Pragmatic construction of business succession under income tax law allows relief where succession occurred in substance during the year.

Section 25(4) relief under the Indian Income-tax Act, 1922 was available where the business was, in substance, succeeded to within the relevant previous year. The Supreme Court read the partnership deed, account-book entries and statutory scheme together, and held that the date of succession had to be fixed by the real effect of the transaction, not by technical form. Because the family business was divided in the books on 11 October 1948 and the new partnership was intended to carry on the business from the next day, there was no real hiatus; succession and disruption were treated as having occurred simultaneously. Relief was therefore allowed for the assessment year 1949-50.

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Issues: Whether, on the facts and circumstances found, the assessee was entitled to relief under section 25(4) of the Indian Income-tax Act, 1922 for the assessment year 1949-50 on the footing that succession to the business took place within the relevant previous year.

Analysis: The relevant question was not treated as a pure question of fact alone, because the effect of the partnership deed, the account-book entries and the statutory scheme of section 25 had to be read together to determine when succession to the business in substance occurred. The documents showed that the family business was divided in the books on October 11, 1948 and that the partnership was intended to carry on the business from the next day, indicating no real hiatus in the business and a simultaneous disruption and succession. Relief under section 25(4) is concerned with the period between the end of the previous year and the date of succession, and the Court adopted a pragmatic construction to avoid denying the statutory relief on a technical view of the exact moment of succession.

Conclusion: The assessee was entitled to relief under section 25(4) for the assessment year 1949-50, and the succession was held to have taken place on October 11, 1948, in favour of the assessee.

Ratio Decidendi: Where the materials show that a business is in substance succeeded to during the relevant year, section 25(4) applies on a pragmatic construction of the transaction, and the date of succession must be determined from the real effect of the documents and conduct rather than by artificial technicalities.

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