Partitioned Hindu family later forming a firm is not succession under income-tax law; assessment follows the joint family rules.

Where a Hindu undivided family has separated and the same individuals immediately form a firm, the arrangement is not treated as a succession within Section 26(2) of the Income-tax Act. The Bombay High Court's stated view is that, after an order under Section 25A(1), the income of the former joint family must be assessed as the income of the erstwhile Hindu undivided family under Section 25A(2), with members liable for their proportionate shares. In that situation, the Income-tax Officer is not bound to entertain an application to register the firm as a registered firm on the footing of succession.

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Issues: Whether, after a Hindu undivided family has been found to have separated and an order is recorded under Section 25A(1), the Income-tax Officer is bound to entertain an application under Section 26A to register a firm consisting of the same members and assess it as a registered firm under Section 26(2), or whether the income must be assessed as the income of the erstwhile joint family under Section 25A(2).

Analysis: The family had been assessed as undivided, then separated during the assessment year, and the same persons who had constituted the joint family formed a firm immediately thereafter. The Court followed the view that where the firm consists of exactly the same individuals as the former joint Hindu family, there is no succession within the meaning of Section 26(2). In such a case, the statutory consequence of partition under Section 25A is that the income of the joint family is assessed as such and the members are made liable for their proportionate shares under Section 25A(2), rather than allowing registration and the benefits attached to a registered firm.

Conclusion: The application for registration could not be entertained as a succession case, and the assessment had to be made under Section 25A(2); the answer to the reference was therefore against the assessees and in favour of the Revenue.

Ratio Decidendi: Where a Hindu undivided family partitions and the very same persons thereafter constitute a firm, the arrangement does not amount to a succession under Section 26(2), and the proper assessment is under Section 25A(2) of the Income-tax Act.

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