Succession assessment after Hindu undivided family disruption must proceed under the firm succession provision, not the partition rule.

Where a Hindu undivided family has disrupted and, before assessment, its members have constituted a genuine firm, the assessment falls under the succession provision rather than the partition provision. Section 25A of the Income-tax Act, 1922 applies only to mere partition of a Hindu undivided family, while section 26 applies when a firm has come into existence at the time of assessment, whether composed of former family members or strangers. The expressions individual, Hindu undivided family, firm and other association of individuals are mutually exclusive, and a business carried on by a Hindu undivided family may be succeeded by a newly constituted firm. The assessment therefore proceeds on the basis of succession.

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Issues: Whether, where a Hindu undivided family has disrupted and its members have immediately constituted a genuine firm, the assessment for the relevant accounting year is to be made under section 25A(2) of the Income-tax Act, 1922 or under section 26(2) of that Act.

Analysis: Section 25A applies to a case of mere partition of a Hindu undivided family. Section 26 applies where, at the time of assessment, a firm has come into existence, regardless of whether that firm consists of former members of the family or of strangers. The Court held that the expressions individual, Hindu undivided family, firm and other association of individuals are mutually exclusive, and that a Hindu undivided family carrying on business can be succeeded in that capacity by a newly constituted firm. On the facts, the disruption and the formation of the firm had occurred before the assessment was made, so the assessment had to proceed on the footing of succession.

Conclusion: The assessment was required to be made under section 26(2) of the Income-tax Act, 1922 and not under section 25A(2); the answer was therefore in favour of the assessee.

Final Conclusion: A newly constituted firm emerging from the disruption of a Hindu undivided family must be assessed as a successor entity under the succession provision, not as a mere partition case.

Ratio Decidendi: Where, at the time of assessment, a genuine firm has come into existence after the disruption of a Hindu undivided family, the governing provision is the one relating to succession of business by a new entity, and not the provision dealing only with partition of the family.

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