Practical unrecoverability of predecessor's tax justifies invoking the successor liability proviso under income-tax law.

The proviso to section 26(2) of the Income-tax Act, 1922 applies against a successor where the tax due from the predecessor is practically unrecoverable. The decisive enquiry is whether the demand can in fact be realised from the predecessor's available assets, not whether recovery is merely difficult or delayed. On the facts noted, the predecessor had transferred substantial business assets and otherwise denuded himself of valuable property, and the revenue's recovery efforts had failed. The Court therefore treated recovery from the predecessor as not feasible and upheld application of the proviso against the successor.

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Issues: Whether the proviso to section 26(2) of the Income-tax Act, 1922 could be invoked against the successor where the tax due from the predecessor was found to be irrecoverable from him.

Analysis: The proviso applies only when the tax assessed on the person succeeded cannot be recovered from that person. The relevant enquiry is not whether recovery may be difficult or delayed, but whether there are sufficient assets available from which the demand can in fact be realised. On the materials before the Court, the predecessor had transferred substantial business assets and had otherwise denuded himself of valuable property, while the revenue had made unsuccessful attempts to recover the arrears. The record therefore supported the conclusion that recovery from the predecessor was not feasible.

Conclusion: The proviso was rightly applied against the successor, and the question was answered in the affirmative against the assessee.

Ratio Decidendi: For applying the proviso to section 26(2) of the Income-tax Act, 1922, the decisive test is the practical unrecoverability of the tax from the predecessor, judged by the availability of assets and not by mere difficulty in collection.

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