Succession in business for income tax purposes extends to heirs who continue the enterprise without break in continuity.

Section 26(2) of the Income-tax Act was construed to cover succession where a business is taken over and continued by another person without break in its character, management, or continuity. The expression "succeeded in such capacity by another person" was read according to the substance of the business arrangement, so succession was not limited to transfer inter vivos and could arise by operation of law. On that basis, the heir who continued the deceased predecessor's business was liable to assessment on the predecessor's business income for the relevant year, and the predecessor's death before expiry of the return period did not prevent assessment once the heir had filed a return.

---

---

Issues: Whether section 26(2) of the Income-tax Act applied to the heir who continued the deceased's business, so as to make him liable to assessment on the income of the predecessor for the relevant year.

Analysis: Section 23 was the provision under which assessment was made, and the fact that the predecessor had died before the return period expired did not prevent the making of an assessment once the heir had filed a return. The words "succeeded in such capacity by another person" were construed according to the substance of the business arrangement. Where a business, profession, or occupation is carried on by one person and is thereafter taken over and continued by another without any break in its character, management, or continuity, there is a succession within the meaning of section 26(2). Succession was not confined to transfer inter vivos and could arise by operation of law.

Conclusion: Section 26(2) applied, and the heir was liable to be assessed in respect of the predecessor's business income.

---