TaxTMI 
TaxTMI 
1950 (12) TMI 3
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....special circumstances arose which, in the opinion of the executors, made it expedient to sell the business earlier. This business was to be carried on for a period not exceeding twelve months during which time the executors were to ascertain whether or not any of his nephews was willing to purchase the said undertaking. For this purpose and generally for sale purposes, he directed that the executors shall, as soon as possible, after his death, have a valuation made of the said undertaking. The undertaking was to be sold so as to include all his interest in the premises, the goodwill, the stock-in-trade, plant, furniture, etc., but excluding securities for money and cash in the bank to the credit of the account of that undertaking. If the executors were satisfied before the expiration of one year from the testator's death that the said undertaking would not be sold to his nephews because none was willing or able to purchase it or, if it remained unsold at the end of a year, to any of the nephews then (whichever event first happened) the executors were directed to sell the undertaking to such third person on such terms and at such price as they thought proper. The clause ended with t....
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.... the executors were carrying on the business of the deceased only for the purpose of winding it up, and there was no succession to the business on the death of the deceased within the meaning of Section 25(4) of the Income-tax Act. It is argued that the clause provides for nothing else than a direction to carry on the business with a view either (a) to sell it within a year to one of the nephews, or (b) to sell it to some one else at the end of the year as a going concern. It was pointed out that all directions in the clause permitting contracts to be made etc. were for the purpose of keeping the business alive and not allowing it to die so that the business which was a valuable asset of the deceased could be sold as a going concern with its goodwill. It was therefore argued that the succession to the business took place only on the 1st of January, 1943, when the business was sold by the executors to one of the nephews in terms of clause 13 of the will. In actual money, the contest is whether the executors are entitled to get the benefit of the exemption from income-tax in respect of the profits earned only for the nine days between the 1st of April and the 9th of April, 1942, or b....
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....the benefit or loss of the testator's estate is not relevant for the present discussion. The only relevant question under Section 25(4) of the Indian Income-tax Act is whether in respect of the business there is a succession to another person. This is a provision to give relief and the scope of the relief must be governed by the words used in the Act. In our opinion the answer to this question, on the facts of the present case, must be in the affirmative and the date of such succession must be considered to be the death of the testator, which was on the 9th of April, 1942. The result is that the appeal fails and is dismissed with costs. PATANJALI SASTRI, J.---I agree that this appeal should be rejected. The material facts have been set out in the judgment which has just been delivered. The only question now remaining for decision is: on what date was the testator, who was carrying on the business of shipping agent and land contractor "succeeded in such capacity by another person" within the meaning of Section 25(4) of the Act---on the 9th April, 1942, when the testator died and the appellants as the executors took over the business and carried it on or on the 1st Junuary, 1943,....
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....assessed" and of his not being "found", is whether the sub-section should be construed as applicable only to cases of succession inter vivos. Whatever force there may have been in the suggestion that the sub-section could not have contemplated cases of testamentary or intestate succession if there was no provision for the assessment of profits earned by a deceased person in the hands of his representatives, there seems to be no sufficient reason for excluding from the scope of the sub-section cases of succession on death in view of the provision in Section 24B. On the other hand, proviso (e) to Section 24(2), which refers to a person "succeeded in such capacity by another person otherwise than by inheritance," would seem to imply that "succession," as that term is used in the Act, includes devolution on death. The next question is what is the meaning to be attributed to the phrase "in such capacity" ? A Full Bench of the Madras High Court in Jupudi Kesava Rao v. Commissioner of Income-tax, Madras, held that the expression meant "in the capacity as owner," so that " the person who succeeds another must, by such succession, become the owner of the business which his predecessor was....
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....uality in the predecessor and the successor. The question in each case must be: Is the person who has come in carrying on the business as a principal ? If so, the Revenue looks to him and makes him liable for payment of the tax. The words "in such capacity" in Section 25(4) and 26(2) mean nothing more than the capacity of a person who carries on the business as the predecessor was carrying it on, that is, with a liability to be taxed on its profits and gains. Applying these principles to the present case, I am clearly of opinion that the testator who was carrying on the business in question was succeeded in such capacity by the appellants when the former died on 9th April, 1942, and his estate vested in them. As already stated, the testator expressly authorised the appellants to carry on the business as a going concern for one year after his death and gave them power to enter into fresh contracts and to discharge liabilities past and future. They are thus "an association of persons" carrying on business, and, being assessable as such in respect of the profits and gains of the business carried on by them under Section 10 read with Section 3 of the Act, they are liable to be taxed ....