1930 (12) TMI 18 - HC - Income Tax

Tax Court Decision: Limited Company Succession, Assessment Liability, Deductions Dispute

The court concluded that the limited company did not entirely succeed to the business of the Hindu undivided family due to ongoing partition. The ... - Issues Involved:1. Material for finding succession of business.2. Assessment of the company succeeding the business.3. Liability of successor company under Section 26.4. Validity of assessment without further notice.5. Onus of proving claim for deduction.6. Deduction of salary payments.7. Onus of proving irrecoverable amount.8. Validity of refusal to entertain new contention.Issue-wise Detailed Analysis:1. Material for Finding Succession of Business:The primary issue was whether there was any material on which the Income Tax Officer could find that the assessee company succeeded to the business of the Hindu undivided family. The court concluded that there was no material to find that the assessee company succeeded to the business of the family in its entirety. The Hindu undivided family was still in the process of partition and had not disrupted entirely, thus it could not be held that the family had been entirely replaced by a limited company.2. Assessment of the Company Succeeding the Business:The court held that although the Hindu undivided family had to be deemed to be an undivided family due to the finding that no disruption had taken place, the assessment could be made upon the company to the extent that it was found to have actually succeeded to those businesses which were separable from the rest.3. Liability of Successor Company under Section 26:The court clarified that the limited company, to the extent that it succeeded to the Hindu undivided family, is liable to be charged as a successor in respect of the 1933-34 assessment made during 1934-35 under Section 34. The language of sub-section (2) of Section 26 is clear that the assessment on the successor is to be made as if he had been carrying on the business throughout the previous year and had received the whole of the profits for that year.4. Validity of Assessment Without Further Notice:The court held that no fresh notice was necessary in the case of the successor. The Income Tax Act does not contemplate any fresh notice to be served upon the successor, as the proceedings once started against the predecessor continue against the successor even if the predecessor has ceased to exist. Thus, the successor will be liable as such to the extent indicated.5. Onus of Proving Claim for Deduction:The court deemed questions 5 and 7 as questions of fact and stated that they could not be raised before the court. The court noted that the Income Tax Officer was correct in holding that the assessee had failed to discharge the onus that lay upon him regarding the deduction of Rs. 2,748 as interest upon capital borrowed.6. Deduction of Salary Payments:The court answered this question in the negative, agreeing with the Commissioner that 'the income is to be computed with reference to the position at the time it was earned, although by section 26 the charge of tax computed on that basis is laid upon someone else.' Therefore, the salary payments attributed to members of the income-earning family were not a proper deduction from the income assessed in the charge of the successor under Section 26(2).7. Onus of Proving Irrecoverable Amount:Similar to question 5, the court regarded this as a question of fact and stated that the assessee had failed to discharge the onus upon him of establishing his claim that the amount of Rs. 1,211 at the debit of Narain Singh fell irrecoverable in the 'previous year'.8. Validity of Refusal to Entertain New Contention:The court upheld the Assistant Commissioner's refusal to entertain a new contention not raised either at the assessment or in the grounds of appeal. The court interpreted that an Assistant Commissioner has no authority under sub-section (2) of section 30 to admit a new matter raised in the form of an additional ground of appeal after an appeal has once been admitted, whether within the period prescribed therefor, or after its expiry.Conclusion:The court answered the questions propounded by the Commissioner accordingly. The assessee will be liable to be assessed as a limited company in relation only to his jewelry business in Lahore, which was admitted to have been transferred to the company, and for the rest, the assessee will be treated as a Hindu undivided family. The answers to all other questions went against the assessee.