Partial succession of business by a company attracts assessment under income tax law without fresh notice to the successor.

Section 25-A applies only to complete partition of a Hindu undivided family, while section 26(2) governs transfer of ownership of a business that is actually succeeded to by another person. The Court accepted that a family may continue for remaining assets even where separable businesses pass to a company, and held that the successor is assessable to the extent of the business taken over without any fresh notice in the absence of an express statutory requirement. Salary payments claimed as a deduction were disallowed because income is computed by reference to the position when earned, and a new ground first raised before the appellate authority was properly refused as outside the permitted stage.

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Issues: (i) Whether a Hindu undivided family, found not to have been completely partitioned, could nevertheless be treated as succeeded in part by a limited company for the purposes of assessment under the Income-tax Act, 1922; (ii) whether, on such partial succession, the successor company was liable under section 26(2) for the assessment year in question and whether a fresh notice to the successor was required; (iii) whether the claimed deduction of salary payments was allowable; and (iv) whether a new contention raised for the first time before the appellate authority could validly be refused under section 30(2).

Issue (i): Whether a Hindu undivided family, found not to have been completely partitioned, could nevertheless be treated as succeeded in part by a limited company for the purposes of assessment under the Income-tax Act, 1922.

Analysis: Section 25-A was treated as governing cases of pure partition of a Hindu undivided family, while section 26(2) was held to govern change of ownership of a business. The Court held that a Hindu undivided family and a company are mutually exclusive entities and that complete conversion of the family into a company cannot occur without disruption. At the same time, the Court accepted that partial succession to separable businesses is legally possible and does not conflict with the finding that the family continued to exist as an undivided family for the remaining assets and activities.

Conclusion: The assessee company could not be treated as having succeeded to the family business in its entirety, but assessment could proceed to the extent of the separable businesses actually succeeded to by the company.

Issue (ii): Whether, on such partial succession, the successor company was liable under section 26(2) for the assessment year in question and whether a fresh notice to the successor was required.

Analysis: Section 26(2) was construed as making the successor chargeable as if it had carried on the business throughout the previous year. The proceedings already initiated against the predecessor were held to continue against the successor, and the Act was held not to require a fresh notice to the successor in the absence of an express statutory direction. The Court therefore rejected the objection based on want of separate service.

Conclusion: The successor company was liable under section 26(2) to the extent of the business actually succeeded to, and no fresh notice was necessary.

Issue (iii): Whether the claimed deduction of salary payments was allowable.

Analysis: The Court accepted the reasoning that income must be computed with reference to the position at the time it is earned, even though the charge of tax may ultimately be laid on another person under section 26. On that basis, the salary payments could not be treated as an allowable deduction in the successor's assessment.

Conclusion: The deduction was disallowed.

Issue (iv): Whether a new contention raised for the first time before the appellate authority could validly be refused under section 30(2).

Analysis: The Court held that the appellate authority's discretion in admitting new matter was not arbitrary and that section 30(2) did not permit the introduction of a new ground outside the prescribed stage. The provision was read as enabling the filing of an appeal within time or even after limitation in appropriate cases, but not as authorising new contentions not previously raised at assessment or in the appeal grounds.

Conclusion: The refusal to entertain the new contention was upheld.

Final Conclusion: The decision upheld partial assessment of the successor company in respect of the separable businesses actually taken over, rejected the challenge based on fresh notice, disallowed the salary deduction, and sustained the refusal to entertain a new ground raised belatedly.

Ratio Decidendi: Section 25-A governs only complete partition of a Hindu undivided family, whereas section 26(2) applies where a separable business is actually succeeded to by another person, and such succession does not require a fresh notice to the successor.

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