RAMDAS KHIMJI BROTHERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE facts giving rise to this reference are that there was a firm of the name of Ramdas Khimji and Co. doing cotton mukadami business for a Japanese firm called Gosho Kabushiki Kaisha Ltd. (hereinafter referred to as 'the Japanese firm') which was in existence in 1921 and the income from which had been charged to income -tax under the Indian Income -tax Act of 1918. It was first charged to super -tax in 1920 -21. The constitution of that firm was changed from time to time and some of the partnership deeds relating to the name are on record. On 11th December, 1933, Ramdas Khimji and Co. ceased to act as mukadams for the Japanese firm, and from that date a firm which bore the name of Ramdas Khimji Bros. was appointed as mukadmi and broker to the Japanese firm. The constitution of the firm of Ramdas Khimji Bros. changed from 1st September, 1935, and it thereafter consisted of two partners, viz., Ramdas Khimji and Gopaldas Khimji, and a partnership deed was executed on 26th March, 1936, which is one of the documents on record. Under clause 8 of the said partnership deed, Ramdas Khimji was entitled to 20 cents in a rupee of hundred cents out of the profits of the firm, and Gopaldas Khimji was entitled to 14 cents. Out of the remaining 66 cents, 63 cents were to be kept apart every year to be applied for discharging the liability of Ramdas Khimji to the firm of Ramdas Khimji and Co. when the same was ascertained. In 1941, the Japanese firm being declared an enemy firm, the business of Ramdas Khimji Bros. with the Japanese firm was discontinued and Ramdas Khimji Bros. thereafter continued cotton business on their own. After some changes in its constitution, the business of Ramdas Khimji Bros. was ultimately taken over on the 29th of December, 1951, by Mathurdas Ramdas, one of the partners as a proprietary concern.

(2.) THE said firm of Ramdas Khimji Bros. claimed to be entitled to relief under section 25 (4) of the Indian Income -tax Act, 1922, in respect of the profits from its business for the period from October 1, 1951, to December 28, 1951, the relevant assessment year being 1953 -54. The Income -tax Officer rejected the claim of the said firm to relief under section 25 (4) in respect of Income -tax but on appeal, the Appellate Assistant Commissioner allowed the assessee -firm's claim to relief in toto. On further appeal to the Tribunal, the case was remanded back to the Appellate Assistant Commissioner to further investigate into the records of the case referred to in an affidavit filed by one D. Goswami, 1st Income -tax Officer, A -V Ward, Bombay. On remand, the Appellate Assistant Commissioner confirmed the view which his Predecessor had taken earlier, granting, in toto, the relief claimed by the assessee -firm. The matter thereafter came up again before the Tribunal. Before the Tribunal, two main contentions were advanced on behalf of the revenue. It was first contended that the assessee -firm was doing pure cotton business, whereas the business which had suffered tax under the 1918 Act was the business of mukadami of the Japanese firm. Secondly, it was contended that the arrangement under which the assessee -firm came into existence clearly showed that the old firm was dissolved and its liabilities taken over by one of the partner, viz., Ramdas Khimji in his individual capacity, land an altogether new firm was constituted to carry on the business of mukadami with the result that there was a discontinuance, and not a succession within the terms of section 25 (4) of the Act. As far as the first contention was concerned, the Tribunal gave a finding in favour of the assessee -firm and held that it would be unrealistic to take up the position that cotton mukadami was something different from cotton business and to categories the business in such water -tight compartment, and it, therefore, held that it could not be said that the business which the assessee -firm was doing was not the same business which had suffered taxes under the 1918 Act. That is a finding of fact by the Tribunal which must be accepted for the purpose of this reference. As far as the second contention advanced before the Tribunal on behalf of the revenue was concerned, the Tribunal, however, decided in favour of the revenue and held that when the assessee -firm was constituted, there was a complete break with the past and the old firm was dissolved and the new firm started without any assets of the old firm, land it, therefore, held that the business which was carried on by the assessee -firm from the 1st April, 1939, up to the date of dissolution had not been charged to tax under the 1918 Act. From that order of the Tribunal a case has been stated to us, land the question of law which has been referred to us is in the following terms :

(3.) A plain reading of the section, as well as the accepted judicial interpretation thereof, show that, in order to attract the applicability of sub -section (4) of section 25 and to constitute succession within the meaning thereof, a change of ownership of the business, whether by transfer, inheritance or devolution in any other was is essential.