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Commr. Of Income Tax, West Bengal v. A.W Figgis & Co. And Others
Factual and Procedural Background
This opinion arises from a Reference under Section 66(1) of the Indian Income-Tax Act concerning whether the firm as constituted on 31st May 1947 was entitled to relief under Section 25(4) of the Indian Income-Tax Act. The assessee is a partnership firm originally consisting of partners Mathew, Figgis, and Notley and engaged in the tea brokerage business. Over the years, the firm's constitution changed several times, with partners joining and retiring. In 1939, a partnership deed fixed the partnership term for five years, but the firm continued business after the term expired. In 1947, the partnership was converted into a private limited company. The firm claimed relief under Section 25(4) for the assessment year 1947-1948, which was disallowed by the Income-Tax Officer and the Appellate Assistant Commissioner on grounds including change in partners and prematurity of the claim. The Tribunal allowed the claim as timely but did not address the issue of change in constitution. The matter was then referred to the court for opinion on the entitlement to relief under Section 25(4).
Legal Issues Presented
- Whether the firm as constituted on 31st May 1947 was entitled to relief under Section 25(4) of the Indian Income-Tax Act, given the changes in partnership constitution and succession by a private limited company.
Arguments of the Parties
Assessee's Arguments
- The word “person” in Section 25(4) refers to the partnership as an association of persons, and the partners of 1939 were effectively the same as those in 1947 when succeeded by the company.
- The business remained the same tea-brokers throughout, and the firm was considered the same entity despite changes in personnel.
- Reference was made to the definition of “person” in the Income-Tax Act and the General Clauses Act to support the claim for relief.
Income-Tax Commissioner's Arguments
- There was a change in the firm’s constitution due to changes in personnel, so the firm of 1947 was not the same as that of 1939.
- This point was not raised before the lower authorities and was inconsistent with the firm being taxed under the 1918 Act.
- Relied on a 1945 partnership document to argue that a different firm was constituted then, but the document was not part of the record before the authorities and was not accepted by the court.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court examined the statutory provision under Section 25(4) of the Indian Income-Tax Act, which allows relief where a person carrying on a business is succeeded by another person, excluding mere changes in partnership constitution. The court analyzed the firm's history and partnership deeds, noting that although the personnel changed over time, the firm continued the same business and was regarded as the same entity throughout. The partnership deed of 1939 fixed a term but allowed continuation after expiry without altering mutual rights and duties, consistent with a partnership at will. The court rejected the Income-Tax Commissioner's argument about a change in constitution based on a 1945 document not previously considered. It held that the succession by the private limited company in 1947 attracted the relief under Section 25(4), as the firm was essentially the same person carrying on the business. The court emphasized that the Commissioner’s new argument was inconsistent with prior positions and was not allowed.
Holding and Implications
The court answered the reference question in the affirmative, holding that the firm as constituted on 31st May 1947 was entitled to relief under Section 25(4) of the Indian Income-Tax Act.
The direct effect of this decision is that the assessee firm is entitled to the relief claimed under the statute and to the costs of the Reference. No broader precedent beyond the application of Section 25(4) to the facts of this case was established.
Banerjee, J.:— This is a Reference under Section 66(1) of the Indian Income-Tax Act and the question on which we are required to express our opinion has been formulated in the following words:
“In the facts and circumstances of the case, was the firm as constituted on 31st May 1947, entitled to the relief under Section 25(4) of the Indian Income-Tax Act?”
2. Section 25(4) is as follows:
“Where the person who was at the commencement of the Indian Income-Tax (Amendment) Act, 1939 (VII of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-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 first mentioned person 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 such person 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 of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference.”
3. The assessee is a partnership concern. When the tax was paid under the Act of 1918 it consisted of three partners: Mathew, Figgis and Notley. The name of the firm was A.W Figgis & Co., and the business was that of tea brokers. There were several changes in the constitution of the firm as noted below:
1924. — (1) A.W Figgs. (2) N.G Notley. 1926. — (1) A.W Figgs. (2) N.G Notley. (3) L. Squire. 1932. — (1) N.G Notley. (2) L. Squire. 1-4-1939 — (1) N.G Notley. (2) L. Squire. (3) F.E Hilman. 1-4-1943 — (1) L. Squire, (2) F.E Hilman. 1-4-1945 to 31-5-47 — (1) L. Squire. (2) F.E Hilman. (3) L.H Gilbert.
4. On the 15th April, 1939 a partnership deed was made between Notley, Squire and Hilman which provided that the partnership would be for a fixed term of five years commencing from 1st April 1939, unless it was previously determined under the provisions contained in the partnership deed. The deed further provided that the retirement of any partner during the continuance of the partnership would not determine the partnership as between the remaining partners. It is not disputed that after the expiry of the term, the partnership continued to carry on business as before. The law is that where a partnership constituted for a fixed term continues to carry on business after the expiry of the term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will.
5. In 1947 the partnership was converted into a private limited company. For the assessment year 1947-1948 the firm consisting of Squire, Hilman and Gilbert as partners claimed relief under S. 25(4) on the ground that the partnership had been succeeded by a private limited company. The Income-Tax Officer disallowed the claim on the ground that the partners of the firm in 1939 being different from the partners of the firm in 1947, no relief could be given to the assessee. The Appellate Assistant Commissioner took the same view.
6. Further he held that the claim of the assessee was premature, since it involved two distinct periods, one ending 31-3-1947, and the other from 1-4-47 to 31-5-1947. He thought that the claim could only be made for the assessment year 1948-1949 and not for the year 1947-1948.
7. The Tribunal did not support this part of the Appellate Assistant Commissioner's finding. It held that the claim had been made in proper time. This matter was not further agitated and we need not say anything more on it.
8. On the question of relief to be given to the assessee, Dr. Pal who appeared before the Tribunal for the assessee laid stress on the word “person” which appears in S. 25(4). He said that partnership was nothing but an association of persons and the partners of 1939 were the same as the partners of 1947 when the firm was succeeded by the company. He also drew the Tribunal's attention to the definition of “person” as given in the Income-Tax Act as also in the General Clauses Act. The Tribunal held that reading S. 25 as a whole the relief contemplated in that section should be given to the assessee. It was never disputed that the business of the firm continued as tea-brokers right from the inception till the time it was succeeded by the limited company, and the case was decided on the footing that it was the same firm all throughout though there was change in the personnel from time to time. It was never contended at any stage before that by reason of the change in personnel there was a change in the constitution of the firm.
9. Before us, Dr. S.K Gupta who has appeared for the Income-Tax Commissioner has taken a different line of argument. He says that there was change in the firm. It was not the same firm throughout. The change in the personnel necessarily effected a change in the constitution of the firm. This point was not taken before the Tribunal, the Income-tax Officer or the appellate Assistant Commissioner and this point could not have been taken in view of S. 25(4) which I have already set out. The firm was taxed under the Income Tax Act of 1918. There is no dispute as to this fact. If the firm is regarded as a different firm as has been contended by Dr. Gupta, how could it possibly be taxed under the Act of 1918? Dr. Gupta now seeks to take up an inconsistent position. He tries to make out a case for his client which he had never made before. We cannot allow Dr. Gupta to make an entirely new case. Dr. Gupta has referred us to a partnership document, dated 1945, between Squire, Hilman and Gilbert and said that in 1945 a different firm was constituted. But it is to be noted that there is no reference of this document in the records except in the schedule to the statement of the case. We do not know how the document came in, but we have no doubt that this document was never discussed before any of the authorities before, and therefore we are not prepared to allow Dr. Gupta to rely on this document in support of his argument. We shall consider this case on the basis that it was the same firm that continued throughout, though there was change in the personnel and that being the case we think that under Section 25(4) of the Indian Income-Tax Act there was succession in 1947 when the private company was Formed. Therefore, the provisions of that section are attracted and the firm should get the relief in accordance with it.
10. We answer the question submitted to us in the affirmative. The assessee is entitled to the costs of this Reference. Certified for two Counsel.
Harries, C.J:— I agree.
V.B.B
11. Answer in the affirmative.
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