1964 (11) TMI 13 - SC - Income Tax

Supreme Court affirms business succession under Indian Income-tax Act

Commissioner Of Income-Tax, Madras Versus KH. Chambers

The Supreme Court upheld the High Court's decision that the business carried on by K. H. Chambers constituted a succession of the business previously ... Whether the question referred by the Tribunal to the High Court was only a pure question of fact and, therefore, the High Court has no jurisdiction to give its opinion thereon ? Whether where the transferor retains the goodwill and most of the assets and the transferee carries on the same business with a part of the assets of the principal business, it cannot be said that there is succession to the whole of the business within the meaning of section 25(4) of the Act ? Held that:- The expression ' succession ', as stated by Simon in his book on Income-tax, has acquired a somewhat artificial meaning. The tests of change of ownership, integrity, identity and continuity of a business have to be satisfied before it can be said that a person ' succeeded ' to the business of another. Unless the facts found by the Tribunal satisfy the said tests, the finding cannot be conclusive. The tests crystallized by decisions have given a legal content to the expression ' succession ' within the meaning of section 25(4) of the Act and whether facts proved satisfy those tests is a mixed question of law and fact. If so, it follows that a question of law arose out of the Tribunal's order and the High Court has jurisdiction to ascertain the correctness of the finding given by the Tribunal on the question of succession. Appeal dismissed. Issues Involved:1. Applicability of Section 25(4) of the Indian Income-tax Act.2. Jurisdiction of the High Court in determining the applicability of Section 25(4).Issue-wise Detailed Analysis:1. Applicability of Section 25(4) of the Indian Income-tax ActThe core issue in this case was whether the business carried on by K. H. Chambers after the alleged transfer from his father, G. A. Chambers, qualified for relief under Section 25(4) of the Indian Income-tax Act. The appellant claimed that the business had been assessed under the old Act of 1918 when it was run by his father and that it was transferred to him towards the end of 1932.The Income-tax Officer, the Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal all concluded that the business carried on by K. H. Chambers was not the same business that had been assessed under the old Act in the hands of his father. They found that the identity of the business was lost as the entire business was not transferred. However, the High Court of Madras disagreed, holding that the son succeeded to the business of his father after November 1932, thus constituting a succession within the meaning of Section 25(4).The Supreme Court analyzed the facts and found that G. A. Chambers had handed over the management of the business to his son, who continued to operate in the same lines of business, using the same premises, telephone number, post box number, private codes, trade marks, and important staff members. The father retained some assets only to discharge debts, not to continue the business. The Court concluded that the transfer constituted a succession as the whole business was transferred, the identity was preserved, and the same business continued.2. Jurisdiction of the High Court in Determining the Applicability of Section 25(4)The revenue argued that the question referred by the Tribunal to the High Court was purely a question of fact, and therefore, the High Court had no jurisdiction to give its opinion. The Supreme Court disagreed, stating that the issue of succession is a mixed question of law and fact. The Court cited the case of Meenakshi Mills v. Commissioner of Income-tax, which laid down that an ultimate finding on an issue that involves the application of any principle of law is a mixed question of law and fact. The inference from the facts found is a question of law and is open to review by the court.The Court further supported its stance by referring to English decisions, which maintained that a finding on whether there is a succession within the meaning of a particular provision is not merely a question of fact but also involves legal principles. The High Court, therefore, had jurisdiction to ascertain the correctness of the Tribunal's finding on the question of succession.ConclusionThe Supreme Court upheld the High Court's decision, affirming that the business carried on by K. H. Chambers was a succession of the business previously carried on by G. A. Chambers within the meaning of Section 25(4) of the Indian Income-tax Act. The appeal was dismissed with costs, confirming the High Court's jurisdiction to review the Tribunal's findings on this mixed question of law and fact.