1953 (10) TMI 3 - SC - Income Tax

Court dismisses appeal due to change in business structure, ruling out carry forward of deficiencies.

The court found that there was a change in the persons carrying on the business, as the business transitioned from being conducted by two Hindu undivided ... Whether on the facts and circumstances of this case there is a change in the persons carrying on the business within the meaning of Section 8(1) of the Excess Profits Tax Act, 1940, with effect from 14th April, 1943, when the business, which had previously been carried on in partnership between two Dayabhaga Hindu undivided families, was carried on by a partnership between the separated male members of the two families ? Held that:- We agree with the High Court that if the case of the assessee was that even before 14th April, 1943, there was a partnership of eight persons and if that case was accepted by the Appellate Tribunal then no question of law could have arisen on those facts. It is only because the fact found was that prior to 13th April, 1943, the business was carried on by a partnership of two Hindu undivided families which prima facie means a partnership between two kartas representing two Hindu undivided families and that from 14th April, 1943, it became a business of eight individual members of two disrupted families that the question of law could arise. If, as we hold, the assessee is not entitled to go behind the facts so found by the Appellate Tribunal in the statement of the case and as is implicit in the question itself, then there can be no doubt that there had been a change in the persons carrying on the business within the meaning of Section 8 of the Excess Profits Tax Act and it has not been argued otherwise. In our opinion, therefore, the answer given by the High Court to the referred question was correct. Appeal dismissed. Issues Involved:1. Whether there was a change in the persons carrying on the business within the meaning of Section 8(1) of the Excess Profits Tax Act, 1940, effective from 14th April, 1943.2. Whether deficiencies from previous years up to the chargeable accounting period ending 13th April, 1943, should be carried forward under Section 7 of the Excess Profits Tax Act.Issue-wise Detailed Analysis:1. Change in the Persons Carrying on the Business:The primary issue addressed was whether there was a change in the persons carrying on the business within the meaning of Section 8(1) of the Excess Profits Tax Act, 1940, effective from 14th April, 1943. The business was initially carried on in partnership between two Dayabhaga Hindu undivided families. However, from 14th April, 1943, the business was carried on by a partnership between the separated male members of the two families.The Excess Profits Tax Officer found that prior to 14th April, 1943, the business was conducted by two Hindu undivided families. Upon the disruption of these families on 13th April, 1943, the individual members of the two families began carrying on the business after forming a partnership concern. Consequently, these new partners were not the same persons as those who carried on the business up to 13th April, 1943. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this view.The appellant contended that the firm was originally a partnership of two Hindu undivided families represented by their respective kartas and that there had been no change in the persons carrying on the business. However, this contention was deemed a new case not previously put forward. The court noted that a Hindu undivided family is included in the expression 'person' as defined in the Indian Income-tax Act and the Excess Profits Tax Act but is not a juristic person for all purposes. When two kartas of two Hindu undivided families enter into a partnership agreement, it is legally a partnership between the two kartas, not the families.The court found no evidence to support the claim that all members of the two families had individually become partners in the business before 14th April, 1943. Documents such as the partnership deeds and applications for registration under Section 26-A of the Indian Income-tax Act indicated that the business was carried on by two partners (the kartas) before 14th April, 1943, and by eight individual members after that date.The court concluded that there had indeed been a change in the persons carrying on the business within the meaning of Section 8 of the Excess Profits Tax Act.2. Carrying Forward Deficiencies:The appellant firm claimed that the total deficiencies amounting to over Rs. 84,000 carried forward from previous years up to the chargeable accounting period ending 13th April, 1943, should be added to the sum of Rs. 12,804 and the aggregate amount should be carried forward under Section 7 of the Excess Profits Tax Act. The Excess Profits Tax Officer rejected this claim, allowing only Rs. 12,804 to be carried forward, on the grounds that there had been a change in the persons carrying on the business, and thus the old business was deemed discontinued, and a new business commenced within the meaning of Section 8 of the Excess Profits Tax Act.The court upheld the view that, due to the change in the persons carrying on the business, the deficiencies from previous years could not be carried forward as claimed by the appellant. The High Court, in agreement with the Appellate Tribunal, answered the question in the affirmative, confirming that the change in the persons carrying on the business constituted a new business for the purposes of the Excess Profits Tax Act.Conclusion:The court dismissed the appeal, agreeing with the High Court's decision that there had been a change in the persons carrying on the business within the meaning of Section 8 of the Excess Profits Tax Act, and that the deficiencies from previous years could not be carried forward as claimed by the appellant. The appeal was dismissed with costs.