The Judgment of the Court was delivered by

Derbyshire, C.J:— This is a case stated under Section 66(2) of the Indian Income-tax Act, 1922, by the Commissioner of Income-Tax, Bengal, for the opinion of this Court, The facts are set out in the case and in the annexures thereto. The short history of the matter is set out in paragraph 3 of the case which says: “Prom the assessment year 1919-20 to 1923-24 Gregory worked in this business with one Gosto Behary Roy as partner. In 1924-25 S.B Roy, the son, came in as a partner in place of his father and this constitution carried on till the year of assessment 1927-28. In 1928-29 Jaidayal Kasera & Co., a Marwari firm, came in as Gregory's partner and this constitution subsisted up till and including, the year of assessment 1931-32. Apparently the partnership agreement in each case was in force for only one year and every year a fresh agreement was executed. At any rate, I find in the file a partnership deed, dated the 9th July, 1930, between Gregory and Jaidayal Kasera, copy appended (marked J) in which it is recorded that the agreement will be only for the jute season 1930-31. The subject matter of the partnership was for buying and selling raw jute”.

2. Paragraph 4 states: “The agreement between Gregory and Messrs. Champalal Kothari withrwhich we are primarily concerned is the agreement, dated the 2nd July, 1931, a copy ofjwhich is appended (marked K), This agreement was to subsist for the jute season 1931-32, the purchasing centre was to be at Baira in Dacca District and according to that agreement Gregory was to receive a monthly salary of Rs. 300/- while the profit at the end of the season was to be distributed half and half. Another agreement dated the 28th July, 1931 was executed between Gregory and Sovachand Sohanlal, copy of which is appended (marked L.), in accordance with which they were to work as partners in a loose jute business in Kenduakalibari for the jute season 1931-32, Gregory to draw a salary of Rs. 150 per month and the ultimate profit to be shared as 4 annas to Gregory and 12 annas to the capitalist partner. That agreement subsisted only for a very short time (the Income Tax Officer says for 10 days and the assessee for one month) and when it ceased Gregory drew merely a royalty or commission from this business on the strength of the fact that the jute handled bore his business mark.” It is convenient at this point to refer to the agreement just mentioned. The first agreement which is dated July 9, 1930, was made between Mr. G.I.M Gregory and Messrs. Jaydial Kasera & Co.

3. Paragraph 1 reads: “Mr. G.I.M Gregory and Messrs. Jaydial Kasera & Co., will work together as partners a jute business at (A) Baira (District Dacca), (B) Purbadhalla (District Mymensingh) for jute season 1930-31 in the name of Messrs. G.I.M Gregory & Co.”

4. Paragraph 2. “Messrs. Jaydial Kasera & Co., will supply all the working capital which will be necessary for the carrying on of the business for which they will receive interest at the rate of 9 (nine) per cent, per annum. Mr. G.I.M Gregory will not be expected to supply any of the working capital.”

5. The next paragraph I want to refer to is paragraph 6 which says. “All purchases of jute at the above two agencies will be made in the name of Messrs. Jaydial Kasera and Co.”

6. Paragraph 10 provides: “Messrs. Jaydial Kasera & Co., will keep their own cashiers at the above two agencies who will handle all the money supplied by them. The cashiers will be responsible for the cash to Messrs. Jaydial Kasera & Co.”

7. Paragraph 12 provides: “It is agreed between the parties that only a hand to mouth business will be done and the parties……… to this agreement bind themselves not to speculate.”

8. Paragraph 14: “The net profits at the end of jute season 1930-31 will be shared in the above two agencies in the proportion of annas 8 to Mr. G.I.M Gregory and annas 8 to Messrs. Jaydial Kasera & Co.”

9. The agreement dated July 2, 1931, was made between Mr. G.I.M Gregory and Messrs. Champalal Kothari on that date.

10. Paragraph 1 provides: “Mr. G.I.M Gregory and Messrs. Champalal Kothari will work together as partners a loose jute business at Baira (District Dacca) for jute season 1931-32.”

11. Paragraph 2 provides: “Messrs. Champalal Kothari will supply all the working capital necessary for financing the business for which they receive simple interest at the rate of 9% per annum to be calculated and credited monthly on the average daily outstanding.”

12. Paragraph 4: “No royalty will be paid to Mr. G.I.M Gregory for the use of his marks and he will be paid a monthly salary of Rs. 300 for managing the business from Calcutta during 12 months of the year commencing July 1931 and ending June 1932 these monthly payments to be considered a charge on the business.”

13. Paragraph 5: “All purchases of jute at the agency will be made in the name of Messrs. Champalal Kothari.”

14. Paragraph 8: “It is agreed between the partners that only a conservative trading will be done and the parties to this agreement bind themselves not to have uncovered sales on their books at any one time exceeding 3,000 B/S and not to hold unsold stocks exceeding 1,500 B.S These quantities may be modified or increased by the mutual consent of both parties which consent must be in writing.”

15. Paragraph 10: “Messrs. Champalal Kothari will keep their own cashier at Baira and all the Darwans will be their own men. The cashier will handle all the money supplied by them and they will be responsible for the cash to Messrs. Champalal Kothari.”

16. Paragraph 11: “Some of the old staff of employees both up country and in Calcutta selected by Mr. G.I.M Gregory and Messrs. Champalal Kothari that have worked for many years for Mr. G.I.M Gregory's firm (with the exception of the cashier and Durwans vide clause 10) will be employed.”

17. Paragraph 13: “Sales and shipments will be made in the name of Messrs. G.I.M Gregory and Co., under the mark of the G.I.M Gregory and Co., and complete control of the assortment will be in the hands of Mr. G.I.M Gregory and his representative at the agency.”

18. The third agreement is dated 28th July, 1931., and was made between Mr. G.I.M Gregory and Sovachand Sohanlal on that date. Paragraph 1 provides: “Mr. G.I.M Gregory and Sovachand Sohanlal will work together as partners a loose jute business at Kenduakalibari for jute season 1931-32.”

19. Paragraph 2: “Messrs. Sovachand Sohanlal agree and undertake to supply all the working capital necessary for the business for which they will receive simple interest at the rate of 8 per cent, per annum.”

20. Paragraph 4: “Mr. G.I.M Gregory will be paid monthly salary of Rs. 150 during the 12 months of the year 1931-32 commencing from July 1931 and ending June 1932, these payments to be considered a charge on the business.”

21. Paragraph 7: “Rs. 65 will be paid monthly on the 4th of each month for G.I.M Gregory's Calcutta office expenses for the 12 months of the year from July 1931 to end of June 1932 which will be considered a charge on the business.”

22. Paragraph 8: “All purchases of jute at the agency will be made in the name of Sovachand Sohanlal.”

23. Paragraph 12 provides that only a conservative trading business will be done and that the parties to this agreement bind themselves not to have uncovered sales on their books at any one time exceeding 1500 bales and not at any one time to hold more than 100 bales of unsold stocks of jute.

24. Paragraph 15 provides: “Messrs. Sovachand Sohanlal will keep their own cashier and their own durwans at the jute agency who will handle all the money supplied by them. Mr. G.I.M Gregory will have the right to appoint 2 of his own employees at Kenduakalibari to help in the management of the business and their monthly salary will be paid by Messrs. Sovachand and will be a charge on the business.”

25. Paragraph 18: “Sales will be made in the name of Messrs. G.I.M Gregory & Co. and under the mark G.I.M.G & Co. and complete control of the assortment will be in the hands of Mr. G.I.M Gregory and his representative at the agency.”

26. It is agreed that jute season normally ends about February of each year but that sales are frequently made after that time. The beginning of July is regarded as beginning of the jute season.

27. Now I turn to paragraph 5 of the case. It says: “The assessees' case is that the law regarding succession as set out in Section 26 of the Act does not apply in the case, that every year there is a discontinuance and a new firm comes into existence, that no assets or liabilities are transferred from the old firm to the new firm, that no goodwill passes and that the reputation in the market of Gregory or his mark G.I.M.G & Co. stamped on jute bales has no value.”

28. Here it will be convenient to read Section 26 of the Indian Income-tax Act, 1922. Sub-section (1) provides:—“Where at the time of making an assessment under Section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessments on the firm and on the members thereof shall, subject to the provisions of this Act, be made as if the firm had been constituted throughout the previous year as it was constituted at the time of making the assessment, and as if each member had received a share of the profits of that year proportionate to his interest in the firm at the time of making the assessment.”

29. Sub-section (2) provides: “Where at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits of that year.”

30. Paragraph 6 of the case deals with the duration of the jute season and it says that business commences ordinarily in July and actively continues till the following February, that stocks of jute are sometimes carried forward to the following year and sometimes are not, and that in this particular case no stocks or assets were transferred to the new partnership business. In this connection Gregory has put on record copies of letters he has addressed to Duncan Brothers & Co., Anderson Wright & Co., and Begg Dunlop & Co., firms interested in the jute business in Calcutta, in which he has formulated the following questions. (The letters and their replies are appended and marked M).

“(1) If in the jute trade stocks of jute are carried forward by sellers from one jute season into another.”

“(2) And at what price reputed and well-established jute firms sell their marks per bale as compared with prices obtainable by Messrs. G.I.M Gregory & Co.”

“(3) If our Kuteha baled jute marks were put up for auction what price would they fetch.”

31. Two of the firms replied that stocks of jute are at times carried forward by sellers from one jute season into another but one of the firms notes that this is sometimes by design, but probably more often as a result of the sellers being unable to find a market for all stocks. To the second question one firm replied that Gregory's mark is classified at annas 2 per maund under the first-class European marks. Another replied that the Gregory mark should not be higher than that obtainable for good Indian packing. While the third replied that well-established European firms would receive annas 2 to annas 3 per maund more than the Gregory mark jute. The point really is not how the price of the Gregory mark jute would compare with the price of jute sold by well-established European firms but how it would compare with the price obtainable by Indian firms and it is perfectly clear from the answers that jute bearing the Gregory mark will fetch a higher price in the market than jute purchased by Indian financiers and sold without any mark. The third question appears to me to be really irrelevant as the question is not what price, if any, would be fetched by the Gregory jute mark, if put up to auction, but what value, if any, it has in the present circumstances, when packed by Gregory's supervision and with Gregory's reputation behind it, and it is perfectly clear that it has some considerable value.”

32. Paragraph 7 of the case states: “In this case it is clear that the trade mark and the benefit arising from the connection and reputation of Mr. Gregory have passed from the previous firm to the firm as now assessed though no tangible assets or liabilities have so passed and the question which I would state arising out of this matter may be formulated as follows.

“Whether in these circumstances there has been a succession within the meaning of Section 26(6) of the Indian Income Tax Act or in the alternative whether Section 26(1) applies and on a true construction of the law applicable to the facts of this case it should be held that a change has occurred in the constitution of a firm?”

33. I propose to deal with those questions in the order in which they have been asked. As regards Section 26(2) the question is has the first firm or the first partnership that was entered into on the 9th of July 1930 between Mr. G.I.M Gregory and Messrs. Jaydial Kasera and Co. (which for the purpose of this case I will call Gregory I) been succeeded by the partnership entered into on the 2nd of July 1931 between Mr. G.I.M Gregory and Messrs. Champalal Kothari (which for brevity's sake I will call Gregory II) within the meaning of Section 26(2) of the Act? It has often been said by very high authorities that the English Income Tax Acts throw little light upon the Indian Income Tax Act, but in this case Dr. Pal who appeared for the Commissioner of Income-Tax, Bengal, quoted to us the case of James Shipstone & Sons, Limited v. Morris reported in 14 Tax Cases at page 413 and I propose to read an extract from the judgment of Mr. Justice Rowlatt in the case of Ogston v. Raynolds which is reported in that case. Dr. Pal drew our attention to it in the case of Wild (H.M Inspector of Taxes) v. Madame Tussaud's (1926) Ltd., reported in 17 Tax Cases at page 136. Mr. Justice Rowlatt said: “I should like again to advert to the consideration which I drew attention to in Shipstone v. Morris, namely, that this provision as regards successors is designed merely with a view to preserve in a proper case where there is a succession a measure upon which the successor may be assessed in the first year of his proprietorship of the business, and that, as I pointed out, is at the root of the necessity for there being a real continuity of the business. You want to measure the income of the successor by the past history of the business, it is therefore essential that there should be a very close identity between the business in the former proprietorship and the business, in the present proprietorship.” Although these words as used in the English case have reference to the English Acts they do deal with reasons underlying the provisions as regards succession in business and in my view those reasons apply to Section 26(2) of the Indian Income Tax Act, 1922.

34. Now, in this case both in the firms of Gregory I and Gregory II the name was the same. Both dealt in jute. Mr. G.I.M Gregory was the working partner and, as far as one can gather, G.I.M Gregory's marks were used by both the firms in classifying and selling their jute. From an examination of the case and the agreements it would appear that Mr. Gregory's marks were used by each of these firms in which he had an interest and it would appear that each firm used them by licence from or express agreement with Mr. G.I.M Gregory. There is, however, one conspicuous difference between the firm of Gregory I and the firm of Gregory II. Gregory I had branches in the Dacca district at Baira and also in the Mymensingh district at Purbadhalla. The firm of Gregory II which is said to be the successor had only one branch and that branch was in the Dacca district at Baira. Whatever else it may be said that Gregory II may have succeeded to in Gregory I, Gregory II has not succeeded to the goodwill of the business done in the Mymensingh area. It would appear from the agreement of 28th July 1931 between Mr. Gregory and Sovachand Sohanlal that Mr. Gregory had agreed to allow the firm of Gregory III, i.e, the partnership in the so-called business between Mr. Gregory and Sovachand Sohanlal to have the goodwill that Gregory I had in the Mymensingh area or substantially the same. The Mymensingh area is one of the two jute areas in Bengal, the other being the Dacca area. It seems clear, therefore, that Gregory II has only succeeded to a part of. Gregory I if indeed there is a succession at all in the strictest sense of the word. I am unable, therefore, to agree with the Income-tax Officer that Gregory II has succeeded to Gregory I within the meaning of Section 26(2) of the Income-tax Act. In that view I am supported by the decision of Sir Arthur. Page, Chief Justice of Burma, in the case of The Commissioner of Income-Tax, Burma v. N.N Firm reported in XI Rangoon at page 501. This case turned upon the application of Section 26(2) of the Income-tax Act. After stating the facts the Chief Justice said:—“Upon these facts the Income-tax authorities have held that there was a ‘succession’ to the money-lending business of the undivided joint family within Section 26(2) of the Income-tax Act. In my opinion it is manifest that there was not a ‘succession’ within Section 26(2) of the Act. In order that a person should be held to have ‘succeeded’ another person in carrying on a business, profession, or vocation, it is necessary that the person succeeding should have succeeded his predecessor in carrying on the business as a whole. Where a business is split up and thereafter another person carries on part of the business I am of opinion that he does not ‘succeed’ his predecessor in carrying on the business within Section 26(2).” Those words apply exactly to the facts of this case. I think the reason and fairness of this view is clear from the words of Mr. Justice Rowlatt in the case of James Shipstone & Sons, Limited v. Morris which I have just recited where he says “you want to measure the income of the successor by the past history of the business”. In my view it is not possible to measure the income of a business carried on in the Dacca district by the history of the business when carried on as it is said it was carried on formerly in the Dacca district and in the Mymensingh district and it must be remembered that in the present case the Income-tax authorities proposed to levy taxation on G.I.M Gregory and Messrs. Champalal Kothari in respect of the profits thereof made out of buying and selling jute in the Dacca area on the basis of the profits that Mr. G.I.M Gregory and Messrs. Jaydial Kasera and Co. made in the year before out of buying and selling jute not only in the Dacca area but also in the Mymensingh area. In my view the Income-tax authority were wrong in attempting to do this by holding that there was a succession Within the meaning of Section 26(2) and in my view it is not open on the evidence before the Income-tax authority to do so. They can only do so by ignoring the goodwill of the firm of Gregory I in the Mymensingh area.

35. I now pass to the reasons that the Commissioner of Income-Tax gives as to the attitude which the authorities take up in this matter. They are set out in para 8 which reads: “In my respectful view, in order to constitute succession it is not necessary that any tangible assets should pass from the preceding to the succeeding firm and in this case where the trade name, trade mark, goodwill and reputation of Mr. Gregory as a buyer of raw jute have all been taken over by the new firm there is a succession in law within the meaning of the section. In the alternative I would argue that Section 26(1) is applicable and that on the facts as found, a change has occurred in the constitution of the firm. In other words, the firm carrying on business for a number of years has been G.I.M Gregory & Co., in which Gregory is the active partner and all that has happened is that the constitution of the firm has changed from year to year or after a number of years. That Gregory is a real partner and not a mere employee remunerated by a share of the profits is clear from the terms of various partnership agreements as also from the fact that his share in this business is never less than 8 annas in the rupee. Those words ‘in this case where the trade name, trade mark, goodwill and reputation of Mr. Gregory as a buyer of raw jute have all been taken over by the new firm there is a succession in law within the meaning of the section’ deserve some consideration. The Commissioner has in my view drawn a wrong inference from the facts. The firm of Gregory I was a partnership for the jute season 1930-31. At the end of that jute season, certainly at the end of June 1931, that working partnership came to an end by the effluxion of time. With that end went the name, the right to use Gregory's trade mark and the right to the goodwill and reputation of Mr. Gregory as a buyer of raw jute. Those benefits which were clearly for the duration of the partnership went on its expiration back whence they had come—to Mr. Gregory. Mr. Gregory was on July last entitled to arrange to apply those benefits elsewhere and he did on July 2nd in the Dacca area in the partnership which be formed with Messrs. Champalal Kothari, i.e, Gregory II, and on July 28 in the Mymensingh area in partnership with Sovachand Sohanlal, i.e, Gregory III. Gregory II and Gregory III got those advantages by direct agreement in the one case between Gregory and Champalal Kothari and in the other case by direct agreement between Gregory and Sovachand Sohanlal. Neither Gregory II nor Gregory III succeeded to Gregory I in these advantages. They got them as Gregory I had got them but each over a limited area, by agreement as stated above from the same source that Gregory I got them, namely, from G.I.M Gregory. Gregory II and Gregory III never had any contractual relations with Gregory I. Gregory I was dissolved before Gregory II or Gregory III began. On the dissolution of Gregoiy I, G.I.M Gregory took away what reverted to him after the life interest of Gregory I, namely, the right to use the trade mark and to form a firm in the name of G.I.M Gregory and the benefits arising from the reputation of Gregory. After that dissolution at his own will Mr. Gregory transferred a part of what reverted to Gregory II for a limited period and a part of it to Gregory III for a limited period and in my view there was no succession at all.

36. As regards Section 26(1) in my view that section contemplates a business which continues in existence both during the period of the predecessor and during the period of the successor. No such business was in existence continuously during the life of Gregory I and Gregory II and in my view Section 26(1) can have no application to the facts of this case.

37. My answer to both parts of the question formulated in paragraph 7 of the case is ‘no’.

Costello, J.:— I regret that I am unable to concur in the view which has just been expressed by my Lord the Chief Justice.

38. The question which we are required to answer was formulated by the Commissioner of Income-Tax in the alteriffitive and is in these words:

“Whether in these circumstances there has been a succession within the meaning of Section 26(2) of Indian Income Tax Act or in the alternative whether Section 26(1) applies and on a true construction of the law applicable to the facts of this case it should be held that a change has occurred in the constitution of a firm”.

39. The first part of the question raises the problem whether or not in the circumstances of this case there was a succession within the meaning of sub-section (2) of Section 26 of the Act of 1922. In order to answer that question and indeed the second question also, it is of course necessary to consider what the facts of the case really were. They have been set out very fully in the assessment order of the 23rd January, 1934. The Income Tax Officer stated (at page 19 of the paper book)

“I have gone into the matter carefully and examined the evidence produced together with books and working of the firm both during Mr. Gregory's partnership with Messrs. Jaydayal Kasera (those books were produced in response to a notice under Section 37. on Jaydayal Kasera) and with Messrs. Champalal Kothari and I am of opinion that there is a case of succession and Section 26(1) is applicable.” Then he makes this comment:

“It is no doubt true that this agreement (i.e, the agreement of the 2nd July 1931) does not specifically mention G.I.M Gregory & Co. as the name of the firm. But the internal evidence in the agreement itself would lead one irresistibly to conclude that the name of the firm carried on in co-partnership with Champalal Kothari was and could not but be I.M Gregory & Co. Thus in Clause (7) of the agreement both partners are given the right to sign the firm's name. Now what is the firm's name and what name have the parties the right to sign? This must be G.I.M Gregory & Co. otherwise there would be no meaning. Mr. G.I.M Gregory could not possibly have been intended to be given the power of signing the name of Messrs. Champalal Kothari and all the jute activities of Messrs. Hazarimull Sardarmal were in the name of Champalal Kothari and it is absurd to think that in all the activities carried on in the name of Champalal Kothari Mr. G.I.M Gregory should be given a hand by being empowered to sigh the name. Again Champalal Kothari had automatically the power of signing his own name and it could not possibly be the intention of the agreement to empower him afresh to sign the name of Champalal Kothari.”

40. These are some of the reasons which led the Income Tax Officer to come to the conclusion that to all intents and purposes the association of Mr. G.I.M Gregory with Champalal Kothari was in direct succession to the association of Mr. G.I.M Gregory with Jaydayal Kasera and that therefore one concern was in succession to the other.

41. I should prefer, however, to deal with this matter upon the footing that it falls within the purview of the first part of Section 26. Sub-section (1) reads as follows:—

“Where, at the time of making an assessment under Section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment on the firm and on the members thereof shall, subject to the provisions of this Act, be made as if the firm had been constituted throughout the previous year as it is constituted at the time of making the assessment, and as if each member had received a share of the profits of that year proportionate to his interest in the firm at the time of making the assessment.”

42. In my opinion the real position having regard to the history of the matter was that there was a concern and a business which went by the name of G.I.M Gregory & Co. That is apparent, I think, from the facts as stated in-paragraph 3 of the Case put before us by the Commissioner. From the assessment year 1919-20 down to 1923-24 Mr. Gregory carried on his business in conjunction with a man named Gosto Behary Boy as his partner. In 1924-25 the son of Gosto Behari Boy came in as a partner in the place of his father and that constitution existed until the year of assessment 1927-28. Then in 1928-29 Jaydyal Kasera & Co. joined Gregory and acted as his associates or partners—if they properly can be called partners—and that constitution remained in existence up to and including the year of assessment 1931-32. It is true that the partnership agreement in each case was in force for a period of only one year and that in every year a fresh agreement was executed; but that in my opinion really makes no substantial difference because it seems to me that G.I.M Gregory & Co. represented by Mr. Gregory himself was perennial and indeed perpetual though the other constituent members of the “assessees” who came in from time to time were persons who came from time to time into association with Mr. Gregory and were transient and perhaps annual. In this state of things there was a firm G.I.M Gregory & Co. which was continuously in business. The position is well described in the judgment of the Income Tax Officer at page 22 of the paper book where he says:

“One party contributed the capital and the other contributed labour and expert knowledge together with the advantage arising from the name and the mark and the profit and losses were to be shared equally between the parties and the conditions of their working together were well defined in the agreement.” Then comes this observation: “Moreover the business has all along been considered as belonging to a firm with Mr. G.I.M Gregory as one of the partners and With other financiers as capitalist partners retiring from time to time and being replaced by other capitalist partners coming in place of retiring partners. The conditions which governed the relation between the parties all along have remained almost identical. The partner Mr. G.I.M Gregory is to always have the management of the sales effecting them in the name of G.I.M Gregory & Co. and to lend the use of his mark “G.I.M Gregory & Co.” to his other partners for some specified centres of purchase. These have been the conditions of the business throughout and such a business has obviously to be assessed as a firm as has all along been done. Further the business is carried on at 12, Clive Street, as admittedly the controlling power for sales is with Mr. G.I.M Gregory at 12, Clive Street, and all cheques are made out in favour of Mr. G.I.M Gregory & Co., although to be subsequently endorsed over to Messrs. Champalal Kothari. Besides, all claims and disputes arising from such transactions are to be settled by Mr. G.I.M Gregory—vide clause 13 of the agreement. Hence the right place for assessment of the firm is District V, where the assessments had all along been made in the past and as a firm.” So there was in the view of the Income Tax Officer a firm at any rate in a skeleton form, which carried on business at 12, Clive Street, having a number of regular customers to whom jute was sold year after year, no matter who happened to be the “financier” for the time being.

43. In connection with this question of continuity I should like to refer to an observation made by Macleod, C.J, of the Bombay High Court in the matter of The Commissioner of Income-Tax, Bombay v. M.H Sanjana and Co., Ltd., where at page 116 the learned Chief Justice said. “As then the tax is chargeable on the profits of a business, it makes no difference if there is any change in the person who carries on the business so long as the business is continued.” In the present instance in my view there was continuity as regards the business which was carried on by a firm which was known as G.I.M Gregory & Co. and it is that firm who are the assessees with whom we are concerned. Reference has been made to the case of James Shipstone and Sons, Limited v. Morris. The first part of the judgment of Mr. Justice Rowlatt in that case is, in my opinion, very germane to the matter now before us. He said this: “The question is whether these appellants are successors to the Beeston Company. Mr. Latter very properly drew my attention to what of course we always have to bear in mind, that the condition in the Income Tax Acts about succession is to support an accurate application of the principle of measuring the profits, in a given tax year, of a business by relation to the history. The object of this and all other measuring provisions of the Income Tax Acts is not as is sometimes inaccurately pretended, to get a tax in one year upon the profits of the previous year, but it is solely to ensure a proper system of measuring the tax of the year in respect of which the tax is made. Therefore, when you are going to measure the tax of a business which has recently changed hands, you may look, under this Eule, at the history of the business and the profits in the time before the change: and that lies at the root of the consideration to which the Lord President drew attention in the case of Watson Brothers v. Lothian, that there must be a continuity of the business. I start from that.” So the starting point of Mr. Justice Rowlatt was the question whether or not there was a continuity in the business which was carried on.

44. Now, it has been suggested as regards the question of succession that there could not be a succession in the present case because there can be no succession to a part of a business, and reference has been made to the decision of Sir Arthur Page in the case which was cited to us by Mr. Chatterji. I have no doubt whatever that it is right to say that there cannot generally speaking be a succession to a part of business, but that, in my opinion, does not imply that if what is succeeded to is not the same extent of trade or even does not include a particular line or set of customers it necessarily follows that there cannot be a succession to the trade or business, and an authority for that view of the matter is, I think, to be found in that very case of James Shipstone and Sons, Limited v. Morris (ubi supra). There is a passage in the judgment of Mr. Justice Eowlatt in that case which so far had not been referred to. It appears at page 421 of the report and is in these words. “Another point Mr. Latter laid some stress on was this. He said you cannot be successor to a part of a trade. He cited Mr. Justice Bray's remarks in a case in the ‘Law Times’, the name of which I forget for the moment. I think that is quite sound when you get two parts of a trade, as an omnibus business separate from a tramway business as it may very well be, but I do not think it means that if what is succeeded to is not the same extent of trade or even does not include a particular line of customers, it necessarily follows that there cannot be a successor to the trade, looking at it broadly. There must be two businesses, one left and the other taken. It does not mean to say that you have only taken part of the business in the sense that what you have got is not quite so extensive as what went before.”

45. In the light of these observations it seems to me that the mere fact that the operations which were carried on by Mr. Gregory in conjunction with Kothari were not so extensive as the operations which had previously been carried on by Mr. Gregory in conjunction with Kasera would not of itself decide the matter or entail that we must necessarily hold that there was not a succession by Mr. Gregory and Kothari to the business previously carried on by Mr. Gregory and Kasera. I do not propose to discuss any further the question of whether or noli there was a succession because as previously stated I prefer to take the view that the real position here was that all along for a great many years prior to the time of the assessment with which we are now concerned Mr. G.I.M Gregory had been engaged in the jute business and every year had made purchase of quantities of jute in what I would call jute areas and had resold that jute to customers in Calcutta. That business was carried on from an office in Calcutta and there was a staff, part of which at any rate went on year after year no matter who happened to be the persons who were financing the business in association with Mr. Gregory. Mr. Gregory was an expert buyer and he has been so described in these proceedings. The Commissioner Mr. Brown in his order said: “I understand that Mr. G.I.M Gregory is a gentleman with expert knowledge of the jute trade”. Moreover, Mr. Gregory was a person possessed of sound reputation in the jute trade and had apparently a large connection with both sellers and buyers of jute. He also had the advantage of having acquired in the market a substantial reputation for his particular mark G.I.M Gregory & Co. He carried on his operations year after year with the assistance of persons who came in to provide the necessary finance. Over a comparatively long period he was associated with one person; for a rather shorter period he was associated with somebody else; and finally came the agreement which has given rise to the present proceedings—the agreement whereby Mr. Gregory became associated with Champalal Kothari.

46. It is to be observed that the agreements which are before us indicate that there was really no gap at all, that is to say no period of time, even a small one, when G.I.M Gregory and Co. was out of existence. The agreement of the 9th day of July 1930 which Jaidayal Kasera which was obviously one for a full twelve months terminated only at the very end of the month of June 1931. That is indicated by the terms of Cl. 4 of the agreement. The agreement of the 2nd day of July 1931, operated as from the very beginning of the month of July 1931. That is indicated by the provisions of Cl. 4 of that agreement. So that there was, as far as one can see, complete continuity as regards the existence of G.I.M Gregory & Co. and that was the name under which the trading was carried on—whether the financier happened to be Kasera or whether it happened to be Kothayi. As I ventured to put it in the course of the argument financiers come and financiers go but Mr. Gregory goes on for ever to use an expression which is commonly used in pleadings in this country, “in his firm” of G.I.M Gregory & Co. The position therefore was such that I think I ought to say, as Mr. Justice Rowlatt said in the case of Michael Faraday, Bodgers and Eller v. Carter at page 574 “it is quite out of the question that I should say that the Commissioners were wrong in point of law in saying, ‘why, this is one business all through.’”

47. Now, if it was one business all through even though in one year it had been operating at Baira in the Dacca District and at Purbadhalla in the Mymensingh District whereas in the succeeding year it was operating at Baira only then it seems to me that the matter certainly falls within the purview of sub-section (1) of Section 26 even if it is not possible to say that the association or partnership of Gregory and Kothari was in succession to the association or partnership of Gregory and Kasera. According to the view which I take of the matter there was the firm of G.I.M Gregory & Co., consisting normally of Mr. Gregory or Mr. Gregory plus another. In the year covered by the agreement of the 9th day of July 1930, the firm consisted of Mr. G.I.M Gregory and Messrs. Jaidayal Kasera & Co. In the year following and without any lacuna at all the firm consisted of Mr. G.I.M Gregory and Champalal Kothari. In those circumstances, it is not unreasonable and, indeed, in my view it is entirely correct to say that the position was that a change had occurred in the constitution of the firm or that a new firm had been constituted. That was the view expressed by the Commissioner of Income-Tax in paragraph 8 of the case where he said “in this case where the trade name, trade mark, goodwill and reputation of Mr. Gregory as a buyer of raw jute have all been taken over by the new firm there is a succession in law within the meaning of the section. In the alternative I would argue that Section 26(1) is applicable and that on the facts as found, a change had occurred in the constitution of a firm. In other words, the firm carrying on business for a number of years has been G.I.M Gregory & Co., in which Gregory is the active partner and all that has happened is that the constitution of the firm has changed from year to year or after a number of years.

48. There is one other case to which I desire to refer because it is one which was referred to in the proceedings before the tribunal below—the case of Thomson and Balfour v. Le Page in which at page 548 the Lord President said. “I do not propose to attempt a definition of ‘succession’ in the sense of Rule 11, but it is, I think, safe to say two things about it. In the first place, it does not include the accidental acquisition by a trader, who continues in business, of the custom left by another who goes out of business. A trade might give up or go out of the trade for some reason without attempting to realise or transfer goodwill, and the result of that might be the capture of some custom therefore attached to him by one or more of his competitors who continued to trade. That would not, I think, be a case of ‘succession’ within the meaning of Rule 11. On the other hand and in the second place—I think the word ‘succession’ does cover any case of the transfer by one trader to another of the right to that benefit which arises from connection and reputation. The question whether there is in any particular case a ‘succession’ or not is a question of fact.” Those observations of the learned Lord President might be sufficient to enable one to say that in the present case in all the circumstances there really was a succession. However, 1 will base my judgment upon the view not that there was a succession but that there was throughout a firm which went on continuously year after year carrying on the business of buying and selling jute and that whenever an agreement was entered into between Mr. Gregory and a “financier” there was merely a change in the composition and constitution of that firm within the contemplation of subsection (1) of Section 26 of the Indian Income Tax Act, 1922.

49. I would, therefore, say that the view taken by the Commissioner of Income-Tax, Bengal, as set out in paragraph 8 of the case, at any rate so far as it relates to sub-section (1) of Section 26 is correct.

Panckridge, J.:— The question of law referred to the High Court by the Commissioner of Income-Tax, Bengal, under Sec. 66(2) of the Indian Income Tax Act, 1922, concerns the assessment for the tax year 1932-33 of a partnership firm known as G.I.M Gregory & Co., consisting of one Mr. Gregory and a Marwari firm known as Messrs. Champalal Kothari and carrying on business under a deed of partnership dated July 2, 1931.

50. Paragraph 3 of the Commissioner's statement gives the history of the firm of G.I.M Gregory & Co. There is no need for me to set the paragraph 3 out inasmuch as it forms part of the judgment delivered by my Lord the Chief Justice.

51. The relevant provisions of the deed of July 9, 1930, are the following:

52. The partners are to work a jute business at (A) Baira (District Dacca), (B) Purbadhalla (District Mymensingh) for the jute season 1930-31 in the name of G.I.M Gregory & Co. The working capital is to be supplied by Messrs. Jaidayal Kasera & Co. who are to receive interest thereon at the rate of 9% per annum. Gregory is to be paid a monthly salary of Rs. 450, during the 12 months of the jute business. The nett profits at the end of the jute season 1930-31 are to be shared “in the above two agencies” in the proportion of 8 annas to Gregory and 8 annas to Messrs. Jaidayal Kasera & Co. Although the duration of the partnership is not precisely defined it is clear that the intention was that it was to continue from July 1, 1930, to June 30, 1931. I mention this because the actual business of buying and selling jute is seasonal—starting in July of one year and ending in February of the following year. A submission based on this fact was advanced at a late stage of the case to the effect that the partnership terminated in February. In view of the provision as to twelve months' salary this appears to be an impossible contention.

53. The arrangements made by Gregory for finance during the jute season 1931-1932 are embodied in the deed of partnership of July 2, 1931.

54. By this deed it is provided that Gregory and Messrs. Champalal Kothari will work as partners a loose jute business at Baira (District Dacca) for the jute season 1931-32. Messrs. Champalal Kothari are to supply the working capital and to receive interest thereon at 9%

55. Clause 4 provides for Gregory's remuneration.

56. Clause 11 provides:

“Some of the old staff of employees both up-country and in Calcutta selected by Mr. G.I.M Gregory and Messrs. Champalal Kothari, that have worked for many years for Mr. G.I.M Gregory's firm (with exception of the cashier and Durwans) will be employed.”

57. By clause 13:

“Sales and shipments will be made in the name of Messrs. G.I.M Gregory & Co. under the mark of the G.I.M Gregory & Co. and complete control of the assortment will be in the hands of Mr. G.I.M Gregory and his representatives at the agency”,

58. Finally the profits for the jute season 1931-1932 are to be divided in the proportion of 8 annas to Gregory and 8 annas to Messrs. Champalal Kothari.

59. A third deed of partnership dated July 28, 1931 is annexed to the case. The parties to it are Gregory and Sovachand Sohanlal (apparently another marwari firm). The deed provides that the partners shall work together a loose jute business at Kenduakalibari for the jute season 1931-32. The terms of the deed need not be set out in detail. Although they differ in some respects from the terms of the deeds of July 9, 1930, and July 1, 1931, the general scheme is the same—that is to say Gregory is to work the business under the name of G.I.M Gregory & Co. the finance being found by Sovachand Sohanlal. It should be added that Kenduakalibari is in the district of Mymensingh.

60. It will be convenient to refer to G.I.M Gregory & Co. as constituted under the deed of July 9, 1930 as the “the old firm”, and to G.I.M Gregory & Co. as constituted under the deed of July 2, 1931, as “the new firm”.

61. The assessment on the new firm for the year 1932-33 was made under Section 23(3) of the Act. In the assessment form the name of the assessee is given as “G.I.M Gregory & Co., 12 Clive Street, Calcutta, and the names of the partners as “G.I.M Gregory” and “Champalal Kothari”.

62. It would appear from the form that the assessees had made a return of income, which represented Gregory's estimate of the profits of the old firm for the jute season 1930-1931.

63. Throughout, assessment of the new firm for the tax year 1932-33 was made on the basis that it was liable to be assessed on the profits by the old firm in the previous tax year 1931-1932, i.e, profits of the jute season 1930-1931.

64. According to the Income-tax authorities this liability arises by reason of the provisions of Section 26(2) of the Indian Income Tax Act. That sub-section reads as follows:

“Where, at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year.”

65. The Income-tax authorities take the view that the new firm have succeeded to the business of the old firm.

66. There is an alternative submission that the new firm and the members thereof are assessable under Section 26(1) there having been a change in the constitution of the firm within the meaning of that sub-section.

67. The findings of fact, the point of law for our decision, and the Commissioner's opinion thereon, are to be found in paragraphs 7 and 8, They are as follows:

“7. In this case it is clear that the trade name, the trade mark, and the benefit arising from the connection and reputation of Mr. Gregory, have passed from the previous firm to the firm as now assessed though no tangible assets or liabilities have so passed, and the question which I would state arising out of this matter may be formulated as follows:—

‘Whether in these circumstances there has been a succession within the meaning of Section 26(2) of the Indian Income Tax Act or in the alternative whether Section 26(1) applies or on a true construction of the law applicable to the facts of this case it should be held that a change has occurred in the constitution of the firm.”

68. In my respectful view, in order to constitute succession it is not necessary that any tangible assets should pass from the preceding to the succeeding firm and that in this case where the trade name, trade mark, goodwill, and reputation of Mr. Gregory as a buyer of raw jute, have all been taken over by the new firm, there is a succession in law within the meaning of the section. In the alternative I would argue that Section 26(1) is applicable and that on the facts as found a change has occurred in the constitution of a firm. In other words, the firm carrying on business for a number of years has been G.I.M Gregory & Co. in which Gregory is the active partner and all that has happened ‘is that the constitution of the firm has changed from year to year or after a number of years. That Gregory is a real partner and not a mere employee remunerated by a share of the profits is cleiar from the terms of the various partnership agreements as also from the fact that his share in this business is never less than 8 annas in the rupee.

69. The following points are taken by the assessees:

First, they emphasize the fact that no tangible assets passed from the old firm to the new. This appears to me to be a matter of very little importance. The business of G.I.M Gregory & Co. was to buy jute and sell it at a profit in the same jute season. If at the end of one jute season there was stock to carry over to the next, that would only mean that the business had not been carried on according to plan, something untoward having happened, like overpurchasing, or default on the part of a buyer.

70. Next it is urged that there is no document transferring the goodwill, the jute marks or the firm name of G.I.M Gregory & Co. from the old firm to the new, ahd it is said, no doubt with accuracy, that in all the reported cases where it has been held that there has been a succession there has been some document of transfer. In my judgment it is not necessary to determine to whom the goodwill, the marks and the firm name legally belong. The important thing is that the new firm did in fact use them in their business, and each one is a factor to be taken into account in deciding whether that business was one, in respect of which the new firm should be regarded as the successor of the old. I do not think that much attention need be paid to the consideration that have weighed with English Courts based upon the provisions of English Tax Laws, whereby an average of the profits of three preceding years is taken to be the measure of the profits of the year of tax. I say this because the scheme of the Indian Income Tax Act is different. The tax in India is paid in arrears on the profits of the previous year not in advance on the profits of the year of assessment conventionally estimated on the basis of the profits of the previous year, see In the matter of Behari Lal Mullick. In other words, the successor to a business, profession or vocation, is under a statutory liability, imposed by Section 26(2) in respect of the profits earned in the previous year by the person he succeeds.

71. An argument which to my mind is of considerably greater substance is based on the fact that, whereas under the deed of July 9, 1930, the jute business of the old firm was at Baira and Purbad-halla, the jute business of the new firm was under the deed of July 2, 1931, at Baira only.

72. I may say I do not think that the way that the Commissioner has dealt with this point is particularly happy. He says. “The business is not that of buying jute at a particular centre, or a number of particular centres in the mofussil, but the business is that of buying jute wherever it can be bought to advantage in the mofussil and selling the jute in Calcutta.”

73. It seems inaccurate to say that the business was that of buying jute wherever it could be bought to advantage in the mofussil, when the deed specifically provides that the business shall be carried on, in one case at Baira and Purbadhalla, and in the other case at Baira.

74. At the same time the fact that the business was to be carried on in the first two places during the year 1930-1931, and in the second place only during the year 1931-1932, does not in my opinion of itself make the business carried on during the second season a different business from that carried on in the first season.

75. We have been referred to The Commissioner of Income-Tax, Burma v. N.N Firm, (I.L.R 11 Rangoon 501).

76. In that case a Hindu joint family had partitioned the joint family property by mutual consent, four of the members buying out the share of the fifth in a rice mill, which formed part of the family assets. These four thereafter worked the rice mill and carried on a money lending business under the same name and style and in the same premises, as a similar business formerly carried on by the joint family. The fifth member also carried on a money lending business employing therein the assets he had obtained as a result of the partition. It was held that the family business had been split, and at most the four members could only be considered as succeeding to a part of it. In consequence they had not succeeded to the business within the meaning of Section 26(2). In the case before us, however, there is nothing to indicate splitting. It is in my opinion impossible to connect the business carried in partnership with Messrs. Sovachand Sohanlal at Kenduakalibari in 1931-32 with the Purbadhalla branch of the old firm.

77. With regard to the Kenduakalibari business the Commissioner observes: “The agreement, subsisted only for a very short time (the Income Tax Officer says for 10 days and the assessee for one month) and when it ceased Gregory drew merely a royalty or commission from this business on the strength of the fact that jute handled bore his business mark.”

78. Nevertheless looking only at the facts set out in the Commissioner's statement, I should hesitate to hold that they by themselves constituted “succession” within the meaning of Section 26(2), and, if there were no other materials available it might be necessary for us to refer the case back to him under Section 66(4).

79. Counsel for the assessees argues that we are not entitled to look beyond the Commissioner's specific findings of fact, and that, if they are not sufficient to justify his opinion, we must either refer the case back or decide in favour of the assessees. In my opinion this is an unnecessarily narrow interpretation of our powers under Section 66(5). The point of law to be decided is not a hypothetical point, but a specific point raised by the facts of the particular case. The documents and proceedings annexed to the statement of the case, are annexed for our consideration, and we are entitled to look at them. To shut our eyes to them because there is no specific reference to them in the body of the statement, appears to me to be a trifle pedantic.

80. After all, the question of succession is at the bottom a question of fact, though the question, whether a particular set of facts amount to succession within the meaning of the sub-section is a question of law.

81. It ultimately depends on the identity of the business carried on by the assessees with the business to which they are said to have succeeded. In my judgment the admissions and conduct of the assessees with regard to the business are of the greatest assistance in arriving at a decision on this point. The more one looks at the documents, the more difficult it becomes to avoid the conclusion that the assessees never conceived that the business of the new firm was not identical with the business of the old firm, until it was pointed out to them that, if they could successfully maintain that there was no succession, they would not be liable to be assessed in respect of the profits of the old firm in the jute season 1930-31. As I have pointed out the assessees returned the income of the old firm as their assessable income. The Income Tax Officer's order shows that Mr. Gregory as representing the assessees stated that there had been change in the firm, Messrs. Champalal Kothari having become a partner in place of Messrs. Jaidayal Kasera.

82. When called upon to produce the books of the old firm Mr. Gregory did not dispute their relevance, but pleaded his inability to do so, as the books were with Messrs. Jaidayal Kasera & Co. This was on September 27, 1932.

83. Before the Assistant Commissioner on December 29, 1932, the only points taken were the refusal of the Income-tax Officer to register the assessees, and the quantum of the assessment.

84. On January 19, 1933, the assessees filed a petition before the Commissioner asking that the mistake may be rectified “by registering your petitioners' firm”.

85. The language of paragraph 2 of the petition is significant:

“That your petitioners had hithertofore been always assessed as a Registered firm under the Income Tax Act constituting Mr. Gregory and Messrs. Joydoyal Kasera & Co. as partners both holding equal shares in the profits as well as losses arising out of the business. The said partnership was dissolved on 30th June 1931 and succeeded over by a new firm running under the same style Messrs. G.I.M Gregory & Co. which constituted Mr. G.I.M Gregory and Messrs. Champalal Kothari as two partners with the privileges to enjoy equal shares in the profits and suffer the losses in the same proportion. The fresh partnership instrument was drawn up actually on 2nd July 1931.”

86. The petition goes on to explain that owing to a misunderstanding Mr. Gregory had incorrectly informed the Income Tax Officer on September 27, 1932, that there was no deed of partnership in respect of the new firm, whereas in fact such a deed had been executed on July 2, 1931.

87. It is not until June 193 that the assessees, after taking expert advice, contended that there had been no succession.

88. Now I attach no importance to the use of the word “succeeding” in the petition of January 19, 1933, but taking the conduct and language of the assessees as a whole, it is to my mind perfectly clear that it never entered in the minds of the assessees that the business of the new firm was not identical with the business of the old firm. In my opinion the assessees treated it as the same business, and it was in fact the same business. In these circumstances I hold that the opinion of the Commissioner is correct and that the assessees succeeded to the business of the firm of G.I.M Gregory & Co., as constituted under the deed of July 9, 1930, within the meaning of Section 26(2) of the Indian Income Tax Act.

89. I am of opinion that sub-section (2) is applicable rather than sub-section (1) because I am inclined to the view that sub-section (1) has only application when a change occurs in the constitution of a firm or a firm is newly constituted during the currency of a partnership and that the sub-section has no application where, as in this case, the new or succeeding firm comes into existence after the term of the former partnership has come to an end owing to effluxion of time. This however is in the circumstances a question of only academic interest because in the result I agree with the opinion of Mr. Justice Costello, namely, that the assessees arepro-perly assessable in respect of the profits of the firm of G.I.M Gregory & Co. constituted under the deed of July 9, 1930, for the jute season 1930-31. By the Court—The answer to the first part of the question under Section 26(2) is ‘yes’. As regards the second part we must take the judgments as delivered.

90. Each side will pay its own costs.

Reference answered.