M/ S. BADRI PRASAD JAGAN PRASAD vs. COMMISSIONER OF INCOME TAX, U.P., LUCKNOW

CIVIL APPEAL No. 182/1974Supreme Court1985 INSC 20020 September 1985Bench: 2 JudgesAuthor: V.D. TULZAPURKAR, SABYASACHI MUKHERJI I19 pages
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What were the facts?

The assessee, a Hindu Undivided Family (HUF) carrying on business and assessed under the Indian Income Tax Act, 1918, claimed relief under Section 25(4) for the assessment year 1949-50. The assessee contended that a partial partition of the HUF occurred on October 11, 1948, with businesses divided through account book entries, and a partnership firm succeeded the family business on October 12, 1948. The Income-tax Officer rejected the claim. The Appellate Assistant Commissioner set aside the order for a remand report, which confirmed succession on October 12, 1948. The AAC held the claim inadmissible for assessment year 1949-50 as succession occurred in the previous year relevant to assessment year 1950-51. The Tribunal dismissed the assessee's appeal, and the High Court, on reference, upheld the Tribunal's decision, stating relief was available for assessment year 1950-51, not 1949-50.

What did the Supreme Court hold?

The Supreme Court held that the assessee was entitled to relief under Section 25(4) of the Income Tax Act, 1922, for the assessment year 1949-50. The Court clarified that Section 25(4) provides relief from double taxation when a business is succeeded by another. The first relief is that no tax is payable by the discontinued business for the period between the end of the previous year and the date of succession. The second relief is that the income of the previous year can be deemed to be income of that period. The Court emphasized that the date of succession is a question of fact. In this case, despite the partnership deed stating the business would commence from October 12, 1948, the account book entries and the overall circumstances indicated a simultaneous disruption of the HUF and succession by the partnership firm on October 11, 1948. The Court adopted a pragmatic approach, considering the clear intention for disruption and succession to be simultaneous, and that the assets were divided as business assets, constituting succession of the business itself. Therefore, the succession occurred within the relevant assessment year 1949-50, entitling the assessee to the relief. Question 1 was answered in the negative (in favour of the assessee), and Question 2 did not arise.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not entitled to relief under Section 25(4) of the Income Tax Act, 1922, for the assessment year 1949-50. Assessee's Contentions: The assessee argued that a partial partition of the HUF and the succession of its businesses by a partnership firm occurred on October 11, 1948. They contended that Section 25(4) provides relief for the period between the end of the previous year and the date of succession, and this relief should be available in the assessment year in which the succession took place. They relied on the entries in the account books and the partnership deed, which, despite mentioning October 12, 1948, for the commencement of the partnership, indicated a simultaneous intention for disruption and succession on October 11, 1948. They adopted a pragmatic approach, considering the intention to carry on business jointly from the date of division of assets. Revenue's Contentions: The revenue contended, as upheld by the lower authorities, that the succession took place on October 12, 1948, which fell within the previous year relevant to the assessment year 1950-51. Therefore, the relief under Section 25(4) was not admissible for the assessment year 1949-50. The High Court had affirmed this view.

Which sections of the Income-tax Act were involved?

Section 25(4),Section 66(1)

AI-generated summary — verify with the full judgment below

r I t 879 M/ S. llADRI PRASAD JAGAN PRASAD V• COMMISSIONER OF INCOME TAX, U.P., LUCKNOW SEPrEM!lER 20, 1985. [V.D. TUUAPURKAR AND SABYASACHI MUKHAR.Jl, JJ.] Income Tax Act, 1922, s.25(4) - Hindu undivided family - carrying on business - Assessed under Act of 191~ - Partial partition of family on 11th October, 1948 - Partnership firm succeeding family business on 12th October, 1948 - Succession - When takes place - Intention to carry on business ~ Relevancy of - Assessee whether entitled to relief under s. 25(4).

The Assessee, a Hindu undivided. family, carrying on business was assessed under the Indian Income Tax Act, 1918. In A B c the assessment year 1949-50 the assessee contended that there was D partial partition of the family on 11th October 1948 and various businesses owned by the family were divided through entries made in the account books. A partnership firm was constituted to carry on those businesses and it succeded the family. The assessee filed an application before the Income-tax Officer claiming the benefit of s. 25(4) of the Act, which was rejected. E On appeal, the Appellate Assistant Commissioner set aside the order and called for

The order continues below.

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