Business succession on takeover of a partnership concern supports section 49 relief despite non-assumption of liabilities.
Where a company took over a partnership business as a going concern with its goodwill, plant, machinery, stock, tools, furniture, contracts and other business assets, it was treated as the successor to the partnership for section 49(1)(iii)(a) of the Income-tax Act, 1961. The fact that cash, bank balances, debts and outstanding liabilities were not assumed did not negate succession when the entire business and commercial assets were transferred. On that basis, the statutory benefit under section 49(1)(iii)(a), read with section 50(2), was available, and section 50(1) did not alter the capital gains computation on sale of depreciable machinery.
Issues: Whether the assessee-company, having taken over the entire partnership business as a going concern, was a successor to the partnership for the purpose of section 49(1)(iii)(a) of the Income-tax Act, 1961, and whether section 50(1) was inapplicable to the computation of capital gains on the sale of depreciable machinery.
Analysis: The business of the partnership was taken over by the company as a going concern with its goodwill, plant, machinery, stock, tools, office furniture, contracts and other business assets. The only items not taken over were cash, bank balance, debts and outstanding liabilities. On these facts, the company was treated as the successor to the partnership. The omission to take over debts and liabilities did not negative succession where the entire business and its assets had been transferred. In that situation, the statutory benefit under section 49(1)(iii)(a), read with section 50(2), was available, and the questions sought to be referred did not survive as live issues.
Conclusion: The assessee-company was entitled to the benefit of section 49(1)(iii)(a) read with section 50(2), and section 50(1) did not displace that position on the facts found.
Final Conclusion: The reference application failed because the proposed questions were academic in view of the clear legal position on succession to the business and the computation of capital gains.
Ratio Decidendi: Where the entire business of a partnership is taken over as a going concern with its assets and commercial incidents, the transferee is the successor for purposes of section 49(1)(iii)(a), and the absence of assumption of debts or liabilities does not by itself defeat that status.