Section 25(4) relief depends on business succession and continuity, even for a contract business taken over by a partnership.

Section 25(4) relief under the Income-tax Act, 1922 depends on a succession to a business and continuity of that business up to the point of succession. The Madras High Court noted that contract work can qualify as a recognised business and that continuity was not broken by the earlier death of a partner, where the family business continued and the 1942 arrangement showed the partnership took over the entire contract business previously carried on by the family. On those facts, the assessee was held entitled to relief under section 25(4).

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Issues: Whether the assessee was entitled to relief under section 25(4) of the Income-tax Act, 1922 in respect of the contract business on the ground that the business had been succeeded to by the partnership in 1942.

Analysis: Relief under section 25(4) depends on there being a succession to a business and continuity of the business up to the point of succession. The contract activity was a recognised business. On the materials, the family's contract business had been carried on continuously from 1920, first in partnership with Arunachalam and thereafter by the family, and the 1942 family arrangement showed that the partnership took over the entire contract business previously conducted by the family. The earlier death of Arunachalam did not break the continuity of the business, and the assessee had also been assessed on the contract income under the earlier enactment.

Conclusion: The assessee was entitled to relief under section 25(4) of the Income-tax Act, 1922.

Final Conclusion: The reference was answered in favour of the assessee, and the assessee obtained costs.

Ratio Decidendi: A business is not disqualified from section 25(4) relief because it is carried on through contracts, and continuity of the business is sufficient where the successor takes over the whole business notwithstanding an earlier change in the persons carrying it on.

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