Reconstitution of a firm after Hindu family partition counts as a change in persons carrying on business under tax law

Partition of a joint Hindu family and reconstitution of a firm can amount to a change in the persons carrying on the business where the original taxable entity ceases to exist and individual coparceners replace the family unit in the partnership deed. On that basis, section 8(1) of the Excess Profits Tax Act applied against the assessee. The Commissioner could also rectify the earlier order under section 20 because the relevant facts were already disclosed in the statutory records, and the error was therefore apparent from the record in the legal sense. The rectification was upheld.

---

---

Issues: (i) Whether the partition of the joint Hindu family and the reconstitution of the firm brought about a change in the persons carrying on the business within section 8(1) of the Excess Profits Tax Act. (ii) Whether the Commissioner could rectify the earlier order under section 20 of the Excess Profits Tax Act on the ground that there was a mistake apparent from the record.

Issue (i): Whether the partition of the joint Hindu family and the reconstitution of the firm brought about a change in the persons carrying on the business within section 8(1) of the Excess Profits Tax Act.

Analysis: A karta who enters into partnership with strangers does not make the other coparceners partners merely by reason of family status. On the original constitution, the firm consisted of the two individual partners and the joint family as a taxable person. After partition, the joint family ceased to exist and the new deed substituted individual coparceners in place of the erstwhile family unit. In light of the statutory definition of "person", the identity of one of the original partners disappeared and the personnel of the firm changed.

Conclusion: The change in constitution amounted to a change in the persons carrying on the business, and section 8(1) was attracted, against the assessee.

Issue (ii): Whether the Commissioner could rectify the earlier order under section 20 of the Excess Profits Tax Act on the ground that there was a mistake apparent from the record.

Analysis: The relevant facts were available from the income-tax records, including the registration certificate and returns, and those materials were usable in proceedings under the Excess Profits Tax Act because the two enactments were interlinked and the statute permitted such use of information. The alleged error was therefore visible from the record considered in the statutory sense.

Conclusion: The Commissioner had jurisdiction to rectify the order under section 20, against the assessee.

Final Conclusion: The appeal failed because the reconstitution of the firm effected a statutory change in the persons carrying on the business, and the Commissioner's rectification order was valid.

Ratio Decidendi: Where a joint Hindu family partner ceases to exist on partition and the statutory records disclose the change, the firm's reconstitution constitutes a change in the persons carrying on business, and a rectification is permissible if the error is apparent from the record within the meaning of the governing tax statute.

---