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PETITIONER: COMMISSIONER OF INCOME-TAX, PUNJAB, PATIALA

       Vs.

RESPONDENT: R. B. JODHA MAL KUTHIALA

DATE OF JUDGMENT: 19/11/1965

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SUBBARAO, K. SIKRI, S.M.

CITATION:  1966 AIR 1433            1966 SCR  (2) 645

ACT:      Indian  Income Tax Act 1922, s.  25(4)--Benefit  under- Business  assessed under Indian Income-tax  Act,  1918--Firm dissolved on March 31, 1939 and new firm took over  business from April 1, 1939--Act 7 of 1939 came into force from April 1, 1939--Firm whether carried on business at commencement of Act 7 of 1939.

HEADNOTE:      A Hindu undivided family was assessed to tax under  the Indian Income-tax Art 1918 in respect of its business, inter alia,  in  timber.   In 1934 there was  dissolution  of  the family and five of its members entered into a partnership to carry on the business.  Ibis firm was dissolved on March 31, 1939  and its accounts were settled on and up to that  date. The timber business of the dissolved firm was taken over  by the assessee firm.  An instrument of partnerhip for the  new firm  was  drawn  up on June 29, 1939  in  which  the  facts relating  to the dissolution of the earlier firm  were  also recited.   The new firm-the assessee-was also  dissolved  in March  1943.   In  assessment proceedings  for  1943-44  the assessee   claimed  benefit  under  s.  25(3)  or   in   the alternative  s.  25(4) of the Indian Income-tax  Act,  1922. The  claim  was  rejected by  the  assessing  and  appellate authorities  but  in reference, the High Court  allowed  the claim under s. 25(4).  The Commissioner of Income-tax,  with certificate, appealed to the Supreme Court.      The material question for determination was whether the assessee was carrying on business at the commencement of Act 7  of  1939  so as to be entitled to the  benefit  under  s. 25(4).      HELD:  The Indian Income-tax (Amendment) Act 7 of  1939 was  brought into force on April 1. 1939.  Section  5(3)  of the  General Clauses Act (10 of 1897) provides  that  unless the contrary is expressed, a Central Act or Regulation shall be  construed as coming into being on the expiration of  the day  preceding  its  commencement.   Act  7  of  1939   must therefore  be deemed to have come into operation at a  point of  time  immediately on the expiration of March  31,  1939. [648 D-E]      Whether  the assessee was carrying on business  at  the

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point of time which Act 7 of 1939 came into force had to  be decided  from the recitals in the partnership deed  executed by  the respondents on June 29, 1939.  The recitals  in  the instrument  that the accounts were settled up to  March  31, 1939  and  that the erstwhile partners had  become  separate would imply that the firm formed in 1934 did not do business after March 31, 1939, the assessee was constituted to  carry on  the  timber  business  allotted to it  at  the  time  of dissolution from April 1, 1939.  The timber business was  an old  and  running  business and  an  intention  to  maintain continuity   of  the  business  and  its  transactions   may reasonably be attributed to the assessee.  It must therefore be   held  that  the  assessee  commenced   doing   business immediately after the dissolution of the firm of 1934 become effective.   The business of that firm continued up  to  the midnight  of March 31, 1939, and immediately thereafter  the business of the assessee commenced. [649 E-H; 650 A] 646 The new partnership therefore came into being at the precise period of time at which Act 7 of 1939 came into force and it could  not  be said that the assessee was  not  carrying  on business  at the commencement of the  Act.  The  High  Court was  therefore  right  in  holding  that  the  assessee  was entitled on the dissolution of the firm in March 1943 to the benefit of s. 25(4) of the Indian Income-tax Act, 1922.

JUDGMENT:       CIVIL APPELLATE JURISDICTION: Civil Appeal No.  95  of 1964.       Appeal  from  the judgment and order dated  April  14, 1961 of the Punjab High Court in Income-tax Reference No. 23 of 1958.       S.  T. Desai, R. Ganapathy Iyer, Gopal Singh, B.R.G.K. Achar and R. N. Sachthey, for the appellant.       A.  V.  Viswanatha Sastri, T. A. Ramachandran,  O.  C. Mathur for the respondent.       The Judgment of the Court was delivered by       Shah,  J. Hakam Mal Tani Mal a Hindu undivided  family was  assessed to tax under the Indian Income-tax Act,  1918, in respect of income from business, inter alia, in timber at Abdullapur.   In  1934 there was a partition  of  the  Hindu undivided  family, and five members of that  family  entered into a partnership to carry on in the name of M/s Hakam  Mal Tani Mal the business which was originally carried on by the undivided  family.  Accounts of this firm were settled  till March  31,  1939, and the firm was  dissolved.   The  timber business  of the firm was taken over by two partners of  the firm-Gajjan Mal and Jodha Mal, who entered into an agreement of partnership to carry on the business in the name of R. B. Jodha   Mal  Kuthiala-hereinafter  called  ’assessee’.    An instrument  of  partnership  recording  the  terms  of   the partnership  and  reciting the dissolution  of  the  earlier partnership was executed on June 29, 1939.  The assessee was dissolved in March 1943.       In  assessment  proceedings for 1943-44  the  assessee contended  that  the  firm Messrs Hakam  Mal  Tani  Mal  was dissolved   on  March  31,  1939,  before   the   Income-tax (Amendment) Act 7 of 1939 had come into force and the  first succession to the business after April 1, 1939 was in  March 1943,  when the assessee was dissolved and on  that  account the  assessee was entitled to relief under S. 25(3),  or  in the alternative under s. 25(4) of the Indian Income-tax Act, 1922.   The  Income-tax  Officer  completed  the  assessment

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without giving to the assessee the benefit of sub-ss. (3) or (4) of s. 25 of the Indian Income-tax Act, 1922.  The Appel- 647 late Assistant Commissioner confirmed the order holding that succession  to the family firm Messrs.  Hakam Mal  Tani  Mal took  place  on  April  1, 1939, and  that  firm  alone  was entitled  to  relief  under  s.  25(4)  and  to  the  second succession which took place on April 1, 1943, after Act 7 of 1939  was brought into force relief under s. 25(4)  was  not admissible.   The Income-tax Appellate Tribunal agreed  with the   view   of  the   Appellate   Assistant   Commissioner. Thereafter as directed by the High Court of Punjab under  s. 66(2) of the Indian Income-tax Act, 1922, the Tribunal  drew up a statement of the case and submitted the following ques- tion of law for the opinion of the High Court :               "Whether in the facts and the circumstances of               the  case, the Tribunal is correct in  law  in               holding  that the assessee firm (R.  B.  Jodha               Mal Kuthiala, Abdullapur Depot, Simla) was not               entitled to the benefit provided in Section 25               (3)  or  25  (4) of  the  Income-tax  Act,  in               relation to the assessment in question ?" The  High  Court  held that the  assessee  was  carrying  on business  when Act 7 of 1939 was brought into operation  and was on that account entitled to the benefit of s. 25 (4)  of the  Act.  With certificate granted by the High Court,  this appeal has been preferred.      Sub-section  (4)  was inserted in s. 25 of  the  Indian Incometax Act, 1922, by the Income-tax (Amendment) Act 7  of 1939.  It provides :      "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  in- come, 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 648               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 :               Provided................      There is no dispute that the Hindu undivided family  of Hakam  Mal  Tani Mal was taxed under the  Indian  Income-tax Act,  1918, in respect of the, timber business  and  Messrs. Hakam  Mal,  Tani Mal succeeded to that  business  in  1934. Accounts  of  Messrs.  Hakam Mal Tani Mal  were  settled  on March 31, 1939, and the business in timber which was carried on  by  that  firm  was taken over  by  the  assessee.   The departmental  authorities held that the assessee was at  the commencement  of the Indian Incometax (Amendment) Act  7  of 1939 not carrying on business, and that it succeeded to  the business  on April 1, 1943.  The High Court  disagreed  with that   view  and  opined  that  the  assessee  was  at   the

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commencement  of  Act 7 of 1939 carrying  on  business,  and correctness of that opinion is challenged in this appeal.       The  Indian Income-tax (Amendment) Act 7 of  1939  was brought  into force on April 1, 1939.  Section 5 (3) of  the General  Clauses  Act 10 of 1897 provides  that  unless  the contrary is expressed, a Central Act or Regulation shall  be construed  as  coming  into  operation  immediately  on  the expiration of the day preceding its commencement.  Act 7  of 1939 must therefore be deemed to have come into operation at a  point of time immediately on the expiration of March  31, 1939.   The assessee contends, and the contention has  found favour  with the High Court, that the assessee was  carrying on  business  at the commencement of the  Indian  Income-tax (Amendment)  Act 7 of 1939.  In support of the plea  of  the assessee  reliance  was placed only upon the  instrument  of partnership  which  was  executed on  June  29,  1939.   The question in dispute must, therefore, be determined on a true interpretation   of   the  terms  of   the   instrument   of partnership.   Insofar  as it is  material,  the  instrument recites :                   "We, R. B. Jodha Mal Kuthiala son of  Lala               Gopi Mal Sahib Sud of the one part and  Gajjan               Mal  Kuthiala son of Lala Hakam Mal Sahib  Sud               Kuthiala  of  the  other  part,  residents  of               Haroli, District Hoshiarpur. and presently  of               Simla. 649                    Whereas we, the deponents, were  partners               and shareholders in the firm of Lala Hakam Mal               Tani  Mal Simla and all the partners  of  firm               Lala Hakam Mal Tani Mal understood and settled               their accounts upto the 31st of March 1939, on               the 31st of March, 1939, and all the  partners               have  become separate from the 1st  of  April,               1939,  and the business at Abdullapur  in  the               name  of  firm Hakam Mal Tani Mal  and  R.  B.               Jodha Mal Kuthiala has fallen to our share  to               run  which  we  have  by  means  of  an   oral               agreement  constituted a separate  partnership               styled  R. B. Jodha Mal Kuthiala,,  Abdullapur               from  the  1st of April, 1939.  Now  the  said               oral  (agreement) is being reduced to  writing               and we agree that :" The instrument of partnership in the first instance  recites that  the  accounts  of Messrs.  Hakam  Mal  Tani  Mal  were settled  on March 31, 1939 and upto March 31, 1939.   It  is then recited that all the partners had become separate  from April  1, 1939.  This is an ambiguous recital : it may  mean that the dissolution had taken place on April 1, 1939  i.e., the  business had continued for the whole or a part  of  the day  on April 1, 1939, or it may mean that from the  end  of March  31,  1939, there had been separation.   When  a  deed recites  that a transaction is effective from  a  particular date  it has to be determined in the context in  which  that expression  occurs,  whether the date mentioned  has  to  be excluded or to be included.  The recitals in the  instrument that the accounts were settled upto March 31, 1939, and that the partners had become separate, would imply that the  firm of Messrs Hakam Mal Tani Mal did not do business after March 31,  1939.  no  date of the oral  agreement  constituting  a separate  partnership of the assessee is not set out in  the instrument,  and there is no other evidence in that  behalf. But  the  assessee was constituted to carry  on  the  timber business  allotted  to it at the time  of  dissolution  from April 1, 1939.  The timber business was an old and a running

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business,  and  an intention to maintain continuity  of  the business  and its transactions may reasonably be  attributed to  the  assessee.   It  must therefore  be  held  that  the assessee  commenced  doing business  immediately  after  the dissolution  of  the firm Messrs Hakam Mal Tani  Mal  become effective.  In the absence of other evidence, it may be held that  the business of Messrs.  Hakam Mal Tani Mal  continued till  the  midnight  of  March  31,  1939,  and  immediately thereafter the business of the assessee commenced. 650 The  partnership  therefore came into being at  the  precise point of time at which the Indian Income-tax (Amendment) Act 7 of 1939 came into force and it could not be said that  the assessee was not carrying on business at the commencement of the  Indian Income-tax (Amendment) Act 7 of 1939.  The  High Court was, therefore, in our judgment, right in holding that the assessee was entitled on the dissolution of that firm in March 1943 to the benefit of s. 25(4) of the Indian  Income- tax Act. The appeal fails and is dismissed with costs.                             Appeal dismissed. 651