Business discontinuance after partition: reconstituting family assets into a partnership creates a distinct business for tax exemption purposes.

Section 25(3) relief applied where a Hindu undivided family business had been legally discontinued after partition and later reconstituted as a partnership by former members. The governing test was complete cessation of the original business entity, not mere continuity of name, premises, customers, or trading method. Because the business assets were partitioned and later brought together into a new partnership, the later concern was treated as a distinct business rather than a continuation of the earlier family business. On that basis, the original business was regarded as discontinued in law and the exemption was available.

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Issues: Whether the assessee was entitled to exemption under section 25(3) of the Mysore Income-tax Act, 1923, on the ground that the family business stood discontinued after partition and was thereafter carried on by a partnership formed by the erstwhile members.

Analysis: Section 25(3) was intended to relieve hardship arising from double taxation where a business formerly taxed under the earlier regime was discontinued. The decisive question was whether there had been a real discontinuance of the business, which in law means complete cessation. In the case of a Hindu undivided family, the business is an asset capable of partition. Where the business as an entire unit is not allotted to one person, but the constituent assets are separately divided among coparceners and are later brought together to commence a partnership, the resulting concern is not the same legal business as before. Mere continuity in the outward name, premises, customers, or manner of trade does not preserve the identity of the original family business when its legal integrity has been destroyed by partition.

Conclusion: The assessee was entitled to exemption under section 25(3) because the original family business had been discontinued in law.

Ratio Decidendi: For purposes of section 25(3), discontinuance of business is a legal cessation of the original business entity, and where the business assets of a Hindu undivided family are partitioned and later reassembled into a partnership, the new partnership is not a continuation of the old business but a distinct business.

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