indian Income-tax Act, 1918. Then it trans- G
ferred the business as a going concern to a private limited
company on 1st March, 1940. The firm's year of account was a
period of twelve months ending with 30th June each year and the
firm was charged to tax in the year 1939-40 in respect of the
profits of the year of account ending 3Uth June, 1938. For the
assessment year 1940-41 the assessee claimed that the firm was H
not liable to pay any income-tax on the income of its business
888 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.
A from the end of the accounting year ending 30th June, 1938, to
29th February, 1940, under Section 25(4) of the Act. The IncOitle-
tax authorities held that the exemption claimed applied only to
the income of the period 1st July, 1939, to 29th February, 1940.
The Appellate Tribunal and the High Court affirming the decision
of the Appellate Tribunal allowed the claim of the · assessee for
li the entire period of 20 months. Viswanatha Sastri, J. held to the
contrary.
This Court observed that the scheme of the Act was that by
the charging section i.e., Section 3, income-tax was levied for a
financial year at the rate prescribed by the annual Finance Act
on the total income of the previous year. Each previous year's
G income was the subJect of separate assessment in the relative
assessment year. Though the year of assesBment Was the financial
year, the previous year of an assessee need not necessarily be
the previ.ous financial year, for this expression had to be under-
stood as defined by Section 2(ll)(a) of the Act.
This Court was of the view that sub-section (1) of Section
ll 25 of the Act merely empowered the Income-tax Officer, i f he so
chose to do, to make an accelerated assessment in case of discon-
tinuance of business at the time of discontinuance to save loss
of revenue by the disappearance of an assessee. In other words,
the sub-section imposed a liability of premo ture assessment on
the assessee. It conferred no benefit on him. Sub-sections (3)
E and (4) of Section 25 have a different end in view dnd these are
not in pari materia with sub-section (1). These are in the
nature of substantive Frovisions intended to give relief from tax
charged in certain cases. The mere ·circumstance of their being
grouped together with sub-section (1) in Section 25 could not
lead to the conclusion that the provisions containeri therein were.
1'' of the same nature ad character as the provisions ccntained in
sub-section (i). It was not Corr~ct, dCcording to this Court, to
hold that these two sub-sections were in the nature of exceptions
to the rule laid 'down in sub-section (1). Sub-section (1) was
itself an exception to the general rule laid down in the charging
section of the Act. The object of sub-sections (3) and (4) was to
G provide relief to a business for the double assessment suffered
by it i~ the financ~al year 1922-23 and it was entitled to this
relief i.n the year of assessment in which the income and profits
of the- accounting, period in which discontinuance or succession
took place fell to be assessed.
This Court expressed the view that the expression 'end of
the previous year' in sub-sections (3) and (4) of Section 25 in j
1
BADRI PRASAD v. C.I.T.,U.P. [SABYASACHI MUKHARJl, J.] 889
A
the context of those sub-sections meant the end of the accounting
year (a period of full 12 months) expiring inmediately preceding
the date of discontinuance or succession. The expression
'previous year' in the context of Section 25(3) and (4) meant a
completed accounting year immediately preceding the disconti-
nuance or succession. JI
The Allahabad High Court in re Dalsukh Kai Jaidayal 44
1.T.R. 417, had to conside1· this question. There the ·assessee was
a Hindu undivided family which carried on business. For the
assessment year 1944-45 its accounting year was the period, 19th
October, 1942 to 7th October, 1943. It claimed exemption from tax c
for that period under Section 25(4) of the Indian lnco~e-tax Act,
1922 on the ground that a partnership succeeded to its business
on 8th October, 1943.
The question referred to the Allahabad High Court was
"WhethC?r on the facts of the case, the assessee family is D
entitled in reSpect of _its Benaras business, to exemption from
tax under Section 25(4) of the Income-tax Act for the period from
19th October, 1942 to 7th October, 1943" Bhargava, J. observed in
his judgment that for the purposes of applying the provisions of
Section 25(4) of the Act, it was necessary to'determine in each
·case, where the question arose, as to what was the date of
succession and what was the previous year for purposes of Section
25(4) of the Act. Bhargava, J. was of the opinion that in the
case befor~ the Allahabad High Court, th~ date· ·of succession was
'admittedly 8th October,· 1943'. The previous year, for th~
purpose of Section 25(4) of the Act would be completed accounting
year of the assessee ending on any date preceding the date of
succession, i.e. 8th October, 1943. This is the principle, F
according to the Allahabad High Court, laid down by this Court in
the case of .Coomissiooer of Income-tax v. Srinivasan (supra) •. The
same principle, according to the Allahabad High Court, was laid
down by the Bombay High Court in the case of Ambaram Kalidas v.
Goamissioner of Income-tax (supra). Applying that principle to
the facts before the Allahabad High Court the previous year for
the purpose of Section 25(4) of the Act would be the period
beginning on lYth October, ·1942, and ending on 7th October, 1943,
because 7th October, 1943 was a date preceding the date of
succession. which,. as mentioned above, was 'admittedly 8th
October, 1943'a basis upon which the High Court proceeded. lt was
a case where the findings of fact recorded led. to the conclu::>ion H
that the date of succession was 8th October, l94J and the
890 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.
A
previous year for purposes of Section 25( 4) of the Act was the
accounting period beginning on 19th October, 1942 and ending on
7th October, 1943. Under the first part of Section 25(4) of the
Act, the assessee was entitled as· of right to be exempted from
tax on the income earned during the period between the end of the
previous year and the date of succession. Therefore, the income
B
that would be exempted from tax, according to the Allahabad High
Court, under this part of Section 25(4) of the Act would be the
income earned between 7th October, 1943 which was the date on
which the previous period ended, and 8th October, 1943, which was
the date on which the succession took place.
c The Allahabad High Court, accordingly held that the
contention of the assessee that under the first part of Section
25\4) of the Act, the income earned during the period 19th
October, 1942 to 7th October, 194:J, was exempted was incorrect
and could not be accepted. The High Court felt that it was
unfortunate that the succession took place on 8tQ October, 1943,
which was the very first day of the next accounting period
D
following the previous year (19th October, 1942 to 7th October,
194:J), with the result that the assessee in effect get no relief
at all because" no income was earned by the assessee between 7th
October, 1%3 and 8th October, 1943. If the date of succession
had been later than 8th Octobe.r, 1943~ and any income had been
earned during that period that could have been the income of the
asses see which would have been exempt from tax. Even in that
E
case, if the assessee had earned any income in the period between
7th October, 1943 and 8th October, 1943, and before succession
took place, that income would have been the income exempt under
the first part of Section 45(4) of the Act. According to the High
Court, such a contingency could have arisen if on 8th October,
1943, the date of succession itself, any income had been earned
by the assessee in that Benaras business prior to the succession
taking place on that very day. 111e facts showed, however, that no
such income was earned.
The tilgh Court further observed that under the second part,
the assessee could have made a second claim that the income of
G
the assessee £or the previous year 19th October, 194:! to 7th
October, 1943 be deemed to be the income of the period in respect
of which he could claim exemption as ot right, which meant that
the assessee could claim that the income earned between lYth
October> .1Y4L and 7th October, 1943 be treated as the income for
the period 7th October, 1943 to 8th October, 1943 and exemption
H
for that period be granted on that basis. The High Court noted
turther that that question did not arise in the reference iuade to
Lhis Court.
BADRI PRASAD v. C.I.T.,U.P. [SABYASACl!I MUKHARJI, J.j 891
A
Upadhya, J. could not .agree with the decision of Bhargava,
J. Upadhya, J. after setting out the facts expressed the view
that such a_ construction should be placed on the expression "end
of the previous year" in Section 25(4) which should be consistent
with the object of the provision. This "end of the previous ,year"
therefore, could not be taken to be 7th October, 1943, in that
case, for that would leave no period at all between the end of
the previous year and the date of succession. Having regard to
the object of the statutory provision it appeared proper to
construe the phrase "end of the previous year'' as meaning the end
of that previous year which the preceded succession and the
• period in respect of w~ich exemption was claimed. The learned
judge noted that the asSessee who had paid income-tax under the c
Act of 1918 and subsequently under the Act of 1922 paid the tax
twice in respect of one year's income that of 1921-22. The
statute-had provided that if that business whose income was thus
subjected to double taxation was discontinued or was succeeded to
by another person, the person who paid the tax twice on the
income of the period· 1921-22 should be granted relief in respect D
of. one year.'s tax. If however this discontinuance or succession
took place not at the end of a year the law, according to the
learned judge, cast a duty on the income-tax Officer not to tax
the income for that part of the previous year or accounting
period which ended with the date of the discontinuance or succes-
sion and commenced with the end of the preceding accounting
period. The "end of the preceding accounting period" had been E
expressed as "the end of the previous year" in these pi:ovisions.
The language of the provisions indicated that it was assl.Dlled that
in every case there would necessarily be a period between the end
of the previous year and the date of succession. But if there had
been no period at all the provisions of Sectio~ 25(4) would be
evidently inapplicable completely. The assessee would not get any
exemption because there would be no broken period and as there
would be no such period no question of his claiming·any substitu-
tion as mentioned in the second part of Section 25( 4) could
possibly ~rise. He WB;S, therefore, in favour o'.f answering the
question mentioned ·hereinbefore in the affirmative in favour of"
the assessee. The matter was, therefore, referred to a learned G
third judge, Jagdish Sahai, J. He, after setting out the facts
and· the object of intorduc.tiun ol Section 25(3) and (4) and the
re Levant decisions of this Court and the Hombay High Court as
well as the decision of this Court in the case of Commissioner of
Income-tax v. Teja Singh, 35 1. T .R. 408., was of the view that
the assessee could not only have got an exemption in respect of l!
the payment of tax on account of income which might h.ive accrued
892 SUPREME COURT REPORTS [1985] SUPP:2.S.C.R.
A
to it but would also have been entitled, on an application being
made, to get the income for the year 19th October, 1942 to 7th
October, 1943, teated as the income for that period and obtained
relief under the second part of Section 25(4). He (Jagdish Sahai,
B J •) agreed with the views of Bhargava, J. The question was
answered in accordance with the majority view.
The matter was considered by the Delhi High Court
exhaustively in the case of Mahabir Persbad & Sons v.
Comdssioner of Income-tax, Delhi 135 I.T.R. 775. There the
c assessee, an HUF carrying on business had paid tax under the
Indian Income-Tax Act, 1918. There was partition on 31st March
1
1943, and in the document written on 29th April, 1943, it was
recited that the family business was dissolved on 31st March,
1943, and each of the coparceners had taken his share after
having understood the accounts. On 30th April, 1943, a
partnership deed was executed between the three adult coparceners
D of the HUF; the minors were not admitted to the benefits of the
partnership _but amounts were credited to the accounts in their
names through their guardians. As the terms of the deed are of
some significance, it is necessary to refer to these. The
partition deed mainly contained recitals regarding the allocation
of immoveable property among the various members of the family.
So far business was concerned which is mater~al for the present
E purpose, there was a deed, preamble of which recited: ".•• Where
as the joint family after due rendition of accounts disrupted on
31st March, 1943, and whereas the immovable property pursuant to
a separate partition deed had been divided inter-se the
constituents of the erstwhile family and whereas the said
constituents had taken over their shares and the joint family no
longer existed, all the assets had been fully divided, now,
therefore, with effect from 1st April, 1943 we the parties to
this deed start (emphasis supplied) a partnership business in
equal shares regarding all business activities" of the business
conducted. by the HUF. The questi~n was whether the HUF was
entitled. to the relief upon succession to its business provided
G by section 25 (4) of the Act, of the tax for the entire period
1st April, 1942, to 31st March, 1943 as claimed by the assessee
or whether, as contended by the revenue, because the HUF had been
partitioned on 31st March, 1943, and the succession by the firm
to the business had taken place on 1st April, 1943, the assessee
was not entitled to any relief in that year. It'was held that the
assessee was entitled to the rellef under Section 25 ( 4) in
respect of the entire profits of the accounting year 1942-43
beCause of any of the following three alternative reasons: (a) if
BADRI PRASAD v. c.r.r.,u.p. [SABYASACHI l1UKHARJI, J. J 893
A
it was taken that the family got disrupted on 31st March, 1943,
and the firm comnenced on 1st AprU, 1943, the relief that was
contemplated by Section 25 (4) was in respect of the period 1st
April, 1942 to 31st March, 1943; (b) since the case of both the
parties was that the disruption and fomation of the partnership
were dimultaneous, it would be correct to say that the succession li
took place on the same date as the partition, viz., 31st March,
1943, although the partnership could, from antoher point of view,
be said to have commen.ced business only on 1st April, 1943; (c)
on a proper construction of the documents, there was disruption
of the family on 31st March, 1~43, followed by succession, on the
same day, to the business by the erstwhile family ,as co-owners, C
some of whom subsequently converted it into a partnership
business which was run with effect from 1st April, 1943.
Ranganathan, J. of the Delhi High Court analysed the provisions
of the section and referred to the relevant decisions.
In l!ogl.ish v. Cliff [1914] 2 Ch. D 376., a settlement had D
been made on 13th May, 1982 by which the settlor conveyed real
estate unto and to the use of two trustees upon certain trusts
declared therein. It was further declared that the trustees
should stand possessed of the premises during the terms of 21
years from the date of the trust upon trust to apply the rents
and profits in the manner specified. It was further declared that E
the said trustees should "at the expiration of the said term of
twenty-one years" sell the said premises as mentioned therein.
The validity of this settlement was attacked on the ground that
it offended the rule· agains.t perpetuity. It was aruged that an
estate or trust in order to be valid and not to infringe the rule
against the rule of perpetuity, must where there are no lives or
life in being to be taken into account, arise not later than the F
term of twenty-one years from its creation. It was contended that
as the trust for sale in that case arose at the expiration of 21
years it necessarily followed that it did not arise within this
period. Warrington, J. observed at page 380 of the report of the
Chancery Division as follows:
"Is that argument sound? It is perfectly true that in G
many of the well-known text-books relating to the rule
against perpetuity the rule is stated somewhat in this
form, namely, that the es tat~ or the trust or other
limitation lliUSt arise 'within' the period allowed by
law, and I am quite willing to accept that statement
as being for all practical purposes a sufficient H
statement of the rule, but when I come to cons~der
894 SUPlffi'1E COURT REPORTS [1985] SUPP.2.s.c.R.
A
what that statement means and to apply it to such a
case as the present, then, in my opinion, the trust
which is to arise 'at the expiration' of the term of
twenty-one years does arise 'within' the period of
twenty-one years, because I should have to resort to
B all sorts of subtle calculations and distinctions
unless I were to hold that an estate or a trust to
arise coincidently with the termination of the · period
of twenty-one years was a valid estate or trust. To
put an analogous case which occurred to me in the
course of the argument; there must be many cases in
c which testator has fixed the period of twenty-one
years from his death as that at which a class of
beneficiaries is to be ascertained •••••••••• I think
that any lawyer dealing with such a limitation as that
would say without doubt that it was a good limitation,
and yet in that case it ·is necessary to wait until
the last infinitesimally small fraction of a minute
D has expired before it can be said whether a certain
number of persons will , be living or not at the
expiration of that moment of time. The trust in the
present case is to arise at the ~xpiration of the term
of twenty-one years, and if looked at from one point
of view that trust arises coincidently with the last
moment of the term, although, if looked at from
E antoher point of view, it may be said to arise at some
infinitesimally small fraction of time after the last
moment of the term. In my opinion, however, the only
sensible view to be taken of such a limitation is that
the term determines and the tl'l:lst arises at the very
same moment of time, and if looked at in that way it
F is impossible to say that the trust arises at a later
period than that allowed by law. It seems to me,
therefore, that the term determines and the trust
arises at mathematically and identically the same
·moment, and so far as that objection goes I am of
opiniOn that the trust is a good one."
G
It is not possible for the Court to indulge in differential
calculus in cases as was observed by the Delhi High Court, which
deal with a point of time which coincides with the end of one
interval and the coIIDD.encement of another. In such a case, it·
would be as, true to say, that the partnership commenced on last
H day of the previous year, for certain purposes as t·o say that it
commenced only on ls t day of the next year. The fact of
BADRI PRASAD v, C. I. T., U. P. [SABYASACHI MUKHARJI, J • ] 895
.' A
the matter is that the succession took place (in the absence of
anything definite in the relevant doclDllents) at a zero hour which
is as much .part of the last date of one year as it is of the
first day of the next year. In such a situation, the Delhi High
Court felt that it would be inequitable to deny relief to the
assessee under Section 25 (3) on the theoretical assumption that B
the firm commenced business on 1st April, 1943, and, therefore,
the succession took place on that date.
In our opinion, having regard to the facts and circumstances
of this particular case, in the background of relevant provisions
of law and the relevant doc\.Dllents it is a mixed question of law c
and fact, especially in view of the documents involved in this
case, i.e. entries in the books of account and the deed of
partition.
In the instant case before us, the partnership deed dated
28th February, 1949 recites as follows: D
''WHEREAS (1) Jagan Prasad (2) Har Prasad (3) Mathura
Prasad (4) Shiva Prasad (5) Basdeo Prasad and (6)
Dilsuk Rai, first five sons of L. Nak Ram and the
sixth son of L. Badri Prasad, all caste Vaish Agarwal
resident of Achnera (For Jagan Prasad Har Prasad Shiva E
Prasad and Dil Sukh Rai) and of Agra (For Mathura
Prasad and Basdeo Prasad) are carrying on the business
at Agra, under the name and style of Agarwal Iron
Works at Achnera, under the name and style of Jagan
Prasad Shiva Prasad, Jagan Prasad Har Prasad as
members of the Hindu Undivided Family known as Badri
PrasQd Jagan Prasad, but since Deshehra (Kunwar Sudi F
10) Sambat 2005 corresponding to 12th October, 1948,
the. business of the family has been divided amongst
the sic members of the family for which necessary
entries are made in the account books and the capital
account which is distributed equally among the
partners as required by all members signifying the
assent thereto, and since that date the members of the G
family have become partners and the business has
become a partnership business. It has now been decided
amongst the partners, above mentioned to execute a
proper deed of partnership and i t has been mutually
agreed that the following terms and conditions herein-
after specified shall govern the partnership in all H
matters."
596 SUPREME COURT REPORTS [1985] SUPP.2.s.c.R.
A •
We adopt the analysis of law as laid dowo by Chagla, C.J. in
the decision in the case of Jlmhar- Kalidas v. Co1111d ssiouer of
Incaae-Tax, Bombay North (supra) but in each case on which dai:e
the succession takes place is a question of fact to be detennined
on the facts and circumstances available for such case. In this
il case, there was a disruption of HUF. The entries in the account
book indicated that there is a partial partition of HUF and the
various business owoed by the family were divided through en.tires
made in the account books. The partnership account books
indicated that and that is what happened on 11th October, 1948.
The partnership deed recited to carry on the business with effect
c from 12th October, 1948. In case of succession of a business -
there were in the fact of this case two stages - one partial
partition of the assests of HUF business and there was evidence
in the instant case that various businesses owoed by the family
were divided through entries made in the account books and next
succession and the partnership firm carried on the said business
immediately. No vacuum was intended because the clear expression
D of intention in the deed of partnership as set out before
indicated that disruption and succession. were intended by the
parties to be simultaneous. There was continuity of these disrup- (
ted assets, with which the partnership business was carried on as
an integrated whole and there was transfer of ownership - these
are the two essential conditions required to be fulfilled in
order to be entitled to relief under Section 25 (4) of the Act.
E And all were intended to happen on the same day. Though the deed
stated that partnership would come into effect on 12th October,
1948 but the intention to carry on business jointly from the date
of the division of assets is writ large - it is clear in this
case that succession took place on 11th October, 1948. One should
take a pragmatic approach in. these matters and not get enmeshed
F in technicalities.
In the facts of this case and in view of the entries in the
account books, there was succession on 11th October, 1948 -
succession not only of the assets of the business as co-owners
but succession of the Ousiness. The succession of the assets with
G which the business was carried on and .the assent of the co-owners
to carry on the business in partnership from the very next day is
evidenced by the document of partnership. It is to be presumed
what was divided was not merely assets but business. It is true
that co-ownership of assests merely does not ipso facto mean
co-ownership of the business but to hold them as co-owoers of
H business is evidenced from the facts of this case and the subse-
quent conduct can be taken into consideration in certain cases
BAlJRI PRASAD v. C.I.T.. ,U.P. [SABYASACHI MUKllARJI, J.] 897
A
like this. Looked at froin this point.of view, thereis really no
question of any conflict arising in the facts of this case
between the principles enunciated by the Bombay High Court and
the principles enunciated by the llelhi High Court in the last
mentioned case. The purpose of Section 25 (4) has been noted. It
ll
contemplates, inter alia, that no tax shall be payable in respect
of the income of the period between the end of the previous year
and the date of succession to the business. If the assets were
succeeded to or divided as business assets amongst the erstwhile
'~ co-parceners then there was succession within the relevant
assessment year 1949-50.
c
We are of the opinion that the assessee was entitled to
relief under Section 25 (4) in the assessment year 1~49-SU. The
question number 1 is therefore answered in the negative and in
favour of the assessee. and in that view of the matter, the
question number Z does not arise.
D
The appeal is accordingly allowed. The appellant is entitled
to the costs of the appeal.
A.P.J. Appeal allowed.
\
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