COMMISSIONER OF INCOME-TAX, PUNJAB, PATIALA vs. R. B. JODHA MAL KUTHIALA

CIVIL APPEAL No. 95/1964Supreme Court[1966] 2 S.C.R. 64519 November 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI6 pages
AI SummaryDismissed

What were the facts?

The assessee, R. B. Jodha Mal Kuthiala, is a firm that took over the timber business of a dissolved firm, M/s Hakam Mal Tani Mal, from April 1, 1939. The earlier firm was constituted in 1934 by five members of a Hindu undivided family that was previously assessed under the Indian Income-tax Act, 1918. The assessee firm was itself dissolved in March 1943. In assessment proceedings for 1943-44, the assessee claimed benefits under Section 25(3) or 25(4) of the Indian Income-tax Act, 1922. The Income Tax Officer and appellate authorities rejected the claim. The High Court, however, allowed the claim under Section 25(4). The Commissioner of Income-tax appealed this decision to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the Indian Income-tax (Amendment) Act 7 of 1939 came into force on April 1, 1939. Section 5(3) of the General Clauses Act, 1897, dictates that a Central Act comes into operation immediately on the expiration of the day preceding its commencement. Therefore, Act 7 of 1939 commenced at the very beginning of April 1, 1939. The Court examined the partnership deed executed on June 29, 1939, which recited that accounts of the previous firm were settled up to March 31, 1939, and all partners became separate from April 1, 1939. The Court interpreted this to mean that the previous firm did not conduct business after March 31, 1939. The assessee firm was constituted to carry on the timber business allotted to it from April 1, 1939. Given that it was an old and running business, the intention to maintain continuity was evident. Thus, the assessee commenced business immediately after the dissolution of the previous firm became effective, which was at the midnight of March 31, 1939. Consequently, the assessee was carrying on business at the commencement of Act 7 of 1939. The High Court was correct in holding that the assessee was entitled to the benefit of Section 25(4) upon its dissolution in March 1943.

What were the issues?

1. Whether the assessee firm was carrying on business at the commencement of the Indian Income-tax (Amendment) Act 7 of 1939, so as to be entitled to the benefit under Section 25(4) of the Indian Income-tax Act, 1922? Assessee's contention: The assessee argued that the previous firm, M/s Hakam Mal Tani Mal, was dissolved on March 31, 1939, before Act 7 of 1939 came into force. The assessee firm took over the business from April 1, 1939, meaning it was carrying on business at the commencement of the Act. Therefore, it was entitled to the benefit of Section 25(4) upon its own dissolution in March 1943. Revenue's contention: The revenue contended that the succession to the family firm took place on April 1, 1939, and that firm alone was entitled to relief under Section 25(4). The second succession, which occurred on April 1, 1943, after Act 7 of 1939 was in force, did not entitle the assessee to relief under Section 25(4).

Which sections of the Income-tax Act were involved?

Section 25(4),Section 25(3),Section 5(3),Section 66(2)

AI-generated summary — verify with the full judgment below

• ' .. • A COMMISS101'1~R OF INCOME-TAX, PUNJAB, PATIALA B c D E v .. R. B. JODHA MAL KUTHIALA November 19, 1965 [K. SUBBA RAO, J. C. SHAH ANDS. M. SIICRI, JJ.] Indian Income Tax Act 1922, s. 25(4)-Benefit under-Business assessed under Indian Income-tax Act, 1918-Firm dissolved on March 31, 1939 and new firm took over business from April 1, 1939-Act 7 of 1939 came Into force from April 1, 1939-Firm whether carried on b,,.,lne,. at commencement of Act 7 of 1939. A Hindu undivided family was assessed to tax under the Indian Inrome-tax Act 1918 in respect of its business, inter alia, in timber. In 1934 there was dissolution of the family and five of its members entered into a partnership to carry on the business.

This firm was dissolved on March 31, 1939 and its accounts were settled on and up to that date.

The timber busine~ of the dissolved firm was taken over by the assessee firm.

An instrument of partnerhip fur the new firm was drawn up on June 29, 1939 in which the, facts relating to the dissolution of the earlier firm were also recited. The new firm-the assessee-was also dissolved in March 1943. In assessment proceedings for 194344 the assessee

The order continues below.

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