Discontinuance of business absent where partnership division preserved going-concern continuity; tax discontinuance claim rejected.

Whether division of a partnership amounted to a discontinuance under the Income-tax Act was decided by applying the legal distinction between jural (notional) discontinuity and factual cessation; succession presupposes continuity and identity of the business, whereas discontinuance requires cessation as a going concern. The Tribunal found branches and shops passed as going concerns, profits were not capitalised or distributed, and operations continued without interruption. The court accepted those findings as showing continuity and held the dissolution effected a change of ownership rather than a real discontinuance, rejecting the discontinuance claim.

---

---

Issues: (i) Whether, on the findings recorded by the Appellate Tribunal, the dissolution and division of the partnership amounted to a discontinuance of business within the meaning of the relevant provision of the Income-tax Act.

Analysis: The Court examined whether the division of the partnership resulted in a notional (jural) discontinuity as opposed to a real factual discontinuity of the business; it reviewed authorities distinguishing succession (which presupposes continuity and identity of the business) from discontinuance (which requires cessation of the business as a going concern). The Court considered illustrations where branches passing to quondam partners may retain identity and integrity and thus amount to succession, and contrasted them with cases where splitting an active unit impairs integrity and may approach discontinuance. Applying these principles to the found facts, the Tribunal had found that the firma TMs shops and branches were taken over as going concerns, profits were not capitalised or distributed, and there was no interruption in the running of the business; the Court accepted that the finding disclosed continuity of the business and that the dissolution effected only a change in ownership rather than a real discontinuance.

Conclusion: The Court concluded that there was no discontinuance of business and the assessees' claim under the discontinuance provision is rejected; the reference is answered against the assessees.

---