Succession of family business on partition supports Section 25(4) relief when coparceners continue as partners.

Section 25(4) of the Income-tax Act, 1922 applies where a Hindu undivided family carrying on a business is partitioned and the former coparceners continue the business as a partnership, because the business then passes to a distinct taxable entity by a real change in ownership. The continuation of the same persons in profit-sharing does not prevent succession, and Section 25A(2) does not bar the relief. The statutory scheme treats the family as continuing for assessment purposes notwithstanding partition, but that does not negate the transfer of the business to the firm. Relief under Section 25(4) is therefore available in such a case.

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Issues: Whether, on partition of a Hindu undivided family carrying on a business and continuation of that business by the erstwhile coparceners as a partnership, the assessee was entitled to relief under Section 25(4) of the Income-tax Act, 1922.

Analysis: Section 25(4) of the Income-tax Act, 1922 grants relief where a person carrying on a business on which tax was charged under the Indian Income-tax Act, 1918 is succeeded in that capacity by another person, provided the change is not merely one in the constitution of a partnership. The Court held that when a joint Hindu family separates and the former coparceners continue the family business as partners, there is a real change in ownership: the business ceases to be owned by the joint family and becomes owned by the firm, which is a different taxable entity. The earlier view that there was no succession because the same persons continued to share the profits was rejected as overlooking the legal change in ownership and identity of the assessee. Section 25A(2) does not prevent the grant of relief under Section 25(4), because the family is to be treated as joint for assessment purposes notwithstanding partition, and the statutory scheme must be read consistently with that relief. The Court also referred to Sections 3 and 2(9) of the Income-tax Act, 1922 to explain the continued taxable status of a Hindu undivided family.

Conclusion: The assessee was entitled to the relief contemplated by Section 25(4) of the Income-tax Act, 1922.

Ratio Decidendi: Where a Hindu undivided family carrying on a business is partitioned and the business is thereafter carried on by the former coparceners as a partnership, the partnership is the successor of the family business for the purposes of Section 25(4) of the Income-tax Act, 1922, because the change involves a transfer of ownership to a distinct taxable entity.

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