# [1966] 2 S.C.R. 645

- **Citation:** [1966] 2 S.C.R. 645
- **Court:** Supreme Court of India
- **Decided:** 1965-11-19
- **Case number:** Civil Appeal No. 95 of 1964
- **Bench:** K. Subba Rao, J. C. Shah Ands. M. Siicri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1966-2-s-c-r-645-3732
- **Pages:** 6

## Headnote

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
b,,.,lne,. at commencement of Act 7 of 1939.
A Hindu undivided family was assessed to tax under the
Indian
Inrome-tax Act 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.
This firm was dissolved
on March 31, 1939 and its accounts were settled on and up to that date.
The timber busine~ of the dissolved firm was taken over by the assessee
firm.
An instrument of partnerhip fur 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
194344 the
assessee
claimed benefit under s. 25(3) or in the alternative o.
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 O>mmissioner of Income-tax, with certificate, appealed to the Supreme Court.
The material question for determination was whether the assessec
wa.• 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 !939 was
brought into force
on April 1.
1939. Sec'.ion 5(3) of the
General
Clauses Act (10 of 1897) provides that unless the contrary is expressed,
F
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, !939.
[648 D-EJ
G
H
Whether the assessee was carrying on business at the 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 rnparaie would
imply that the firm formed in 1934 did not do business after March 31,
1939. The assessee v.'as cons
1ituted to carry on
the
timber
business
allotted to it at the time of dissolution from April I, 1939. The timber
business was an old and running business and an intention to maintain
continuity of the business and its transaction':.\ may reasonably be attributed to the assessec. 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 th.at firm
continued up to
the midnight of March 31, 1939, and immediately thereafter the business
of the assessec commenced. [649 E-H; 650 Al
046
9UPlll!ME COUJ.T REPORTS
[1966] 2 S.C.R.
· The new partnership therefore came into being at the precise period
A
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
that 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.

## Text

•
' ..
•
A
COMMISS101'1~R OF INCOME-TAX, PUNJAB, PATIALA
B
c
D
E
v ..
R. B. JODHA MAL KUTHIALA
November 19, 1965
[K. SUBBA RAO, J. C. SHAH ANDS. M. SIICRI, JJ.]
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
b,,.,lne,. at commencement of Act 7 of 1939.
A Hindu undivided family was assessed to tax under the
Indian
Inrome-tax Act 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.
This firm was dissolved
on March 31, 1939 and its accounts were settled on and up to that date.
The timber busine~ of the dissolved firm was taken over by the assessee
firm.
An instrument of partnerhip fur 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
194344 the
assessee
claimed benefit under s. 25(3) or in the alternative o.
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 O>mmissioner of Income-tax, with certificate, appealed to the Supreme Court.
The material question for determination was whether the assessec
wa.• 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 !939 was
brought into force
on April 1.
1939. Sec'.ion 5(3) of the
General
Clauses Act (10 of 1897) provides that unless the contrary is expressed,
F
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, !939.
[648 D-EJ
G
H
Whether the assessee was carrying on business at the 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 rnparaie would
imply that the firm formed in 1934 did not do business after March 31,
1939. The assessee v.'as cons
1ituted to carry on
the
timber
business
allotted to it at the time of dissolution from April I, 1939. The timber
business was an old and running business and an intention to maintain
continuity of the business and its transaction':.\ may reasonably be attributed to the assessec. 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 th.at firm
continued up to
the midnight of March 31, 1939, and immediately thereafter the business
of the assessec commenced. [649 E-H; 650 Al
046
9UPlll!ME COUJ.T REPORTS
[1966] 2 S.C.R.
· The new partnership therefore came into being at the precise period
A
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
that 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.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 95
of
1964.
B
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
C
and R. N. Sachthey, for the appellant.
A. V. Viswanatha Sastri, T. A. Ramachandran, 0. C. Mathur
for the respondent.
The Judgment of the Court was delivered by
Shah, J. Hakam Mal Tani Mal a Hindu undivided family
D
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 partnershlp
to carry on in the name of M/s Hakam Mal Tani Mal the business
whlch was originally carried on by the undivided family. Accounts
E
of this firm were settled till March 31, 1939, a.,d 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 partnershlp to carry on the business in the
name of R. B. Jodha Mal Kuthlala-hereinafter called 'assessee'.
An instrument of partnership recording the terms of the partnerr
ship 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 G
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
B
assessment 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-
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•
'
C.I.T. V. J. M. KUTHIALA (Shah, J.)
647
A 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
B Tribunal agreed with the view of the Appellate Assistant Com•
missioner.
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 question of law for the opinion of the High Court :
c
D
E
F
G
H
"Wheher 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 anti 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 Income<
tax 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 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
648
SUPREME COURT REPORTS
[1966] 2 S.C.R.
period, and, if an amount of tax has already be.en 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 :
If>
"ded
..
:
fOVl
.••• · • •..•••••••
A
B
There is no dispute that the Hindu undivided family of
Hakam Mal Tani Mal was taxed under the Indian Incom(>-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, c
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 I, 1943. The High
Court disagreed with that view and opined that the assessee was
D
at the 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 I, 1939. Section 5(3) of the General
•
Clauses Act 10 of 1897 provides that unless the contrary is exE
pressed, 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
F
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 a~sessee reliance was placed
only upon the instrument of partnership which was executed on
June 29, 1939. The question in dispute must, therefore, be
G
determined on a true interpretation o/- 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 Kuthi-
. ala son of Lala Hakam Mal Sahib Sud Ktithiala of the
other part, residents of Haroli, District
Hoshiarpur.
and presently of Simla.
H
"
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•
A
B
c
C.I.T. V. J. M. KUTHIALA (Shah; J.)
Whereas we, the deponents, were partners
an!l
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 : "
649
The instrument of partnership in the first instance recites that the
accounts of Messrs. Hakam Mal Tani Mal were settled on March
D 31, 1939 and upto March 31, 1939. It is then recited that ail
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.
E 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
F Mal Tani Mal did not do business after March 31, 1939. The
date of the oral agreement constituting a separat~ partnership of
the ass.~ssee 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
G a 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
Messrs Hakam Mal Tani Mal become effective. In the absence
of other evidence, it may be held that the business of Messrs.
H Hakam Mal Tani Mal continued till the midnight of March 31,
1939, and immediately thereafter the business of the assessee
commenced.
650
SUPREME COURT
REPORTS
[1966] 2 S.C.R.
The partnership therefore came into being at the precise
point of time at which the Indian Income-tax (Amendment) Act
A
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.
B
The appeal fails and is dismissed with costs.
Appeal dismissed.
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