Succession to trade requires continuity of the same taxable business, not a notional split between manufacturing and retail profits.

A succession-to-trade rule applies only where the acquired business continues in substance as the same taxable trade after a change in ownership. On these facts, the subsidiaries' wholesale manufacturing business depended on both manufacture and wholesale sale, but after transfer to the parent company the wholesale selling function ceased and profits were later earned through the parent's own retail business. The court rejected any notional split of retail receipts into wholesale and retail profits, holding that income tax is concerned with profits actually realised from the trade carried on. The parent company therefore did not succeed to the relevant trade, and the succession rule did not apply.

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Issues: Whether, on the transfer of manufacturing assets from subsidiary companies to their parent company, the parent company had succeeded to the subsidiaries' trade within the meaning of the applicable income-tax rule so that the profits of the business were to be computed as on a new succession.

Analysis: The rule on succession to trade applies only where the same business continues in substance after the change in ownership. Here, the subsidiaries had carried on a wholesale manufacturing business in which the making of profit depended on both manufacture and wholesale sale. After the transfer, manufacture continued, but the wholesale selling function that had previously generated the taxable profit had ceased. The parent company thereafter realised profit through its own retail business, and that profit was not a profit of the acquired wholesale manufacturing business. The attempt to dissect the retail profit into a notional wholesaler's profit and a retailer's profit was rejected, because income-tax is concerned with profits actually realised from the trade carried on, not with internal accounting divisions or notional sales.

Conclusion: The parent company did not succeed to the trade in the relevant sense, and the rule on succession did not apply. The appeal was therefore rightly dismissed.

Ratio Decidendi: A succession rule applies only where the acquired trade continues as the same taxable business; a business whose profit-making element has ceased cannot be treated as continued merely because part of its activities, such as manufacture, remains and internal accounts attribute notional profits.

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