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Hassam Kassam And Others v. Commr. Of Income-Tax, Bihar And Orissa, Patna Opposite Party.

Patna High Court

Sep 10, 1947

Judgment

Subsequent
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Summary of the Opinion (Manohar Lall, J.)

Factual and Procedural Background

The Court had earlier referred matters back to the Appellate Tribunal for findings of fact (see order dated 14th December 1944). The present opinion proceeds from the Tribunal's subsequent findings. On those findings the Tribunal determined: (1) that the partnership deed of 80th October 1940 is a genuine document and evidences a real partnership; (2) that the business now sought to be assessed had, in fact, been charged under the provisions of the Income-tax Act, vii of 1918; and (3) that the business now sought to be assessed is identical with the business carried on by the deceased Kassam Manji in 1926.

The present judgment addresses the legal consequence of those factual findings, specifically whether the terms of S. 25(4), Income-tax Act (inserted by S. 30 of Act vii of 1939) apply to the assessment under consideration. The Court also records interlocutory contentions raised by the learned Standing Counsel and by counsel for the assessee and gives its resolution of the reference made to it.

Legal Issues Presented

Whether, on the Appellate Tribunal's findings of fact (genuine partnership deed dated October 1940; business charged under the Income-tax Act, vii of 1918; and identity of the business with that carried on by Kassam Manji in 1926), the terms of S. 25(4) (Income-tax Act, as inserted by S. 30 of Act vii of 1939) apply to the assessment in question.
Whether the findings of fact permit an inference in law that there was not a complete succession to the business carried on by the deceased Kassam Manji (i.e., whether the partnership of 1940 succeeded only to a portion of the earlier business), and whether the earlier business had been dispersed among family members rather than passing entirely to Kassam Manji in 1926.

Arguments of the Parties

Learned Standing Counsel (for the Department)

Contended that the Tribunal's factual findings, when construed in law, support the inference that there was not a complete succession to the business carried on by the deceased Kassam Manji in and after 1926.
Argued that the whole of the business which had been taxed under the Act of 1918 did not come into the hands of Kassam Manji in 1926 (i.e., some parts had gone elsewhere on disruption), implying the partnership of 1940 succeeded only to part of that earlier business.
Cited authorities in support of his contention, in particular:
- The Commissioner of Income-tax, Burma v. S. Mansookh Lal Zaveri, 1937-5 I.T.R 664 (A.I.R (24) 1937 Rang. 102 S.B)
- The Commissioner of Income-tax, Burma v. A.L.V.R.P. Firm, 1940-8 I.T.R 631 (A.I.R (27) 1940 Rang. 281 S.B)

Counsel for the Assessee (Mr. Mazumdar)

Argued that the question of the identity of a business is a question of fact.
Cited authorities in support of this factual approach:
- Alexander Ferguson & Co. (1898) 4 Tax cas. 36
- Commissioner of Income tax, Bombay v. Naraindas & Co., 1939-7 I.T.R 805 (A.I.R (26) 1939 Sind 318)

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
The Commissioner of Income-tax, Burma v. S. Mansookh Lal Zaveri, 1937-5 I.T.R 664 (A.I.R (24) 1937 Rang. 102 S.B)	Cited by the Department to support the contention that succession to the business was not complete and that legal inference should be drawn from the facts.	The Court noted the citation but held it unnecessary to consider case law because, on the facts found by the Appellate Tribunal, there was no room for the Department's contention. The Court did not rely on this precedent.
The Commissioner of Income-tax, Burma v. A.L.V.R.P. Firm, 1940-8 I.T.R 631 (A.I.R (27) 1940 Rang. 281 S.B)	Cited by the Department in support of its argument about succession/identity of business.	The Court recorded the citation but treated detailed case-law consideration as unnecessary given the Tribunal's factual findings; the precedent was not applied to change the outcome.
Alexander Ferguson & Co., (1898) 4 Tax cas. 36	Cited by the assessee to support the proposition that identity of business is a question of fact.	The Court acknowledged the assessee's contention and cited authorities but proceeded on the basis of the Tribunal's factual findings; it did not rely expressly on this precedent to determine the reference.
Commissioner of Income tax, Bombay v. Naraindas & Co., 1939-7 I.T.R 805 (A.I.R (26) 1939 Sind 318)	Cited by the assessee to show that identity of business questions are factual issues.	The Court noted the citation but found it unnecessary to delve into case-law because the Tribunal's factual determinations resolved the matter; the Court did not base its decision on this precedent.

Court's Reasoning and Analysis

The Court's analysis proceeds from the Appellate Tribunal's explicit factual findings. The reasoning, in logical sequence, is as follows:

The Court referred to its earlier order (14th December 1944) which set out the circumstances leading to the referral to the Appellate Tribunal; it declined to restate those facts in full because they were already clearly stated there.
It recited the Tribunal's findings: the partnership deed (dated October 1940) is genuine and evidences a real partnership; the business being assessed had been charged under the Income-tax Act, vii of 1918; and the business assessed is identical to that carried on by Kassam Manji in 1926.
On the basis of those findings, the Judge concluded that the terms of S.25(4), Income-tax Act (inserted by S.30 of Act vii of 1939) apply to the assessment under consideration. This is the core legal application: factual identity of the business led to statutory consequence under S.25(4).
The learned Standing Counsel argued that, despite the Tribunal's findings, a legal inference should be drawn that there was not a complete succession to the earlier business and that some parts of the earlier taxed business did not pass to Kassam Manji. He relied on a number of cases in support.
The Court examined the Tribunal's reasoning and specifically quoted the Tribunal's finding that, although some assets and liabilities were retained by Kassam Manji before the 1940 partnership and fresh capital was introduced in 1940, the firm "took over the business as a going concern" and "the same business is carried on at the same places" — concluding that such changes (e.g., infusion of capital) do not necessarily change identity of the business.
Given the Tribunal's express finding that the firm had taken over the business as a going concern and that the businesses were identical, the Court found no room for the Department's contention. The Court considered the Department's later-raised factual alternative (that the earlier business had been distributed among family members) to be a new question of fact which had not been put to the Tribunal earlier; the Court held it was not open to the Department to raise that new factual contention at this late stage without a prior finding.
Because the Tribunal's factual findings establish continuity and identity of the business, the Court held that S.25(4) must be applied to the assessment; the need to engage the cited case law was obviated by the clarity of the factual findings.

Holding and Implications

Holding: The Court held that, on the Appellate Tribunal's findings of fact, the terms of S. 25(4), Income-tax Act (inserted by S. 30 of Act vii of 1939) apply to the assessment in question. The reference to the Court is answered accordingly.

Implications / Consequences:

Direct effect on the parties: Because the assessee is treated as having succeeded to the business, the Court awarded the assessee the costs of the hearing in this Court in the sum of Rs. 400, to be paid by the Commissioner.
On precedent and broader legal development: The Court expressly stated that it was unnecessary to consider the case law cited by the parties because the Tribunal's factual findings resolved the legal question. The opinion therefore does not purport to set a new, broader legal principle beyond its application of S. 25(4) to these facts.

Disposition: Reference answered. Costs fixed at Rs. 400 to be paid by the Commissioner. Agarwala, A.C.J. concurred.

Show all summary ...

Manohar Lall, J.:— The circumstances in which this Court referred the case back to the Appellate Tribunal for findings of fact on the points enumerated in that order are clearly set out in the order dated 14th December 1944. In that order all the relevant facts have been clearly stated and it is unnecessary to state the facts over again.

2. It has now been found: (1) that the partnership deed of 80th October 1940 is a genuine document and evidences real partnership; (2) that the business which in 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 now sought to be assessed is identical with the business which was carried on by the deceased Kassam Manji in 1926.

3. In my opinion, on these findings it follows that the toms of S. 25(4), Income-tax Act inserted by S. 30 of Act vii of 1939 apply to the assessment under consideration.

4. The learned Standing Counsel, however contended that the findings of fact 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 argues 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.

5. The learned Standing Counsel cited a number of cases in support of his contention and in particular he relied upon the case of The Commissioner of Income-tax, Burma v. S. Mansookh Lal Zaveri, 1937-5 I.T.R 664 : (A.I.R (24) 1937 Rang. 102 S.B) and The Commissioner of Income-tax, Burma v. A.L.V.R.P Firm, 1940-8 I.T.R 631 : (A.I.R (27) 1940 Rang. 281 S.B). Mr. Mazumdar, appearing on behalf of the assessee, cited 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. (1898) 4 Tax cas. 36 and Commissioner of Income tax, Bombay v. Naraindas & Co. 1939-7 I.T.R 805 : (A.I.R (26) 1939 Sind 318).

6. 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 introduced by the eons. 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 places 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 1943-1944 the legal representatives of Kassam Manji claimed certain loss sustained by the assessee by reason of the fact that the outstandings which had taken over could not be recovered and the debts had become bad. The claim was disallowed and the reason given by the Income-tax Officer was, to use his own words, as follows: ‘Assessee was, at one time, the sole owner of the business at Chauliaganj, Collage Bazar, Neulpur and Calcutta. On 9th December 1940, he transferred all the businesses as going concern to a firm styled Kassam Manji and so 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 realising the capital assets, the expenses of realisation and the bad debts are clearly capital losses and hence inadmissible’.”

7. After this finding, the Appellate Tribunal observed that the view taken by the Department in connection with the assessment year, 1943-1944 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 in sought to be assessed is identical with the business which was carried on by Kassam Manji in 1926.

8. I cannot understand how the learned Standing Counsel could ask us to hold that this 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 the Department. If it had been raised, we would have asked for a finding on this question of fact also. In my opinion, it is not open to the learned Standing Counsel to raise this new question of fact at this late stage.

9. For the reasons given above, the answer to the question is that the terms of S. 25(4) must be applied to the assessment in the present case. As the asseasee has succeeded, he is entitled to the costs of the hearing in this Court which in the circumstances I would fix at Rs. 400 to be paid by the Commissioner.

10. Agarwala, A.C.J:— I agree.

S.C.O

11. Reference answered.