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1936 (6) TMI 13
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.... one year and every year a fresh agreement was executed. At any rate, I find in the file a partnership deed, dated the 9th July, 1930, between Gregory and Jaidayal Kasera, copy appended (marked J) in which it is recorded that the agreement will be only for the jute season 1930-31. The subject matter of the partnership was for buying and selling raw jute". Paragraph 4 states: "The agreement between Gregory and Messrs. Champalal Kothari with which we are primarily concerned is the agreement, dated the 2nd July, 1931, a copy of which is appended (marked K). This agreement was to subsist for the jute season 1931-32, the purchasing centre was to be at Baira in Dacca District and according to that agreement Gregory was to receive a monthly salary of ₹ 300/while the profit at the end of the season was to be distributed half and half. Another agreement dated the 28th July, 1931 was executed between Gregory and Sovachand Sohanlal, copy of which is appended (marked L), in accordance with which they were to work as partners in a loose jute business in Kenduakalibari for the jute season 1931-32, Gregory to draw a salary of ₹ 150 per month and the ultimate profit to be sh....
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....h they receive simple interest at the rate of 9% per annum to be calculated and credited monthly on the average daily outstanding." Paragraph 4: "No royalty will be paid to Mr. G.I.M. Gregory for the use of his marks and he will be paid a monthly salary of ₹ 300 for managing the business from Calcutta during 12 months of the year commencing July 1931 and ending June 1932 these monthly payments to be considered a charge on the business." Paragraph 5: "All purchases of jute at the agency will be made in the name of Messrs. Champalal Kothari." Paragraph 8: "It is agreed between the partners that only a conservative trading will be done and the parties to this agreement bind themselves not to have uncovered sales on their books at any one time exceeding 3,000 B/S and not to hold unsold stocks exceeding 1,500 B/S. These quantities may be modified or increased by the mutual consent of both parties which consent must be in writing." Paragraph 10: "Messrs. Champalal Kothari will keep their own cashier at Baira and all the Darwans will be their own men. The cashier will handle all the money supplied by them and they will be responsible for t....
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.... charge on the business." Paragraph 18: "Sales will be made in the name of Messrs. G.I.M. Gregory & Co. and under the mark G.I.M. & Co. and complete control of the assortment will be in the hands of Mr. G.I.M. Gregory and his representative at the agency." It is agreed that jute season normally ends about February of each year but that sales are frequently made after that time. The beginning of July is regarded as beginning of the jute season. Now I turn to paragraph 5 of the case. It says: "The assessee' case is that the law regarding succession as set out in Section 26 of the Act does not apply in the case, that every year there is a discontinuance and a new firm comes into existence, that no assets or liabilities are transferred form the old firm to the new firm, that no goodwill passes and that the reputation in the market of Gregory or his mark G.I.M. & Co. stamped on jute bales has no value." Here it will be convenient to read Section 26 of the Indian Income-tax Act, 1922. Sub-section (1) provides:--"Where at the time of making an assessment under Section 23, it is found that a change has occurred in the constitution of a firm or that a f....
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....should not be higher than that obtainable for good Indian packing. While the third replied that well-established European firms would receive annas 2 to annas 3 per maund more than the Gregory mark jute. The point really is not how the price of the Gregory mark jute would compare with the price of jute sold by well-established European firms but how it would compare with the price obtainable by Indian firms and it is perfectly clear from the answers that jute bearing the Gregory mark will fetch a higher price in the market than jute purchased by Indian financiers and sold without any mark. The third question appears to me to be really irrelevant as the question is not what price, if any, would be fetched by the Gregory jute mark, if put up to auction, but what value, if any, it has in the present circumstances, when packed by Gregory's supervision and with Gregory's reputation behind it, and it is perfectly clear that it has some considerable value." Paragraph 7 of the case states: "In this case it is clear that the trade mark and the benefit arising from the connection and reputation of Mr. Gregory have passed from the previous firm to the firm as now assessed t....
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....etorship." Although these words as used in the English case have reference to the English Acts they do deal with reasons underlying the provisions as regards succession in business and in my view those reasons apply to section 26(2) of the Indian Income Tax Act, 1922. Now, in this case, both in the firms of Gregory I and Gregory II the name was the same. Both dealt in jute. Mr. G.I.M. Gregory was the working partner and, as far as one can gather, G.I.M. Gregory's marks were used by both the firms in classifying and selling their jute. From an examination of the case and the agreements it would appear that Mr. Gregory's marks were used by each of these firms in which he had an interest and it would appear that each firm used them by licence from or express agreement with Mr. G.I.M. Gregory. There is, however, one conspicuous difference between the firm of Gregory I and the firm of Gregory II. Gregory I had branches in the Dacca district at Baira and also in the Mymensingh district at Purbadhalla. The firm of Gregory II which is said to be the successor had only one branch and that branch was in the Dacca district at Baira. Whatever else it may be said that Gregory II m....
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....history of the business when carried on as it is said it was carried on formerly in the Dacca district and in the Mymensingh district and it must be remembered that in the present case the Income-tax authorities proposed to levy taxation on G.I.M. Gregory and Messrs. Champalal Kothari in respect of the profits thereof made out of buying and selling jute in the Dacca area on the basis of the profits that Mr. G.I.M. Gregory and Messrs. Jaydial Kasera and Co. made in the year before out of buying and selling jute not only in the Dacca area but also in the Mymensingh area. In my view the income tax authority were wrong in attempting to do this by holding that there was a succession within the meaning of Section 26(2) and in my view it is not open on the evidence before the income tax authority to do so. They can only do so by ignoring the goodwill of the firm of Gregory I in the Mymensingh area. I now pass to the reasons that the Commissioner of Income Tax gives as to the attitude which the authorities take up in this matter. They are set out in para 8 which reads: "In my respectful view, in order to constitute succession it is not necessary that any tangible assets should pass ....
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....ea, by agreement as stated above from the same source that Gregory I got them, namely, from G.I.M. Gregory. Gregory II and Gregory III never had any contractual relations with Gregory I. Gregory I was dissolved before Gregory II or Gregory III began. On the dissolution of Gregory I, G.I.M. Gregory took away what reverted to him after the life interest of Gregory I, namely, the right to use the trade mark and to form a firm in the name of G.I.M. Gregory and the benefits arising from the reputation of Gregory. After that dissolution at his own will Mr. Gregory transferred a part of what reverted to Gregory II for a limited period and a part of it to Gregory III for a limited period and in my view there was no succession at all. As regards Section 26(1) in my view that section contemplates a business which continues in existence both during the period of the predecessor and during the period of the successor. No such business was in existence continuously during the life of Gregory I and Gregory II and in my view Section 26 (1) can have no application to the facts of this case. My answer to both parts of the question formulated in paragraph 7 of the case is 'no'. COSTELLO, ....
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....that in all the activities carried on in the name of Champalal Kothari Mr. G.I. M. Gregory should be given a hand by being empowered to sign the name. Again Champalal Kothari had automatically the power of signing his own name and it could not possibly be the intention of the agreement to empower him afresh to sign the name of Champalal Kothari." These are some of the reasons which led the Income Tax Officer to come to the conclusion that to all intents and purposes the association of Mr. G.I.M. Gregory with Champalal Kothari was in direct succession to the association of Mr. G.I.M. Gregory with Jaydayal Kasera and that therefore one concern was in succession to the other. I should prefer, however, to deal with this matter upon the footing that it falls within the purview of the first part of section 26. Sub-section (1) reads as follows:- "Where, at the time of making an assessment under section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment on the firm and on the members thereof shall, subject to the provisions of this Act, be made as if the firm had been constituted throughout the pre....
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....oming in place of retiring partners. The conditions which governed the relation between the parties all along have remained almost identical. The partner Mr. G.I.M. Gregory is to always have the management of the sales effecting them in the name of G.I.M. Gregory & Co. and to lend the use of his mark "G.I.M. Gregory & Co." to his other partners for some specified centres of purchase. These have been the conditions of the business throughout and such a business has obviously to be assessed as a firm as has all along been done. Further the business is carried on at 12, Clive Street, as admittedly the controlling power for sales is with Mr. G.I.M. Gregory at 12, Clive Street, and all cheques are made out in favour of Mr. G.I.M. Gregory & Co., although to be subsequently endorsed over to Messrs. Champalal Kothari. Besides, all claims and disputes arising from such transactions are to be settled by Mr. G.I.M. Gregory--vide clause 13 of the agreement. Hence the right place for assessment of the firm is District V, where the assessments had all along been made in the past and as a firm." So there was in the view of the Income-tax Officer a firm at any rate in a skeleton for....
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....stion of succession that there could not be a succession in the present case because there can be no succession to a part of a business, and reference has been made to the decision of Sir Arthur Page in the case which was cited to us by Mr. Chatterji. I have no doubt whatever that it is right to say that there cannot generally speaking be a succession to a part of business; but that, in my opinion, does not imply that if what is succeeded to is not the same extent of trade or even does not include a particular line or set of customers it necessarily follows that there cannot be a succession to the trade or business, and an authority for that view of the matter is, I think, to be found in that very case of James Shipstone and Sons, Limited v. Morris (ubi supra). There is a passage in the judgment of Mr. Justice Rowlatt in that case which so far had not been referred to. It appears at page 421 of the report and is in these words: "Another point Mr. Latter laid some stress on was this. He said you cannot be successor to a part of a trade. He cited Mr. Justice Bray's remarks in a case in the 'Law Times', the name of which I forget for the moment. I think that is quite ....
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....cessary finance. Over a comparatively long period he was associated with one person; for a rather shorter period he was associated with somebody else; and finally came the agreement which has given rise to the present proceedings--the agreement whereby Mr. Gregory became associated with Champalal Kothari. It is to be observed that the agreements which are before us indicate that there was really no gap at all, that is to say no period of time, even a small one, when G.I.M. Gregory and Co. was out of existence. The agreement of the 9th day of July 1930 which Jaidayal Kasera which was obviously one for a a full twelve months terminated only at the very end of the month of June 1931. That is indicated by the terms of Cl. 4 of the agreement. The agreement of the 2nd day of July 1931, operated as from the very beginning of the month of July 1931. That is indicated by the provisions of Cl. 4 of that agreement. So that there was, as far as one can see, complete continuity as regards the existence of G.I.M. Gregory & Co. and that was the name under which the trading was carried on-whether the financier happened to be Kasera or whether it happened to be Kothari. As I ventured to put it in ....
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....er of years." There is one other case to which I desire to refer because it is one which was referred to in the proceedings before the tribunal below--the case of Thomson and Balfour v. Le Page in which at page 548 the Lord President said: "I do not propose to attempt a definition of 'succession' in the sense of Rule 11, but it is, I think, safe to say two things about it. In the first place, it does not include the accidental acquisition by a trader, who continues in business, of the custom left by another who goes out of business. A trade might give up or go out of the trade for some reason without attempting to realise or transfer goodwill, and the result of that might be the capture of some custom therefore attached to him by one or more of his competitors who continued to trade. That would not, I think, be a case of 'succession' within the meaning of Rule 11. On the other hand and in the second place--I think the word 'succession' does cover any case of the transfer by one trader to another of the right to that benefit which arises from connection and reputation. The question whether there is in any particular case a 'succession' or n....
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.... the actual business of buying and selling jute is seasonal --starting in July of one year and ending in February of the following year. A submission based on this fact was advanced at a late stage of the case to the effect that the partnership terminated in February. In view of the provision as to twelve months' salary this appears to be an impossible contention. The arrangements made by Gregory for finance during the jute season 1931-1932 are embodied in the deed of partnership of July 2, 1931. By this deed it is provided that Gregory and Messrs. Champalal Kothari will work as partners a loose jute business at Baira (District Dacca) for the jute season 1931-32. Messrs. Champalal Kothari are to supply the working capital and to receive interest thereon at 9% Clause 4 provides for Gregory's remuneration. Clause 11 provides: "Some of the old staff of employees both up-country and in Calcutta selected by Mr. G.I.M. Gregory and Messrs. Champalal Kothari, that have worked for many years for Mr. G.I.M. Gregory's firm (with exception of the cashier and Durwans) will be employed." By clause 13: "Sales and shipments will be made in the name of Messrs. G.I.....
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....eeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year." The Income-tax authorities take the view that the new firm have succeeded to the business of the old firm. There is an alternative submission that the new firm and the members thereof are assessable under Sec. 26(1) there having been a change in the constitution of the firm within the meaning of that sub-section. The findings of fact, the point of law for our decision, and the Commissioner's opinion thereon, are to be found in paragraphs 7 and 8. They are as follows: "7. In this case it is clear that the trade name, the trade mark, and the benefit arising from the connection and reputation of Mr. Gregory, have passed from the previous firm to the firm as now assessed though no tangible assets or liabilities have so passed, and the question which I would state arising out of this matter may be formulated as follows:-- 'Whether in these circumstances there has been a succession within the meaning of Section 26(2) of the Indian Income Tax Act or in the alternative whether Section 26(1) applies....
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....firm should be regarded as the successor of the old. I do not think that much attention need be paid to the consideration that have weighed with English Courts based upon the provisions of English Tax Laws, whereby an average of the profits of three preceding years is taken to be the measure of the profits of the year of tax. I say this because the scheme of the Indian Income Tax Act is different. The tax in India is paid in arrears on the profits of the previous year: not in advance on the profits of the year of assessment conventionally estimated on the basis of the profits of the previous year, see In the matter of Behari Lal Mullick. In other words, the successor to a business, profession or vocation, is under a statutory liability, imposed by Section 26(2) in respect of the profits earned in the previous year by the person he succeeds. An argument which to my mind is of considerably greater substance is based on the fact that, whereas under the deed of July 9, 1930, the jute business of the old firm was at Baira and Purbadhalla, the jute business of the new firm was under the deed of July 2, 1931, at Baira only. I may say I do not think that the way that the Commissioner has....
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....heless looking only at the facts set out in the Commissioner's statement, I should hesitate to hold that they by themselves constituted "succession" within the meaning of Section 26(2), and, if there were no other materials available it might be necessary for us to refer the case back to him under Section 66(4). Counsel for the assessees argues that we are not entitled to look beyond the Commissioner's specific findings of fact, and that, if they are not sufficient to justify his opinion, we must either refer the case back or decide in favour of the assessees. In my opinion this is an unnecessarily narrow interpretation of our powers under Section 66(5). The point of law to be decided is not a hypothetical point, but a specific point raised by the facts of the particular case. The documents and proceedings annexed to the statement of the case are annexed for our consideration, and we are entitled to look at them. To shut our eyes to them because there is no specific reference to them in the body of the statement, appears to me to be a trifle pedantic. After all, the question of succession is at the bottom a question of fact, though the question, whether a partic....