Change in persons carrying on business: disruption of a Hindu undivided family triggered a new business under the tax law.

Section 8(1) of the Excess Profits Tax Act, 1940 treats a business as discontinued and a new business as commenced when there is a change in the persons carrying it on. After disruption of a Hindu undivided family, the business previously carried on by the family unit and a stranger was thereafter carried on by the former coparceners individually with the same stranger. Because a Hindu undivided family is a "person" under the Act, and the family as a unit ceased to exist on partition, the composition of the persons carrying on the business changed. The answer was therefore against the assessee.

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Issues: Whether the disruption of a Hindu undivided family and the continuation of the same business by the individual coparceners together with the existing stranger amounted to a change in the persons carrying on the business within the meaning of Section 8(1) of the Excess Profits Tax Act, 1940.

Analysis: Section 8(1) treats a business as discontinued and a new business as commenced from the date of any change in the persons carrying it on. Section 2(17) includes a Hindu undivided family within the definition of "person". Before the partition, the business was carried on by two persons, namely the stranger and the joint family as a unit. After partition, the joint family ceased to exist as such and the business was thereafter carried on by eight persons, namely the stranger and the seven former members of the family individually. Under Hindu law, the members of a joint family do not become partners merely because the managing member enters into partnership with a stranger, and the family as a unit is not itself the partner in such a case.

Conclusion: There was a change in the persons carrying on the business within the meaning of Section 8(1) of the Excess Profits Tax Act, 1940, and the answer was against the assessee.

Ratio Decidendi: When a business formerly carried on by a Hindu undivided family and a stranger is thereafter carried on by the former family members individually with the same stranger after disruption of the family, there is a change in the persons carrying on the business for the purposes of Section 8(1) of the Excess Profits Tax Act, 1940.

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