Succession to business under income-tax law turns on the legal effect of proved facts, not on fact alone.

Whether an assessee had succeeded to a business within Section 26(2) of the Income-tax Act, 1922 depended on the legal effect of the proved facts, not on fact alone. The statutory scheme under Sections 66(2) and 66(3) allowed a reference on a legal question arising from assessment, and the phrase "succeeded in such capacity" required application of the statutory test to the facts found. On the stated facts, the business continued in substance, and the circumstances did not negate succession. The conclusion that there had been succession was therefore upheld, and the assessment consequence under Section 26(2) was sustained.

---

---

Issues: Whether the facts supported a finding that the assessee had succeeded to the business within the meaning of Section 26(2) of the Income-tax Act, 1922, and whether the question referred involved a question of law or only one of fact.

Analysis: The statutory scheme under Section 66(2) and Section 66(3) of the Income-tax Act, 1922 permitted reference of a legal question arising from the assessment. The expression "succeeded in such capacity" in Section 26(2) required the legal effect of the proved facts to be examined. The existence of succession could depend on facts, but where the application of the statutory phrase was in issue, the matter was not confined to a pure question of fact. On the facts stated, the same business continued in substance, and the delay and circumstances did not compel the conclusion that there had been no succession.

Conclusion: The question was answered in the affirmative, and the Commissioner's conclusion that there was succession was upheld.

Final Conclusion: The reference was answered for the Revenue, and the assessment consequence under Section 26(2) was sustained.

Ratio Decidendi: Whether there is succession within the meaning of Section 26(2) depends on the legal effect of the proved facts; the issue is not invariably one of fact alone, and continuity of the same business may justify a finding of succession.

---