# Jabar Singh v. Genda Lal

- **Citation:** [1964] 6 S.C.R. 91
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** A. K. Sarkar, M. Hidayatullah, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jabar-singh-v-genda-lal-3231
- **Pages:** 39

## Headnote

Income Tax Act (II of 1922). s. 25(3) and (4)-Firm carrying on
business in 1918-Disintegration into two firms-If discontinuance of
business .
By s. 25(4) of the Income-tax Act, 'Where the person who was at
the commencement of the Indian
Income-tax
(Amendment) Act,
1939 .... carrying on any business, profession or vocatioa in which tax
was at any time charged under the provisions of the Indian Incometax 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."
A firm bearing the same name as the appellant firm, had been
carrying on business from before 1918
and
had
paid tax on that
business under the Income-tax Act, 1918.
The firm did three kinds
of businesses, namely, (a) in piece-goods, yarn as general merchants,
1961
Jabar Singh
v.
Genda Lal
Ayyangar J.
1963
December, 20
SUPREME COURT REPORTS
[1964]
1963
(b) in the manufacture and sale of umbrellas and (c) in the manus .1 N
.
p
facture and sale of soaps.
There were various changes in the conar
ag1ee
uru-
.
.
shotham & Co. s!Jtuhon of the firm between 1918
and
1934.
In May 1939 two
T.
Commissioner
Income-taz,
Madras
documents were executed, one by the then members of the firm, and
of a stranger H. being Ex. CI and the other by those members alone,.
being Ex. CII.
It appeared from Ex. CI that the business in the
manufacture and sale of umbrellas and soaps was being carried on from
October-November 1937 by the parties to it as partners while Ex. CII
showed that the parties to it had been carrying on the business in yarn,
piecegoods and as general merchants as partners from the same time
as mentioned in Ex. CI.
On October 30. 1943 a document styled as.
an agreement of partnership was executed by five persons who were
then the persons interested in the
businesses
carried on . under the
instrument of May 30, 1939.
This
document
referred to the two
agreements of partnership of May 30, 1939 and certain subsequent
retirements of partners and admissions of new partners and provided
that the businesses previously
carried on
by
the two partnerships
referred to in the instruments of ~fay 30, 1939, wou~d thereafter be
carried on by one single partnership constituted by the parties to
it.
Thereafter all the businesses aforesaid were carried on by this single
partnership.
The firm constituted by the instrument of October 30,
1943 continued with certain changes in its constitution till February
7, 1948 when the then partners of: it entered into an agreement with
a company to transfer the business of the firm to the latter, the transfer
to be completed by February 13, 1948 and the transfer was in fact
made.
The firm constituted by the document of October 30, 1943
claimed relief under S· 25(4) in assess1nent for the years 1948-49 and
1949-50 on the ground that it had been carrying on a business on
April 1, 1939 when· the Income-tax (Amendment) Act, 1939 commenced
to operate on which business tax had been charge'd under the Act of
1918 and that it was succeeded
in
that
business by a company in
February J 948.
Held: (per Sarkar and Shah JJ.). The assessee was not entitled tothe relief.
Exs. CI and CII showed that the busihess that had been carried on
by the firm existing in 1918 was discontinued in October /November 1937
and its businesses were split up into two and from then carried on by
two independent partnerships brought into existence by those documents.
The old firm was brought to an end by Exs. CI and CIT.
When a business carried on in one unit is disintegrated and divided
into parts, the parts are not the whole, though all the parts taken
together constitute the whole.
In such case there is a discontinuance
of the original businesses.
S. N. A· S. A. Annamalai, Chettiar v. Commissioner of Income-tax~
Madras, 20 I. T. R. 238. referr

## Text

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fJ S.C.R.
SUPREME COURT REPORTS
91
tained allegations only as regards 6 and not as regards the
rest. This would mean that the Tribunal had no jurisdiction
to find that more than 6 votes had been improperly rejected
in his case. If the votes regarding which no plea of impropriety had been raised by Jabar Singh were eliminated, it
would follow that as a result of the final scrutiny Genda Lal
had obtained properly 5,660 valid votes as against 5,658 polled by Jabar Singh.
The result of the election, therefote,
was materially affected by the improper reception or refusal
of votes and therefore I consider that the election of J a bar
Singh was properly set aside and that is why I concur in
the order that the appeal should be dismissed.
Appeal dismissed.
SAIT NAGJEE PURUSHOTHAM AND CO.
v.
COMMISSIONER OF INCOME-TAX, MADRAS
(A. K. SARKAR, M. HIDAYATULLAH AND J. C. SHAH JJ.)
Income Tax Act (II of 1922). s. 25(3) and (4)-Firm carrying on
business in 1918-Disintegration into two firms-If discontinuance of
business .
By s. 25(4) of the Income-tax Act, 'Where the person who was at
the commencement of the Indian
Income-tax
(Amendment) Act,
1939 .... carrying on any business, profession or vocatioa in which tax
was at any time charged under the provisions of the Indian Incometax 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."
A firm bearing the same name as the appellant firm, had been
carrying on business from before 1918
and
had
paid tax on that
business under the Income-tax Act, 1918.
The firm did three kinds
of businesses, namely, (a) in piece-goods, yarn as general merchants,
1961
Jabar Singh
v.
Genda Lal
Ayyangar J.
1963
December, 20
SUPREME COURT REPORTS
[1964]
1963
(b) in the manufacture and sale of umbrellas and (c) in the manus .1 N
.
p
facture and sale of soaps.
There were various changes in the conar
ag1ee
uru-
.
.
shotham & Co. s!Jtuhon of the firm between 1918
and
1934.
In May 1939 two
T.
Commissioner
Income-taz,
Madras
documents were executed, one by the then members of the firm, and
of a stranger H. being Ex. CI and the other by those members alone,.
being Ex. CII.
It appeared from Ex. CI that the business in the
manufacture and sale of umbrellas and soaps was being carried on from
October-November 1937 by the parties to it as partners while Ex. CII
showed that the parties to it had been carrying on the business in yarn,
piecegoods and as general merchants as partners from the same time
as mentioned in Ex. CI.
On October 30. 1943 a document styled as.
an agreement of partnership was executed by five persons who were
then the persons interested in the
businesses
carried on . under the
instrument of May 30, 1939.
This
document
referred to the two
agreements of partnership of May 30, 1939 and certain subsequent
retirements of partners and admissions of new partners and provided
that the businesses previously
carried on
by
the two partnerships
referred to in the instruments of ~fay 30, 1939, wou~d thereafter be
carried on by one single partnership constituted by the parties to
it.
Thereafter all the businesses aforesaid were carried on by this single
partnership.
The firm constituted by the instrument of October 30,
1943 continued with certain changes in its constitution till February
7, 1948 when the then partners of: it entered into an agreement with
a company to transfer the business of the firm to the latter, the transfer
to be completed by February 13, 1948 and the transfer was in fact
made.
The firm constituted by the document of October 30, 1943
claimed relief under S· 25(4) in assess1nent for the years 1948-49 and
1949-50 on the ground that it had been carrying on a business on
April 1, 1939 when· the Income-tax (Amendment) Act, 1939 commenced
to operate on which business tax had been charge'd under the Act of
1918 and that it was succeeded
in
that
business by a company in
February J 948.
Held: (per Sarkar and Shah JJ.). The assessee was not entitled tothe relief.
Exs. CI and CII showed that the busihess that had been carried on
by the firm existing in 1918 was discontinued in October /November 1937
and its businesses were split up into two and from then carried on by
two independent partnerships brought into existence by those documents.
The old firm was brought to an end by Exs. CI and CIT.
When a business carried on in one unit is disintegrated and divided
into parts, the parts are not the whole, though all the parts taken
together constitute the whole.
In such case there is a discontinuance
of the original businesses.
S. N. A· S. A. Annamalai, Chettiar v. Commissioner of Income-tax~
Madras, 20 I. T. R. 238. referred to.
.. ,
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ti S.C.R.
SUPREME COURT lZEPORTS
93
1963
..
The business on which tax had been charged under the Act of 1918
was not being carried on on April 1, 1939 by the firm which had paid
tax under that Act.
Sait Nagjee Purushotham & Co.
•
•
v.
The business to which the company succeeded under the agreement Commissioner of
of February 7, 1948 cannot before the succession be said to have Income-tax.
·been carried on by a firm which was carrying on business on April 1, Madras
1939, for that firm had been newiy formed under the instrument of
October 30, 1943, which expressly revoked, the partnership agreements
of May 30, 1939 under which two firms
had
been brought into
existence.
Per, Hidayatullah J. (disserlting) (i) Sub-ss. (3) and (4) of s. 25
of the Act are mutually exclusive: sub-s. (3) was only applicable when
·the business was discontinued and that in the term "succession" was
not to be included a change in the constitution of the partnership.
In sub-s. ( 4) the emphasis is on succession to a person who on April
1, 1939 was carrying on any business on, which tax was at any time
charged under the Act 1918. In sub-s. (3) the emphasis is on the discnntinuance of the business which had paid tax under the Act 1918.
(ii) There is difference of approach to the same facts under the law
-0f partnership and the Income-tax law .
Charandas v. Haridas, ( 1960)39 I. T. R. 202 and Dulichand v .
. Commissioner of Income-tax, Nagpur, [1956] S.C.R. 154, referred to..
(iii) Discontinuance of a firm is not a mere change in the constitution of the firm or even succession w!iere, though the business
changes hands, the original business which paid the tax in 1918 is
,carried on.
Shivram Poddar v. Income-tax, .Officer, C. A. No.
455
of
1963
,dated December 13, 1963, referred to.
(iv) All cases of discontinuance of businesses are treated under
I
.sub-s. ( 3) and all cases of succession under sub-s. ( 4) an'd all cases of
·mere change in the constitution of the firm are neither cases under
sub-s. (3) nor under sub'%. (4). These
sub-sections do not apply to
cases where the business was not in existence before the Act 1922 came
into force.
Ambalal Himutlal v. Co111missio11er of Income-tax and Excess Profits
Tax, Bombay North, (1951) 20 I.T.R. 280, referred to.
( v) Since the soap and umbrella businesses were not in
existence
and no relief could be claimed in respect of these businesses changes
in respect of them were irrelevant.
'
(vi) by the expression "'discontinued" in sub-s. (3) is meant complete cessation of business.
In the present case it could be said that
this had taken place in respect of the piece-goods business; this might
94
SUPREME COURT REPORTS
[r9b4J
1963
have been managed by persons other than those who had paid the tax
0
•1 N
.
p
under the 1918 Act, but the business was not discontinued
for
the
i.>DI
ag1ee
uru-
.
.
shotham & Co. apphca!ion of sub-s. (3).
v.
Commissioner of
Income-tax,
Madras
Co1nn1issioner of Income-tax, Bombay v. P. E. Polson, ( 1945) 13
I. T. R. 384.
Commissioner of Income-tax,
West Bengal v. A. W.
Piggies and Co. [1954] S. C. R. 171 and Mevoppar v. Commissioner
of Income-tax. Madras. I. L. R. (1.944) Mad. 166, referred to.
(vii) In the present case there was no succession and it falls within
the rule laid down by this Court in Figgies' case.
(viii) Though a firm was to be regarded as an entity for the purpose
of the Income-tax Act, that entity was not to be taken to be disturbed
by the coming in or going out of partners.
Applying the test to the
present case it was held that the identity of the entity was never lost
and there was never a succession till the year 1948.
No question of
the dissolution of the old firm in piece-goods business ever arose. It
continued right through, even other newly 'started businesses were owne'd
by it.
It cannot be said that the old firm ha·d either discontinued or
had been succeeded by another
person.
Hemchand
was a mere
employee though described as a partner. The entry of Hemchand did
not constitute a dissolution of the old firm.
Comrnissioner of Income-tax,
Bombay City v. Kolhia Hirdagarh
Co. Ltd., Bombay, (1949) 17 I. T. R.
545
and
Commissioner
of
Income-tax, Bombay City v. Sir Homi Metters Executor, (1955) 28
I. T. R. 928, referred to.
(ix) The appellants are entitled to succeed in their
claim
regarding the business in piece-goods yarn and banking
which
alone
had
paid tax under the 1918 Act.
CIVIL
APP ELLA TE
JURISDICTION:
Civil
Appeals
Nos. 275-276 of 1963.
Appeals by special leave from the judgment and order
dated May 2, 1960 of the Kerala High Court in Income-tax.
Referred case No. 98 of 1955(Ml.
S. T. Desai, C. V. Mahalingam, B.
Parthasarathi and
J. B. Dadachanji, for the appellant (in both the appeals).
K. N. Rajagopa/ Sastri and R. N. Sachthey, for the respondent (in both the appeals).
I
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•
6 S.C.R.
SUPREME COURT REPORTS
95
December 20, 1963.
The Judgment of A. K. Sarkar
1963
and J. C. Shah, JJ.
was
delivered by Sarkar, J. M. Sait Nagjee PuruHidayatullah, J. delivered a Dissenting opinion.
shotham & Ca.
v.
.
Commissioner · of
SARKAR J .-These two appeals anse out of assessments· Income-tax.
of the appellant to income-tax for the years 1948-49 and Madras
1949-50. The question in these appeals is whether on the Sarkar-,:-
facts to be presently stated, the appellant was entitled to
relief under s. 25 ( 4) of the Income-tax Act, 1922.
The appellant claimed relief under s. 25 ( 4) contending
that it had transferred its business to a limited company
with effect either from November 13. 1947 or February 13,
1948, by an instrument executed on February 7, 1948. The
claim was rejected by the Income-tax Officer and by the
Appellate Assistant Commissioner and also by the Incometax Appellate Tribunal on appeal to it. The appellant then
moved the Tribunal to refer a certain question to the High
Court at Madras under s. 66 (1) of the Act but that application was rejected.
It then moved the High Court under
s. 66 ( 2) of the Act and the High Court directed the Tribunal to refer the following question for determination by it:
"Whether, on fue facts and in the circumstances of
the case, the assessee is not entitled to relief
under section 25 ( 4) o; the Indian Income-tax
Act, and to what extent?"
The Tribunal duly drew up a statement of case and referred
the question along with it to the High Codrt. There were
really two references as there were two cases before the
Tribunal. These however were heard together by the High
Court and disposed of by one judgment. The High Court
held that the appellant was not entitled to any relief under
s. 25 ( 4). The present appeals are from the judgment of
the High Court.
The facts have to be stated at some length but before
we do that we think it would be profitable to set out the
statutory provisions concerned.
Though
we are directly
concerned with sub-sec. ( 4) of s. 25, a consideration of sub-··
sec. ( 3) of that section will throw useful light on the matter
1963
Sait Nagjee Purushotham & Co.
v.
·-Commissioner
of
Income-tax,
Madras
Sarkar J.
SUPREME COURT REPORTS
in question and so we set both these sub-sections out below:
s. 25 ...................... .
( 3) Where any business, profession or vocation on
which tax was at any time charged under the
provisions of the Indian Income-tax Act, 1918,
.......... is discontinued, then, unless there
has been a succession by virtue of which the
provisions of sub-section
( 4)
have
been
rendered applicable no tax shall be payable in
respect of the income, profits and gains of the
period between the end of the previous
year
and the date of such discontinuance ....... .
( 4) Where the person who was at the commencement of the Indian Income-tax (Amendment)
Act, 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 ..... .
Both these sub-sections gave a further right to the assessee
but with that right we are not concerned and shall, therefore, make no more reference to it.
Now it will be seen that under
sub-sec. (3) the discontinuance of the business gave rise to a relief from taxation in respect of its income provided however that there
had not been a succession to the business as mentioned in
sub-sec. ( 4) which, as will later be seen, has to be a succession taking place after April I, 1939.
The succession
contemplated in sub-sec. ( 4) again must have taken place
before the discontinuance for if the business is discontinued
it ceases to exist and cannot be succeeded to.
Sub-section ( 4) requires certain conditions to be fulfilled before a claim to relief under it can be made.
As
the present appeals relate only to a business carried on by a
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6 S.C.R.
SUPREME COURT REPORTS
97
firm, in discussing these conditions we will omit all refer1961
ences to the professions, vocations and owners of businesses Sait Nar/u p,,,.,..
oilier than firms. We would like to remind here that a firm
shotluzm cl Co.
is a taxable unit under the Income-tax Act and it is a person Commis;~.,, of
as that word is used in the Act. Now the first condition of lncomNax.
the applicability of sub-sec. ( 4) of s. 25 is that the bttSiness Madr~
must have been charged to tax under the Indian Income-tax Sarkor J.
Act, 1918. This Act was in force between 1918 and 1922
in which year it was replaced by the present Act.
So the
business must have been in existence
sometime between
1918 and 1922. Under the Act of 1918 tax was assessed,
computed and levied on the income of the year of assessment but under the Act of 1922 the scheme of assessment
of income and tax was modified.
By that Act tax was
assessed on the income of the previous year and the result
of the innovation was that the income of the year 1921-22
was assessed twice, once under the Act of 1918 and again
under the N::t of 1922 and it was because of this that relief
was given by sub-secs. (3) and ( 4) of s. 25. The second
condition of the applicability of s. 25 ( 4) is that that business must have been carried on at the commencement of
the Indian Income-tax Act (Amendment) Act, 1939, that
is, April I, 1939, by the person claiming the relief. The
third condition is that the person carrying on the business on
April 1, 1939 has to be succeeded by another person as the
owner carrying on the business. Obviously, the succession
indicated must have been after April 1, 1939, as we have
earlier stated, for a person carrying on a business on that
date can only be succeeded in that business by another
person on a date later than it. The fourth condition is that
the succession was not merely a change in the constitution
of the firm.
This condition, of course, is applicable only
where, as in the present case, the business was carried on by
a firm.
The appellant, who is the assessee in these cases, is a
firm. It contends that it had been carrying on a business on
April 1, 1939 from before and on that business tax had been
charged under the Act of 1918 and that it was succeeded
by a company as owner of the business as a result of a transfer by an instrument executed on February 7, 1948. The
appellant further contenifs that its constitution has changed
134-159 S.C.-7.
98
SUPREME COURT REPORTS
[1964]
1961
from time to time but the firm has never been dissolved so
Sait Nag/ee Puru- that it has been the same firm continuing and carrying on
1hotham & Co. the same business from before 1918 till the transfer aforeComm..ri~ner of said. It is on this basis that it claimed the benefit of s. 25 ( 4)
Income-ta.
of the Act.
Madra1
Sarkar /.
We now proceed to set out the facts of the case in a
chronological order. It \~ars that a firm
bearing the
same name as that of the appellant, that is, Sait (or Shah)
Nagjee Purshotham and Company was started in 1902 and
was reconstituted by an agreement of partnership dated
December 6, 1918. On the last mentioned date it carried
on busiri.ess in piece-goods, yarn, and other articles at Calicut with branches in Madras and Bombay. It also subsequently started a business of manufacture
and sale of
umbrellas but the precise date of the commencement of this
business does not appear from the record. Sometime about
1932 it started another business of manufacture and sale
of soap. For practical purposes the firm can be treated as
having been constituted by this document of December 6,
1918.
The partnership agreement of December 6, 1918
was between the following six persons, Purushotham,
N:igjee, Narayanjee, Krishnajee, Maneklal and Bhagwanjee.
Of these persons the last named was an outsider and the
rest were memliers of a family.
The agreement provided
that the withdrawal of a partner for whatever reason, would
not dissolve the partnership as between the remaining partners.
Krishnajee died in 1933 and
Bhagwanjee retired
about that time. On January 2, 1934, the remaining four
partners executed an instrument varying some of the terms
of the agreement of December 6, 1918. The instrument,
however, provided that subject to the variations made the
agreement of December 6, 1918 was to remain effective. It
is not in dispute that there was no dissolution of the firm
by the instrument of January 2, 1934. Thereafter on April
27, 1934 Purushotham died and the firm was then left with
three partners, namely, Nagjee, Narayanjee and Maneklal.
Then we get two instruments both dated May 30, 1939,
·each described as an agreement of partnership. One instrument, which is marked as annexure CI, was between
Nagjee, Narayanjee, Maneklal and Hemchand. The other
·instrument, which is marked as annexure C Il was between
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6 S.C.R.
SUPREME COURT REPORTS
99
Nagjee, Narayanjee and Maneklal. It will be necessary to
1961
mit out later some of the terms of these instrum~nts, .for on Salt Nag/•• p,,,..
them a large part of the arguments advanced m this case
shot/ram & co.
has turned. Briefly it may be stated here that the appellant Commi.J~,,., al
contends that these .agreements did not really create new lncom .. tu,
partnerships dissolving the existing one.
Its case is .. that Madru_
under annexure C I an outsider Hemchand was admitted as Sarkar. /.
partner in some of the businesses of the existing partnership, namely, the umbrella and soap businesses and by the
-0ther instrument, annexure C II, the other existing businesses
of that partnership, e.g., in yam, piece-goods, money-lending
etc., were continued by the subsisting partners mentioned
above.
The contention of the respondent, on the
other
hand, is that these two instruments show that the business
·of the existing firm had been split up into two and transferred to two different owners, namely, two newly constituted
Jirms with different partners, some of whom were no doubt
common, and this amounted to a discontinuance of the
business of the old firm.
It was contended that after such
discontinuance it could not be said that the same business
<>n which tax had been charged under the Act of 1918 was
being carried on on April l, 1939 and no question, therefore, of any subsequent succession to that business to make
'Sub-sec. ( 4) of s. 25 applicable, could arise.
We next have an instrument of October 30, 1943, also
styled an agreement of partnership, to which Narayanjee,
Maneklal, Jayanand, Leeladhar and Prabhulal were parties.
It refetS to the two "agreements of partnership of May 30,
1939" and certain retirements of partners and admission of
new partners and provides that the parties to the instrument
bad agreed to carry on "as one single partnership" the businesses carried on previously by the two partnerships referred to in the instruments of May 30, 1939.
One of the
contentions of the respondent is that even if it was not right
in its view of the instruments of May 30, 1939, this instrument of October 30, 1943 clearly evidenced a dissolution of
the partnership then existing and the creation of an entirely
new partnership to which the busines~ of the old firm was
,transferred. It was said that this was a succession to busj ..
:ness within the meaning of sub-sec. ( 4) of s. 25 and, there·
!fore, the later succession, if any, by the transfer of Febru-
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SUPREME COURT REPOR!S
[ 1964J
196J
ary 7, 1948 could not provide the basis for relief under
Id N;, Puru- s. 25 ( 4). Whether relief could be granted under the earlier
1hotluun 4 Co. succession, it was said, is irrelevant for such relief had never
c;,,,,,,,.;};k,.., of been claimed.
:.t':d':':""'
The last instrument to which we have to refer is the
agreement of February 7, 1948 between Maneklal, Jayanand, Leeladhar and Prabhulal as partners of the appellant
Sarkar J.
firm and a limited company formed to take over the business
of the firm. By this instrument the parties agreed that the
business of the firm would be transferred to the company
with effect from November 13, 1947, the transfer to be
completed on February 13, 1948 by payment of the consideration of Rs. 4 lacs by the vendee and delivery of possession of the assets of the business by the vendor. It is on
this instrument that the appellant, which is the firm constituted by Maneklal, Jayanand,
Leeladhar and Prabhulal,
claimed relief under s. 25 ( 4) in its assessment for the years
1948-49 and 1949-50.
There is no doubt that as a result of the instrument of
February 7, 1948 the Company succeeded to the business
that was being carried on by the firm of Nagjee, Purushotham and Company as then constituted
as aforesaid,
as
bankers, piece-goods and yarn merchants and as soap and
umbrella manufacturers and sellers. The question, however
is, was this firm a firm which had been carrying on a business on April 1, 1939 and which business had been charged
to tax under the Act of 1918? The High Court took the
view that it was not and we think, that that view is correct.
In our opinion, the business was discontinued in 1937 and
what was subsequently carried on was not the same businessWe now turn to annexures CI and C II dated May 30,
1939. Taking annexure C I first, the material portions of
this document are as follows:-
·
"This agreement of Partnership ...... between (I]
Nagjee .... (2) Narayanjee .... (3) Maneklal
.... and ( 4) Hemchand .... (hereinafter called the partners) witnesseth as follows:
Whereas Partners 1 to 4 have been carrying on a
business as partners from the
beginning
of
Samvat 1994 (=October-November 1937) in
..
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•
6 S.C.R.
SUPREME COURT REPORTS
101
the manufacture and sale of Soaps under the
1'63
name of 'The Vegetable Soap Works' Proprie- Sait N;;;. Purutor Sait Nagjee Purushotham & Co., and in
shotloam & Co.
the manufacture and sale of umbrellas in Calicut commis;;~ner of
with branches at Madras and Bombay under Income-ta,
the name and style of Sait Nagjee Purusho- Madrru_
tham & Co., Soap and Umbrella Merchants at Sarkar /.
Calicut and Madras and in the name of Sha
Nagjee Purushotham ··& Co., at Bombay hereinafter called the Firm;
And whereas it is thought advisable to reduce the
terms of the said partnership into writing for
the proper and oetter conduct of the business;
The Partners have agreed and also hereby agree to
the following:
( 1) The Firm shall continue to be as of old namely Sait Nagjee Purushotham & Co., Soap
and Umbrella Merchants.
The Firm shall
continue to do business in the manufacture
and sale of soaps under the name of the
'Vegetable ·Soap Works' and in
umbrellas
under the name of 'Sail Nagjee Purushotham
& Co., Soap and Umbrella Merchants
as
aforesaid with Head Office at Calicut and
branch at Madras under the same name and
branch at Bombay under the name of 'Sha
Nagjee Purushotham & Co.'
( 4) The business of the Firm shall consist mainly in the manufacture 8nd sale of soaps and
umbrellas and such allied products and such
other articles as all the partners or the majority of them may agree .
{ 8) It is always understood by the Partners herein that the Firm of Sait N agjee Purushotham
196$
Solt Nag/•• Puru·
lhotham & Co.
v.
Commi.uioner of
lncome·t0%,
Madra1
Sarkar. J.
102
SUPREME COURT REPORTS
[1g64}
(9)
& Co., Bankers, Piece-goods and Yarn merchants, Calicut, the partners whereof are the:
Partners 1 to 3 herein shall
advance
as.
heretofore all funds that are necessary for
the conduct of this Partnership ...... Such
advances shall be deemed as loan by the firm
of Sait Nagjee Purushotham & Co., Bankers,.
Piece-goods and Yarn Merchants to the:
Firm .....•..
Until otherwise
determined
by
Partners.
Nos. l, 2 and 3 in writing the Partnership
shall not borrow any amount from any one:
other than the Firm Sait Nagjee Purushotham & Co., Bankers, Piece-goods and Yam
merchants referred to in para 8 above.
(25) All the Partners hereby agree that Partners
1 to 3 herein are the Partners of the Firm of
Sait Nagjee Purushotham & Co., Bankers,
Piece-goods and Yam merchants, Calicut."
We now set out the material portions of annexure C II.
''This agreement of partnership ...... between (1)
Nagjee .... (2) Narayanjee .... and Manek·
Jal. ... hereinafter
called the
Partners
witnesseth as follows:
Whereas under the
Agreement of
Partnership
dated the 6th day of December 1918 . . . . ..
( 1 ) Purushotham . . . . ( 2) N agjee ... .
(3) Narayanjee .... (4) Karsanjee ... .
( 5) Bhagvanjee
( 6) Maneklal . . . . have
carried on a partnership
trade in
Piecegoods, Banking and other articles in Calicut
with branches at Madras and Bombay, and
Whereas (1) Purushotham . . . . ( 2) Karsanjee
.... and (3) Bhagvanjee .... ceased to be
partners either by retirement or death; and
'
t
6 S.C.R.
SUPREME COURT REPORTS
Whereas the remaining partners (1) Nagjee . . . .
1963
(2) Narayanjee .... and (3) Maneklal ... · sait NagJ•e Purusettled the claims in full of the partners who
shotham cl Co.
ceased to exist and agreed to carry on and Commis~~ ... , llf
continue and are
continuing the
existing Income-ta.
partnership business under the
name and ri,i;'f;: 1•
style of 'Sait Nagjee
Purushotham & Co.'
Bankers, Piece-goods and Yarn Merchants,
hereinafter called the 'Firm'; and
Whereas it is thought advisable and prudent to
reduce into writing the terms and conditions
agreed upon orally by them the
Partners
agree and have agreed to the following terms
and regulations· stipulated hereunder.
(2) The Agreement of Partnership dated the 6th
day of December 1918 is hereby revoked and
the affairs of the Firm shall be regulated and
governed by the Regulations agreed
upon
orally and reduced into writing in this Deed
and the ·terms and conditions of the revoked
deed shall not in future apply to the 'Firm'
except such as have been repeated in this
Deed.
(20) All the partners hereby agree that they in
their individual capacity are and
shall be
Partners also along with Hemchand Veerjee
Sait in a Partnership business in Soaps and
Umbrellas carried on in Calicut and Madras
under the name and
style of Sait Nagjee
Purushotham and Co., Soap and Umbrella
Merchants and in Bombay under the name
and style of Shah Nagjee Purushotham &
Co., the terms and conditions whereof are
embodied in an Agreement of
Partnership
dated 30-5-1939 signed by all the Partners.
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SUPREME COURT REPORTS
Lr964J
1963
It is clear that these two instruments recite events which
Sait Noa/•• Puru- had happened in 1937. Annexure CI shows that in Octo-
•hotham <l Co. her/November of that year a new partnership was started to
comm1sri~ner of do businesses of manufacture and sale of soap and umbrella
lncom•-tax,
between Hemraj and the remaining partners of the preMadra.
' .
firm f th
h
. N .
N
.
eXIstmg
o
e same name, t at 1s,
agiee,
arayaniee
Sarkar J.
and Manecklal. This is clear from the terms of the instrument which we have earlier set out.
We think it right
especially to draw attention to the terms of els. 8, 9 and
25 of annexure C I.
These indicate that there were two
firms, namely, one, of which the constitution appeared from
annexure C I and which carried on umbrella and soap businesses and the other, consisting of Nagjee, Narayanjee and
Manecklal carrying on other kinds of businesses the constitution of which appeared from annexure C II. Clauses (8)
and (9) show that one firm was to lend money to the other.
Such an agreement could not of course have been made
uriless the two firms were :;eparate.
By cl. ('25) all the
1 parties to annexure C I agreed that the firm constituted by
Nagjee, Narayanjee and M:t1eklal was a different firm.
Learned counsel relied on cl. 1 of annexure C I and
contended that it provided for the continuance of the old
firm, that is, the firm constituted by the instrument of
December 6, 1918 and hence no new firm had been created.
We think that this contention is without foundation. There
is no reference in annexure C I to the firm constituted by
the instrument of December 6, 1918. The word "firm" in
annexure C I refers to the partnership brought into existence
by it.
Clause 1 says that "The Firm shall continue to be
of old".
The word "old" refers to the partnership orally
brought into existence in October /November 1937 to which
reference is made in the first recital and to put down the
terms of which in writing, annexure C I was executed.
Likewise the provision in cl. 1 that "The Firm shall continue
to do business" refers to the continuance of the busi.ness
carried on prior to May 30, 1939 by the firm brought into
existence in October /November 1937 by the oral agreement. The continuance cannot be a continuance of the firm
or business of the partnemhip of 1918 for annexure C I
makes no reference to that partnership at all. It may be
..
'
,.,.
' \.
' ..
I
"
...
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SUPREME COURT REPORTS
105
that the partnership of 1918 was carried on in the same
1963
name as the firm referred to in annexure C I but we are not Sait Nagi•• Puru-
.aware that an identity of names establishes that the two
shotham & Co.
firms are same. It seems to us beyond question that the commis:~ ... r oJ
partnership mentioned in annexure C I is different from Income-tax,
the partnership which was brought about by the instrument Madras_
. of December 6, 1918 for the partners in the two firms were Sarkar J.
not the same. It has not been shown to us, neither do we
think, that where different groups of persons, some of whom
are common, carry on different businesses under different
agreements, they can form one partnership.
Further, as
clearly appears from annexure C II, the firm brought into
existence by the 1918 instrument was dissolved and a new
firm was started between Nagjee, Narayanjee and Manecklal
.after the retirement of Purushotham in 1934. If the 1918
firm was thus dissolved it could not, of course, be continued.
So the finn created by annexure C I could not have been a
-continuation of the 1918 partnership .. Therefore, the firtn
mentioned in annexure C I is a new firm and not the old
1918 firm reconstituted.
This position is reinforced by the terms of annexure C II.
First it is called an agreement of partnership, that is, agreement creating a partnership. The recital provides that the
remaining partners of the firm constituted by the instrument of 1918 agreed to carry on and continue the existing
partnership business.
Clause (2) states that the deed of
December 6, 1918 is revoked and the affairs of the firm
would be governed by the terms of annexure C II and the
conditions of the revoked deed were not to apply. It is
impossible after this to say that the partnership constituted
by the instrument of December 6, 1918 was not dissolved.
There is no warrant for the view for which the appellant
contended, that only the terms on which the business under
the document of December 6, 1918 was carried were revoked
and not the head agreement to do business in partnership.
The fact th:it an express agreement to carry on the business
in partnership was made (for which see the third recital in
annexure C ID further indicates that the agreement to that
effect in the instrument of December 6, 1918 was no longer
subsisting. In this case the term providing for the continu-
106
SUPREME COURT REPORTS
1963
ance must refer to the continuance of the business and not
Sait N-;;;. Puru- to the continuance of the, partnership agreement because
•lwtham & Co. that was expressly revoked. If this is not the correct view,
commisJ~nu of then cl. 20 would be inexplicable. That clause states that
lncc;r•·tax,
the partners in their individual capacity would be partners
Ma ra.r
with Hemchand in another business the terms of which
SarkD1' /.
partnership appear in another partnership agreement of the
same date and which is annexure C I.
This would show
that the old partnership of 1918 had given up doing some
of its existing businesses and it was decided to carry them
on under a new partnership agreement.
This ~ould support the view that the old partnership was dissolved for it
would not have otherwise given up those businesses.
The two instruments annexure C I and C II, therefore.
clearly establish that in October /November 1937 the business that was carried on by the firm of Sait Nagjee Purushotham and Co. till that date, was discontinued and its
businesses were split up into two and carried on by two
independent partnerships then brought into existence. When
this happens it is impossible to say· that the pre-existing
business was continued.
This view finds support from
S. N. A. S. A. Annamalai Chettiar v. Commissioner of
Income-tax, Madras(') where it was held that when a business carried on in one unit is disintegrated and divided into
parts, the parts are not the whole even though all the parts
taken together constitute the whole. That was a case of a
joint family
business
which on partition was split up
between different members of the family. It was held that
as a result of this splitting up there was a discontinuance of
the original business at the date of the partition and on such
discontinuance the family became entitled to relief under s.
25(3).
It. is of some significance to point out that the
partners constituting the appellant at the moment of the
transfer in 1948 also thought that in 1937 the old firm
ceased to exist and its business was carried on thereafter by
two independent
firms, for the document of October 30,
1943 has referred to annexures C I and C II as constituting
two independent partnerships and proceeded to revoke them
both and provided that the parties to the instrument "have
(r) 20 I. T. R. 238.
.. ,
I
•
I
6 S.C . .R.
SUPREME COURT REPORTS
107
agreed to carry on and continue as one single partnership
1963
business the existing partnership businesses of Sait Nagjee Sait Nagjee Puru--
Purushotham and Co., Bankers, Piece-goods and Yarn Mershotham & Co.
chants, Sait Nagjee Purushotham and Co., Soap and Um- commissf~ner ot
brella Merchants."
Income-tax.
Madras
Now when the b~iness on whic_h tax was charged. und~r Sarkar-;:-
the Act of 1918-which, it is not disputed, happened m this
case-was discontinued in 1937 it could not have
been
carried on on April l. 1939. What was then carried
on must have been some other business. So one of
the conditions on which relief under s. 25(4) of the Act could
be claimed was not satisfied and the claim would not be
maintainable.
Furthermore, for the reasons earlier stated, it must be
held that on April 1, 1939 the business, assuming its identity
to have continued in spite of the splitting up, · was being
carried on by two persons, n!lmely, t\vo firms w\th different
partners.
Now
the person· who transferred the business
which caused the succession in 1948 on which the appellant
relies for relief under s. 25(4), was a single firm. This latter
firm could not have been brought about by a change in the
constitution of an existing firm, for there were two existing
firms and they could not become one by simple changes in
their constitution.
Indeed the instrument of October 30,
1943 which brought the transferor firm, the appellant before
us, into existence, expressly states that "The Agreements of
Partnerships dated 30th May 1939 ...... are hereby revoked".
It follows that at the date the succession relied upon can
be said to have taken place, the business was being carried
on by a person different from those who carried it on on
April 1, 1939. So another condition of the applicability of
s. 25(4) of the Act is not satisfied. The claim for relief under
that section must fail on this ground also.
If it were to be said that the partnerships were brought
into existence on May 30, 1939 by annexures C I and C II
instead of in October/November 1937, then also the appellant's claim must fail.
Whenever the new partnerships were
brought into existence, the result would, in our view, necessarily be that the business of the old partnership which was.
108
SUPREME COURT REPORTS
!963
taken over by the two new firms must be deemed to have
.Sait Nagjee Puru- been discontinued.
On the principle stated in Annamalai
shotham & Co. Chetti1r' s case, (1) there could not in such a case be a sucCommis:~ner -~ cession of the business from one to another. That being so,
l"f:dme-tax.
there can be no question of the succession to the business
M
ras
carried on at the commencement of the Indian Income-tax
Sarkar /.
(Amendment) Act, 1939, that is, April 1, 1939 and on
which tax was charged under the Act of 1918 having taken
place in 1948 as claimed by the appellant. What was discontinued could not be succeeded to. Even if it was held
that on May 30, 1939, there was a succession to the business
which we do not think is a correct view to take, that also
would disentitle the appellant to relief under sub-sec. ( 4) of
s. 25 in the years 1948-49 and 1949-50, for it should, in
such an event, have claimed the relief in the year 1939-40.
In the result we have . come .to the conclusion that the
business which had been subjected to tax in 1918 had been
discontinued in October/November 1937 or on May 30,
1939 and it was not in existence in 1948 so as to permit a
succession to it taking pjace under the instrument of February 7, 1948.
The appeals, therefore, fail and they are
accordingly dismissed with costs.
Hidayatullah /.
HIDAYATULLAH J.-1 have had the advantage of reading the judgment just delivered by my
learned
brother
Sarkar J. but I have the misfortune to disagree with him in
his conclusion that these appeals must be dismissed. In my
judgment, these appeals must be allowed.
The facts have
been set out in detail by my learned brother and I shall content myself with repeating only such facts as are necessary
for the elucidation of my point of view.
The appellant is a firm which in• 1948 consisted of four
partners namely Manecklal Purushotham, Liladhar Narayanjee, Jayanand Nagjee and -Prabhulal Naranji.
It was
carrying on business mainly in piece-goods, yarn, banking
and manufacture and sale of umbrellas and soaps. Its head
office was at Calicut but it had branches at Bombay and
Madras.