1943 (6) TMI 3 - HC - Income Tax

Company's Succession to Business Upheld, Assessment Based on Applicable Provisions

The court affirmed that the company successfully established succession to the business it acquired and upheld the assessment based on the provisions ... - Issues:1. Whether a case of succession as contemplated by Section 26(2) has been made out based on the facts found by the Appellate TribunalRs.2. Whether the assessment for the year 1938-39 was correctly made on the basis of Section 26(2) as it stood before being amended by the Income-tax Act of 1939Rs.Analysis:1. The case involved the company, Krishna Hydraulic Press Ltd., which acquired the business of Jaidayal Sagarmal through a sale deed in 1938. The Appellate Tribunal held that the company is the successor to the firm and is liable to be assessed for the profits during the relevant year. The company argued against succession based on a profit and loss account entry regarding the hemp business not taken over. However, the sale deed clearly indicated the transfer of all immovable properties, goodwill, and contracts, establishing the company as the successor. Additionally, a letter from the managing agents confirmed the company's takeover of the business, further solidifying the succession claim.2. The discussion then focused on the provisions of Section 26(2) of the Income-tax Act. The original section mandated the successor's liability for the entire income tax from the preceding year, while the amended section required separate assessments for the succeeding and succeeded persons. The company contended that since the assessment was made after the amendment came into force, it should only be liable for the period it operated the business. However, the court emphasized that the assessment was conducted under Section 34(1) for escaped income, which necessitated assessing the profits for the entire preceding year. The court clarified that the assessment should reflect what would have been determined if made in the correct year, despite subsequent legislative changes.In conclusion, the court affirmed that the company successfully established succession and upheld the assessment based on the provisions applicable at the time of the escaped income. The judgment answered both issues in the affirmative, with no order as to costs, as per the decision by Derbyshire, CJ, and Gentle, J.