Pragmatic construction of business succession under tax relief provisions prevents denial of exemption at a two-day boundary.

Section 25(3) and 25(4) of the Indian Income-tax Act, 1922 were designed to prevent double taxation of income already charged under the 1918 Act. The Delhi HC noted that the reference to the period between the end of the previous year and the date of succession or discontinuance must be read pragmatically, not so literally as to deny relief where succession occurs at the boundary of two days. On the facts, the disruption of the Hindu undivided family business on 31 March 1943 and the successor firm's commencement from 1 April 1943 were treated as satisfying the succession requirement, so exemption was available for the financial year 1 April 1942 to 31 March 1943.

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Issues: Whether the assessee was entitled to exemption under section 25(4) of the Indian Income-tax Act, 1922, where a Hindu undivided family business was disrupted on 31 March 1943 and the successor firm commenced business from 1 April 1943, and whether the relief extended to the income of the whole financial year 1 April 1942 to 31 March 1943.

Analysis: The relief under sections 25(3) and 25(4) was intended to prevent double taxation of income already charged under the Indian Income-tax Act, 1918. The Court held that the statutory reference to the period between the end of the previous year and the date of succession or discontinuance had to be understood in a practical sense, and not so literally as to defeat the object of the provision where succession occurred at the point dividing two calendar days. On the facts, the disruption of the family business and the formation of the successor arrangement were treated either as occurring at the same point of time, or as involving a succession on 31 March 1943 itself, or as resulting in a succession by the erstwhile members before the business was converted into a partnership from 1 April 1943. On any of these constructions, the assessee satisfied the conditions for relief.

Conclusion: The assessee was entitled to exemption under section 25(4) of the Indian Income-tax Act, 1922, in respect of the income of the financial year 1 April 1942 to 31 March 1943, and the answer to the substantive reference was in favour of the assessee.

Final Conclusion: The reference was answered in favour of the assessee, while the connected writ appeal was not interfered with and stood dismissed for availability of the alternate statutory remedy.

Ratio Decidendi: A succession to a business for the purpose of section 25(4) must be construed pragmatically so that relief is not denied merely because the succession occurs at the boundary of two days and would otherwise create a zero-interval period.

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