Discontinuance of business and receipts basis assessment upheld where successor firm did not take over the old concern

A professional firm is treated as discontinued where the old concern ends on a partner's death and the successor does not take over the business as a going concern, assume its assets or liabilities, or maintain the same accounting identity; on those facts, relief for discontinuance under section 25(3) was available. The continued use of the old firm name and premises did not prevent discontinuance because no transferable goodwill was shown on the facts. For tax computation, partners' withdrawals did not amount to a regularly employed accounting method, and the Income-tax Officer could assess the firm on the receipts or cash basis to determine total income.

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Issues: (i) Whether the business carried on by the firm stood discontinued on the death of one partner so as to attract relief for discontinuance of business; (ii) whether the assessees were rightly assessed on the receipts or cash basis.

Issue (i): Whether the business carried on by the firm stood discontinued on the death of one partner so as to attract relief for discontinuance of business.

Analysis: The business of the old firm came to an end on the partner's death. The new firm did not take over the old concern as a going concern, did not assume the old assets or liabilities, opened fresh books, and obtained fresh retainers. The continued use of the old firm name and the same premises did not prevent discontinuance, since a solicitors' firm had no transferable goodwill in the name on these facts and the place of business was merely rented premises. The distinction between a mere change in constitution and true discontinuance was recognised, and the facts showed the latter.

Conclusion: Yes. The business was discontinued, and the assessees were entitled to relief under section 25(3).

Issue (ii): Whether the assessees were rightly assessed on the receipts or cash basis.

Analysis: Prior assessment on the footing of partners' withdrawals did not amount to a regularly employed method of accounting, because withdrawals are not a method of accounting and do not correctly measure profits. The proper inquiry was the total income of the firm, and the Income-tax Officer was entitled to adopt the receipts or cash basis for ascertaining it.

Conclusion: Yes. The assessees were properly assessed on the receipts or cash basis.

Final Conclusion: The reference was answered by holding that the firm had discontinued its business for purposes of relief, but that assessment on the receipts or cash basis was valid; costs were apportioned accordingly.

Ratio Decidendi: For section 25(3), discontinuance is established where the old professional firm ends as an operating concern and the successor does not take over its business as a going concern, while withdrawals by partners are not themselves a method of accounting for tax assessment.

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