# Privy Council in Punjab Co-operative Bank Ltd v. Commissioner of

- **Citation:** [1954] 1 S.C.R. 171
- **Court:** Supreme Court of India
- **Decided:** 1951-01-09
- **Case number:** Civil Appeal No. 77 of 1952
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/privy-council-in-punjab-co-operative-bank-ltd-v-commissioner-of-242
- **Pages:** 7

## Headnote

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•
S.C.R.
SUPREME COURT REPORTS
171
should have resulted from such a course of dealing in
1953
securities as by itself would amount to the carrying on
Sardar Indra
of a business o~ buying and selling securities. It would Singh and Sona
be enough if such sales were effected in the usual course
Ltd.
of carrying on the business or, in the words used by the
v.
Privy Council in Punjab Co-operative Bank Ltd. v. Commissioner of
Income-tax Commissioner, Lahore('), if the realisation
Income-tax,
West Bengal.
of securities is a normal step in carrying on the assessee's
business. Though that case arose out of the assessment
Patanjali
of a banking business, the test is one of general appliSastri a. J.
cation in determining whether the surplus arising out
of such transactions is a capital receipt or a trading
profit.
The question is primarily one of fact and there
are numerous cases falling on either side of the line but
illustrating the same principle.
On the facts found in
regard to the nature and course of the company's business, there can be no doubt that the present case falls
on the Revenue's side of the line.
Agreeing with the High Court that there was ample
material upon which the Appellate Tribunal could arrive
at the conclusion which they did, we dismiss the appeal
with costs.
Appeal dismissed.
Agent for the appellant: S. 0. Banerjee.
Agent for the respondent: G. H. Rajadhyaksha.
COMMISSIONER OF INCOME-TAX,
WEST BENGAL
v.
A. W. FIGG}ES & CO., AND OTHERS.
[MEHR CHAND MAHAJAN, S. R. DAs and BHAGWATIJJ.]
Income-tax Act (XI of 1922), s. 25(4)-Firm paying tax i11 1918
-Conversion to limited co1npany in 1947-Right to relief under
s. 25(4)-0hange in personnel of jinn in 1939 and 1947, effect of.
For purposes of assessment to income-tax, a firm is a different
entity distinct from its partners, and a mere change in the constitution of the firm does not bring into existence a new assessable
unit or a distinct assessable entity.
(1) 67 LA. 464, 481,
1943
Sep. 24.
172
SUPREME COURT REPORTS
[1954]
1953
A firm consisting of three partners, A, B and C, carried on the
business of tea brokers and paid income-tax under the Income-tax
oOmmissioner of Act of 1918.
There were several changes in the personnel of the
lncorne-tax,
partners and in 1939 the firm consisted of C, D-a.nd E.
C retired
1Vest Bengal
and in 1945 a new partnership deed was written up between D, E
y.
and F and they carried on the business. In 1947 the partnership
A. W. FiggieM
was converted into a limited company.
The Income-tax authorities
and Oo.,
refused to give relief under s. 25(4) of the Income-tax Act as the
)--
and Others.
p!irtnerfi of the £rm in 1939 were diiferent from the partners of the
firm in 194 7:
Held, that in spite of the changes in the constitution of the
firm, the business of the firm as originally constituted continued
right from its inception to the time it was succeeded by the limited
company and the firm was the same unit all through; the reconstitution of the firm in 1945 did not make it a different unit, and
the firrn was therefore entitled to relief under s. 25(4) of the Act.
CIVIL
APPELLATE
JURISDICTION:
Civil
Appeal
No. 77 of 1952.
Appeal from the Judgment and Order dated the 9th
January, 1951, of the High Court of Judicature at
Calcutta (Harries C. J, and Banerjee J.) in its Special
Jurisdiction (Income-tax) in Income-tax R!lference
No. 70 of 1950.
G. K. Daphtary, Solicitor-General for India (Porus
A. Mehta, with him) for the appellant.
N. G. Chatterjee (B. Sen, with him) for the respondents.
1953. September 24. · The Judgment of the Court
was delivered by
MAHAJAN J.-This is an appeal from a judgment of
the High Court of Judicature at Calcutta delivered in
a reference under section 66(1) of the Indian Incometax Act, where by the High Court answered the question
referred in the affirmative.
The assessee is a partnership concern. When income-tax was paid under the Act of 1918, the partnership concern consisted of three partners, Mathews,
Figgies an

## Text

..
-
•
S.C.R.
SUPREME COURT REPORTS
171
should have resulted from such a course of dealing in
1953
securities as by itself would amount to the carrying on
Sardar Indra
of a business o~ buying and selling securities. It would Singh and Sona
be enough if such sales were effected in the usual course
Ltd.
of carrying on the business or, in the words used by the
v.
Privy Council in Punjab Co-operative Bank Ltd. v. Commissioner of
Income-tax Commissioner, Lahore('), if the realisation
Income-tax,
West Bengal.
of securities is a normal step in carrying on the assessee's
business. Though that case arose out of the assessment
Patanjali
of a banking business, the test is one of general appliSastri a. J.
cation in determining whether the surplus arising out
of such transactions is a capital receipt or a trading
profit.
The question is primarily one of fact and there
are numerous cases falling on either side of the line but
illustrating the same principle.
On the facts found in
regard to the nature and course of the company's business, there can be no doubt that the present case falls
on the Revenue's side of the line.
Agreeing with the High Court that there was ample
material upon which the Appellate Tribunal could arrive
at the conclusion which they did, we dismiss the appeal
with costs.
Appeal dismissed.
Agent for the appellant: S. 0. Banerjee.
Agent for the respondent: G. H. Rajadhyaksha.
COMMISSIONER OF INCOME-TAX,
WEST BENGAL
v.
A. W. FIGG}ES & CO., AND OTHERS.
[MEHR CHAND MAHAJAN, S. R. DAs and BHAGWATIJJ.]
Income-tax Act (XI of 1922), s. 25(4)-Firm paying tax i11 1918
-Conversion to limited co1npany in 1947-Right to relief under
s. 25(4)-0hange in personnel of jinn in 1939 and 1947, effect of.
For purposes of assessment to income-tax, a firm is a different
entity distinct from its partners, and a mere change in the constitution of the firm does not bring into existence a new assessable
unit or a distinct assessable entity.
(1) 67 LA. 464, 481,
1943
Sep. 24.
172
SUPREME COURT REPORTS
[1954]
1953
A firm consisting of three partners, A, B and C, carried on the
business of tea brokers and paid income-tax under the Income-tax
oOmmissioner of Act of 1918.
There were several changes in the personnel of the
lncorne-tax,
partners and in 1939 the firm consisted of C, D-a.nd E.
C retired
1Vest Bengal
and in 1945 a new partnership deed was written up between D, E
y.
and F and they carried on the business. In 1947 the partnership
A. W. FiggieM
was converted into a limited company.
The Income-tax authorities
and Oo.,
refused to give relief under s. 25(4) of the Income-tax Act as the
)--
and Others.
p!irtnerfi of the £rm in 1939 were diiferent from the partners of the
firm in 194 7:
Held, that in spite of the changes in the constitution of the
firm, the business of the firm as originally constituted continued
right from its inception to the time it was succeeded by the limited
company and the firm was the same unit all through; the reconstitution of the firm in 1945 did not make it a different unit, and
the firrn was therefore entitled to relief under s. 25(4) of the Act.
CIVIL
APPELLATE
JURISDICTION:
Civil
Appeal
No. 77 of 1952.
Appeal from the Judgment and Order dated the 9th
January, 1951, of the High Court of Judicature at
Calcutta (Harries C. J, and Banerjee J.) in its Special
Jurisdiction (Income-tax) in Income-tax R!lference
No. 70 of 1950.
G. K. Daphtary, Solicitor-General for India (Porus
A. Mehta, with him) for the appellant.
N. G. Chatterjee (B. Sen, with him) for the respondents.
1953. September 24. · The Judgment of the Court
was delivered by
MAHAJAN J.-This is an appeal from a judgment of
the High Court of Judicature at Calcutta delivered in
a reference under section 66(1) of the Indian Incometax Act, where by the High Court answered the question
referred in the affirmative.
The assessee is a partnership concern. When income-tax was paid under the Act of 1918, the partnership concern consisted of three partners, Mathews,
Figgies and Notley. The name of the firm was
A. W. Figgies & Co., and its business was that of tea
brokers.
There were several changes in the constitu-
~ion of the firm resulting in a change in the shares of
,
•
'
•
S.C.R.
SUPREME COURT REPORTS
173
the partners. In 1924, Mathews went out and his
· 1953
share was taken over by Figgies and Notley. In 1926 Commissioner of
another partner Squire was -introduced. In 1932
Income-tax,
Figgies went out, and from 1932 to 1939 the partnerWest Bengal
ship consisted only of Notley and Squire. In 1939
v.
Hillman was brought in and the partnership consisted A. w. Figgies
of these three partners. In 1943 Notley went out and
a':::/0~;~; •.
the partnership business was carried on by the two
partners, Squire and Hillman. In 1945 Gilbert was
Mahajan J.
brought in.
This arrangement continued up to 31st
May, 1947, when the partnership was converted into a
limited company.
For the assessment year 194 7 -48 the assessee claimed
that it was entitled to relief under section 25(4) of the
Act as the partnership firm had been succeeded by a
private limited company. There was a provision in the
partnership deed of 1939 that on the retirement of any
partner the partnership would not be determined but
would be carried on by the remaining partners. It
appears that a fresh partnership deed was drawn up in
the year 1945 when Gilbert was brought in.
The
partnership constituted by these three partners continued to carry on the same business that had been
started when the tax was paid under the Act of 1918.
From the statement of the case it does not appear that
apart from the mere change in the personnel of the
partners and in their respective shares there was any
actual dissolution of the firm, and any division of its
assets and liabilities or a succession to its business by _
any outside person.
- The Income-tax Officer disallowed the claim of the
assessee on the ground that the partners of the firm in
1939 being different from the partners of the firm in
1947, no relief could be given to the applicant.
The
Appellate Assistant Commissioner upheld this view.
On appeal to the Income-tax Tribunal, this decision
was reversed and relief was granted to the applicant
under section 25( 4).
Before the Tribunal it was argued
on behalf of the Commissioner that the partnership was
nothing but an association of persons and therefore in
2'f
174
SUPREME COURT REPORTS
[1954]
1953
·
order to get relief under section 25(4) of the Act the
0
-:--:-
, partners of 1939 must be the same as the partners of
oinmissioner OJ
h
fi
Incom,-tax,
1947 when t e
rm was succeeded by the company.
west Bengal
The Tribunal repelled this contention and held that the
v.
relief contemplated by section 25( 4) of the Income-tax
A. w. Figgies Act was to be given to the business and not to the
and Oo..
persons carrying on the business and that mere changes
and Others.
in the constitution of the firm had to be ignored. It
Mahajan J.
was not disputed before the Tribunal that the business
of the partnership firm of A. W. Figgies & Co. continued as tea brokers right from its inception till the
time it was succeeded by the limited company.
The
Tribunal took the view that for purposes of incometax the firm was to he regarded as having a separate
juristic existence a part from the partners carrying on
the business and that the firm could be carried on
even if there was a change in its constitution.
At the instance of the appellant the Tribunal stated
a case and referred the following question to the High
Court under section 66(1) of the Act:
''In the facts and circumstances of the case, was
the firm as constituted on 31st May, 1947, entitled to
the relief under section 25(4) of the Indian Incometax Act?"
The High Court answered the question referred in the
affirmative. It upheld the view taken by the Tribunal.
It was contended before us that the construction
placed by the High Court upon section 25(4) of the Act
was erroneous and was not warranted by the language
of the section and that by reason of the change in the
composition of the firm the same firm did not continue
throughout and hence there was no right to relief under
section 25( 4) of the Act in the changed firm.
In our
opinion, this contention is without force.
Section 25
( 4) is in these terms :-
"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
_l
•
•
S.C.R.
SUPREME COURT REPORTS
175
merely a change in the constitution of a partnership, no
1953
tax shall be payable by the first mentioned person in 0,
-. -.
,,
•
.
•
01nmiasion er OJ
respect of the mcome, profits and gams of the period
Income-tax,
between the end of the previous year and the date of
West Bengal
such succession, and such person may further claim
v.
that the income, profits and gains of the previous year A. W. Figgie•
shall be deemed to have been the income, profits and
an~
1
~1~;;~.
gains of the said period. Where any such claim is
made, an assessment shall be made on the basis of the
Mahajan J.
income, profits and gains of the said 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."
The section does not regard a mere change in the per- .
sonnel of the partners as amounting to succession and
disregards such a change. It follows from the provisions of the section that a mere change in the constitution of the partnership does not necessarily bring into
existence a new assessable unit or a distinct assessable
entity and in such a case there is no devolution of the
business as a whole.
It is true that under the law of partnership a firm
has no legal existence apart from its partners and it is
merely a compendious name to describe its partners
but it is also equally true that under that law there is
no dissolution of the firm by the mere incoming or outgoing of partners. A partner can retire with the consent
of the other partners and a person can be introduced
in the partnership by the consent of the other partners.
The reconstituted firm can carry on its business in the
same firm's name till dissolution. The law with respect
to retiring partners as enacted in the Partnership Act
is to a certain extent a compromise between the strict
doctrine of English common law which refuses to see
anything in the firm but a collective name for individuals
carrying on business in partnership and the mercantile
usage which recognizes the firm as a distinct person or
quasi corporation. But under the Income-tax Act the
position is somewhat different. A firm can be charged
as a distinct assessable entity as distinct fro)11 its
i76
SUPREME COURT REPORTS
[1954]
1953
partners who can also be assessed individually. SecOommi~sioner of tion 3 which is the charging section is in these terms:-
Income-tax,
"Where any Central Act enacts that income-tax
West Bengal
shall be charged for any year at any rate or rates
v,
tax at that rate or those rates shall be charged for that
A. W. Figgies
Year in accordance with, and subJ'ect to the provisions
and Co.,
and Othera.
of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family,
MahajanJ.
company and local authority, and of every firm and
other association of persons or the partners of the firm
or the members of the association individually."
The partners of the firm are distinct assessable entities, while the firm as §Uch is a separate and distinct unit
for purposes of assessment.
Sections 26, 48 and 55 of
the Act fully bear out this position. These provisions
of the Act go to show that the technical view of the
nature of a partnership under English law or Indian
law cannot be taken in applying the law of incometax. The true question to decide is one of identity of
the unit assessed under the Income-tax Act, 1918,
which paid double tax in the year 1939, with the unit
to whose business the private limited company succeeded in the year 1947.
We have no doubt that the
Tribunal and the High Court were right in holding that
in spite of the mere changes in the constitution of the
firm, the business of the firm as originally constituted
continued as tea brokers right from its inception till
the time it was succeeded by the limited company and
that it was the same unit all through, carrying on the
same business, at the same place and there was no
cesser of that business or any change in the unit.
Reference was made by Mr. Daphtary to the partnership deed drawn up in 1945. It was argued that a
different firm was then constituted. The High Court
refused to look into this document as it had not been
relied upon before the Tribunal and no reference had
been specifically m;'Lde to it in the order of the Incometax Officer or the Assistant Commissioner.
The
Tribunal in spite of this document took the view that
under the Partnership .Act a firm could be carried on
even if there was a change in its constitution. This
,,
•
•
s.c.:it.
SUPREME COURT REPORTS
177
document is silent on the question as to what hap1953
Pened to the assets and liabilities of the firm that was 0
-. -.
,,
•
orn1nissioner OJ
constituted under the deed of 1939.
To all mtents
Income-tax
and purposes the firm as reconstituted was not a
West Bengal
different unit but it remained the same unit in spite of
v.
the change in its constitution.
A. w. Figgie•
1
b
d £
and Co.,
The resu t is that we see no su stantial groun s or
and Others.
disturbing the opinion given by the High Court on the
question submitted to it. The appeal therefore fails
and is dismissed with costs.
Appeal dismissed.
Agent for the appellant: G. H. Rajadhyaksha.
Agent for the respondents: P. K. Chatterjee.
SIDHESHW AR MUKHERJEE
v.
BHUBNESHW AR PRASAD NAHAIN
SINGH AND OTHERS.
[MEHR CHAND MAHAJAN, MuKHERJEA and
JAGANNADHADAS JJ.J
Hindii law-Debts-Pioiis obligation of sons-Decree against
jimior meinber for debts which are not immoral or illegal-Sale of
his interest in exewtion-Rights of pnrchaser-Interest of sons
of jwiior member, whether passes to p11rchaser-R11le iii Nanomi
Babuasin's case-P11rchaser's right to possession or share of profits.
A person who has obtained a decree against a member of a
joint Hindu family for a debt due to him is entitled to attach and
sell the interest of his debtor in the joint family property, and, if
the debt was not immoral or illegal, the interest of the judgmentdebtor's sons also in the joint family property would pass to the
purchaser by such sale even though the judgment-debtor was not
the karta of the family and the family did not consist of the father
and the sons only when the decree was obtained against the father
and the properties were sold. It is not necessary that the sons
should be made part.ies to the suit or the execution proceedings.
Lalta Prashad y. G'azadhar (I.L.R. 55 All. 28), Ohhotevlal v.
Ganpat (I.L.R. 57 All. 176) and Virayya v. Parthasarathi (I.L.R.
57 Mad. 190) approved .
1953
Oct. 5.