Construction of partnership deed and conduct determined succession before tax relief commenced, securing successor-firm relief.

The decisive issue was whether the partnership deed, read with the parties' conduct, showed that the old firm had ceased and the successor firm had come into existence before the tax relief provision took effect. The deed stated that the old accounts were settled up to 31 March 1939, the partners became separate from 1 April 1939, and the Abdullapur business fell to the new partners. On that construction, supported by the delayed relief claim, the succession was treated as having occurred before the amending Act commenced, so the successor firm fell within the relief provision. The contrary view that succession occurred only after the Act was rejected.

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Issues: Whether the assessee firm had succeeded to the old business before the commencement of the Income-tax (Amendment) Act, 1939, so as to entitle it to relief under section 25(4) of the Indian Income-tax Act, 1922.

Analysis: The decisive question was the true meaning of the partnership deed dated 29 June 1939 read with the surrounding conduct of the parties. The deed recorded that the accounts of the old firm were settled up to 31 March 1939, that the partners became separate from 1 April 1939, and that the business at Abdullapur had fallen to the share of the new partners. The majority held that, though the drafting was inexact, the intention was to record a succession with effect from 31 March 1939 and not a succession after the amending Act had come into force. The conduct of the parties also supported this construction, because a claim for relief was not made immediately in 1939, but only later when the new firm was dissolved. On that reading, the new firm was in existence at the commencement of the amending Act, and the case fell within section 25(4). The Tribunal's view that the succession took place only after the Act came into force was therefore rejected.

Conclusion: The assessee firm was entitled to the benefit of section 25(4), and the Tribunal was wrong in holding otherwise.

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

Ratio Decidendi: Where the true construction of the partnership instrument and the surrounding conduct show that the old firm had ceased and the successor firm had come into existence before the amending tax relief provision took effect, the successor is entitled to claim relief under the succession provision.

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