Partitioned family business continued as a contractual firm falls under the provision for a newly constituted firm, not family assessment.

Where members of a Hindu undivided family, after partition of family property, continued the former business as a contractual firm, the arrangement fell within Section 26 of the Indian Income-tax Act, 1922, which covers a newly constituted or continued business carried on by another set of persons. Section 25-A applied only to assessment of a joint family after definite partition of its property and did not exhaust cases where the business itself was carried on in a new firm form. On that basis, the partners' shares were not includible in the family assessment under Section 25-A(2), because the assessment had to proceed against the firm under Section 26.

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Issues: (i) whether, after disruption of a Hindu undivided family and partition of its property, the continued carrying on of the same business by the members on a contractual basis attracted Section 26 of the Indian Income-tax Act, 1922, or Section 25-A of that Act; (ii) whether the shares of the partners were required to be included in the assessment of the family under Section 25-A(2) of the Indian Income-tax Act, 1922.

Issue (i): whether, after disruption of a Hindu undivided family and partition of its property, the continued carrying on of the same business by the members on a contractual basis attracted Section 26 of the Indian Income-tax Act, 1922, or Section 25-A of that Act.

Analysis: Section 25-A applies where a Hindu family hitherto assessed as undivided is found to have separated and the joint family property has been partitioned in definite portions. It governs the assessment of the joint family income where the business has been discontinued after partition. Section 26, however, applies where a firm has been newly constituted or a business previously carried on by one set of persons is continued during the year of assessment by another set. The mere fact of partition did not exclude Section 26, because the members, after disruption, continued the old business as a contractual firm. The continued business brought the case within Section 26, and the special provision in Section 25-A did not exhaust the situation.

Conclusion: Section 26 applied and the assessment was not governed by Section 25-A.

Issue (ii): whether the shares of the partners were required to be included in the assessment of the family under Section 25-A(2) of the Indian Income-tax Act, 1922.

Analysis: Once the business was held to have been continued by a newly constituted firm, the assessment had to proceed under Section 26 on the firm and its members. Section 25-A(2), which deals with assessment of the joint family as if no partition had taken place, had no application to the continued partnership business.

Conclusion: The partners' shares were not includible in the family assessment under Section 25-A(2).

Final Conclusion: The reference was answered for the Revenue on the governing provision for assessment after partition, with the continued business treated as a newly constituted firm under Section 26 rather than as a partitioned joint family under Section 25-A.

Ratio Decidendi: Where members of a Hindu undivided family, after partition, continue the former business as a contractual firm, the case is governed by the provision relating to a newly constituted firm and not by the provision for assessment of a partitioned joint family.

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