(Delivered by Balakrishna Ayyar, J.)

Under S. 66(1) of the Indian Income-tax Act, read with S. 21 of the Excess Profits Tax Act the Incometax Appellate Tribunal, Bombay, has referred the following question for the decision of this Court:

“Whether the assesses is entitled to relief under S. 7 of the Excess Profits Tax Act on Rs. 32,220 the deficiency of the aforesaid cinema business, for the onargeable accounting period, 13th April 1944 to 12th April 1945, against the Excess Profits tax assessments up to 12th April 1944.”

The relevant facts are these: The assessee, a Hindu undivided family, was originally carrying on money-lending business and a trade in yarn. It was also operating a cinema. With effect from 12th March 1944 the family transferred the money-lending business and the trade in yarn to a firm comprising all the members of the family. The cinema business alone was retained by the joint family as such. In the years ended 12th April 1940, 12th April 1941, 13th April 1943 and 12th April 1944 the cinema business sustained losses. The years ended 12th April 1942 and 12th April 1945 showed respectively profits of Rs. 624 and Rs. 3780. The Excess Profits Tax Officer declared that the assessee was not liable to tax in respect of the year ended 12th April 1945 as the profit of Rs. 3780 was below the minimum standard profit of Rs. 36,000. He however declined to grant relief on account of deficiency of profits against past excess profits tax assessments upto 12th April 1944 on the ground that the cinema business was a new business for purposes of computation of relief. He also held that the cinema business had not contributed to the past excess profits which had been taxed.

The Appellate Assistant Commissioner confirmed the order of the Excess Profits Tax Officer. The Appellate Tribunal also considered that the assessee was not entitled to relief under S. 7 of the Excess Profits Tax Act.

The assessee thereupon applied to the Appellate Tribunal to state for the decision of this Court the question of law arising out of its contentions and accordingly the Tribunal has made this reference.

We shall at once refer to those portions of the Excess Profits Tax Act which are here applicable. The second proviso to Cl.(5) of S. 2 of the Act directs

“that all businesses to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act.”

Clause (21) defines “statutory percentage” as meaning eight per cent fn some cases and a higher percent age in certain other cases. S. 6 of the Act explains the concept of standard profits for purposes of the Act. Sub-S. (4) of S. 6 directs that the standard profits shall be taken to be Rs. 36,000 in any case in which the standard profits computed in accordance with Sub-S. (1) are less than Rs. 360000. There is a proviso to this which is not of consequence here. By virtue of S. 4 of the Act all profits in excess of standard profits are liable to pay a tax called excess profits tax at certain rates. Now it may happen that a business which has paid excess profits tax at one time earns less than standard profits in a subsequent period. When such a deficiency of profits occurs the assessee is given certain reliefs by virtue of S. 7. The amount of excess profits earned in an earlier period is to be reduced by the amount of the deficiency of profits and the assessee is to be given relief in respect of the tax he has previously paid by repayment or adjustment of the appropriate amount. It has already been stated that for purposes of the Excess Profits Tax Act all the various businesses which an assessee carries on is to be regarded as a single business. In consequence so long as the assessee continues to be the same person the relief given under S. 7 by adjustment or repayment, as the case may be, would accrue to him, that is to say, to the same assessee. But then, the business or a part of the business may change bands, or a change may otherwise take place in the persons carrying on the business. When that happens, Sub-S. (1) of S. 8 directs that

“As from the date of any change in the persons carrying on a business, the business shall, subject to the provisions of this section, be deemed for all the purposes of this Act except for the purposes of determining the amount of the statutory percentage to have been discontinued, and a new business to have been commenced.”

It will be noticed that the words used in the sub-section are “any change in the persons carrying on a business.” Therefore it follows that the smallest change in the persons carrying on the business would attract the sub-section. When such a charge takes place the Act directs that it must be deemed that the whole business has been discontinued and a new business commenced except for one purpose.) viz., that of determining she statutory per centage. Finally there is Sub-S. (5) of S. 8 which runs as follows:

“Where, on or after the 1st day of September, 1939, part of a business is transferred as a going concern, by the person thereto fore carrying it on to another person, the part transferred and the part not transferred shall each be deemed for the purposes of the provisions of this Act relating to the computation of standard profits to be a continuation of the original business, and the said provisions, including the provisions of this section relating to amalgamations, shall apply accordingly.

Provided that, for the purposes aforesaid, such apportionments shall be made of the profits made, and losses incurred, and the capital employed, in the original business, and of any assets of the original business as may appear to the Excess Profits tax Officer, or on appeal in the prescribed time and manner to the Board of Referees, to that Board, to be just.”

Reading Sub-Ss. 1 and 5 together we get this result. When part of a business is transferred the part transferred and the part not transferred are—both of them—to be deemed to be a continuation of the original business only (or one purpose) viz., for the purpose of computing standard profits. The proviso mersiy enables apportionments to be made in order to avoid injustice or hardship.

From an examination of these provisions it will be seen that an assessee will be entitled to relief on the ground of deficiency of profits only if there has been no change in the persons carrying on the business—the business be it understood being the aggregate of the businesses which the assessee was carrying on if the original assessee takes in a partner then there will have been a change in the persons carrying on the business, and, S. 8 (1) will take effect and no claim can be sustained for relief on the ground of deficiency of profits. If instead of taking in a partner the original assignee transfers pert of the business to another person the same result will follow. A charge would have taken place in the persons carrying on the business and the right to relief would be lost.

Mr. Viswanatha Aiyar, the learned Advocate for the assessee, placed considerable reliance on various observations occurring in P.A.C Ramaswami Raja v. Commissioner of E.P T.(1). The material facts there were as follows: Prior to 1st April 1943 the assessee was carrying on two businesses. One was a money-lending business and the other was the managing agency of Rajapalayam Mills Ltd. The assessee resigned or relinquished his office as managing agent of Rajapalayam Mills Ltd. That business was taken over by a private limited company called Ramco Agencies Ltd. The assessee continued his money-lending business which showed a deficiency of Rs. 28,621 during the relevant chargeable accounting period. The assessee claimed to set of this deficiency against the profits on which tax had been paid prior to 31st March 1943 under S. 7 of the Act. The claim was rejected both by the Excess Profits Tax officer and the Appellate Assistant Commissioner on the ground that there had been a change in the persons carrying on the business. This Court held—we quote from the head-note:

“Sec. 8 (1) does not provide that if a person carrying on more than one business drops one business and continues to carry on the remaiaing business, the business so continued should be treated as a new business. So long as there is no change in the ownership of the business, and the business continued whether in a dwindled or expanded form, the section has no application.”

It will be at once perceived that there is one important difference between that case and the one now before us. In the instant case there has been a transfer of part of the business to a new person and the case therefore falls within the plain terms of Sub S. (1) of S. 8. In P. A. C. Ramaswami Raja v. Commissioner of E. P. T.. there had been no transfer of any part of the business to any person and consequently no change in the persona carrying on the business. This is made clear on page 16:

“The same person, the assessee, continued the money-lending business, though he was deprived of the managing agency business. Change in the persons implies that there is a change in the ownership, which may be brought about either by death or by amalgamation, or it may be by transfer or any other mode known to law. So long as there is no change in the persons who carry on the business, the consequences envisaged in the section would not follow. There must be a continuity of the ‘business’ whether that business comprised of more than one business or was a single business.”

The observations made in that case must be understood in the context of the facts that were being examined.

Mr. Viswanatha Aiyar contended that unless there is a change as regards all the subsidiary units of business comprised in the aggregate business which was assessed we cannot say that there has been “any change in the persons carrying on the business.” We are unable to agree. Sub-S. (1) of S. 8 speaks of any change and it does not say any change affecting all the units comprised in the aggregate.

The broad scheme of the Act so far as it is material here appears to be this. All the businesses which an assessee carries on are treated as one business for purposes of the Excess Profits Tax Act. If in respect of this aggregate of businesses the assessee has paid excess profits tax at any time but subsequently the profits of the aggregate falls below the prescribed level or the standard rate, the assessee gets relief by adjustment or repayment. The important thing to remember is that the person entitled to relief is only the original assessee and no one else. He cannot transfer the benefits in any way. And, since the aggregate business is treated as one unit he will loss the right if he transfers any part of that business to someone else. It is easy to see what might otherwise happen. An assessee who has a number of subsidiary businesses comprised in the aggregate business might transfer all the remunerative ones to another person and retain in his hands only the unremunerative ones and then claim that in respect of that unremunerative part of his business he must be repaid the tax attributable to the Rs. 36,000 which is the minimum referred to in Sub-S. (4) of S. 6. It is scarcely to be supposed that when enacting a measure like the Excess Profits Tax Act the legislature would have intended that an assessee should be able to get back part of the tax he has paid by the simple expedient of transferring part of the business to some one else. No doubt if the words used are such as to enable the assessee to make a gain of this kind he would certainly be entitled to do so. But we do not consider that the words are capable of such a construction. In fact the reverse is the case. Under S. 4 the levy or charge is made on the business, i.e, to say that the whole business and under S. 7 relief is given, again to the business, i.e, the whole business and not a part of it.

We answer the question referred to us in the negative. The assessee will pay the costs of this reference. Advocate's fee Rs. 250.

V.C.S