COMMISSIONER OF INCOME-TAX, WEST BENGAL vs. A. W. FIGG}ES & CO., AND OTHERS.

CIVIL APPEAL No. 77/1952Supreme Court[1954] 1 S.C.R. 17124 September 1953Bench: 3 JudgesAuthor: MEHR CHAND MAHAJAN, SUDHI RANJAN DAS, NATWARLAL HARILAL BHAGWATI7 pages
AI SummaryDismissed

What were the facts?

The assessee, a partnership firm named A. W. Figgies & Co., engaged in the business of tea brokers, had undergone several changes in its partners and their shares from its inception under the Indian Income-tax Act of 1918 until its conversion into a limited company on May 31, 1947. The Income-tax Officer and Appellate Assistant Commissioner denied relief under Section 25(4) of the Income-tax Act, 1922, for the assessment year 1947-48, citing the difference in partners between 1939 and 1947. The Income-tax Tribunal reversed this decision, granting relief. The Commissioner appealed to the High Court, which upheld the Tribunal's decision. The matter then proceeded to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the firm was entitled to relief under Section 25(4) of the Income-tax Act. The Court reasoned that for income-tax purposes, a firm is treated as a distinct assessable unit separate from its partners. Section 25(4) specifically states that a mere change in the constitution of a partnership does not constitute succession. The Court emphasized that the business of A. W. Figgies & Co. as tea brokers continued from its inception until its conversion into a limited company, and despite changes in the personnel of the partners, it remained the same unit. The Court dismissed the Revenue's argument that the firm was merely an association of persons, citing Section 3 of the Act which recognizes a firm as a distinct assessable entity. The appeal was dismissed, upholding the High Court's decision.

What were the issues?

1. Whether the firm, as constituted on May 31, 1947, was entitled to relief under Section 25(4) of the Indian Income-tax Act, 1922, despite changes in its partnership constitution. Assessee's contention: The assessee argued that the business of the firm continued uninterrupted from its inception until its succession by the limited company, and that for income-tax purposes, the firm should be regarded as a distinct legal entity separate from its partners. Mere changes in the constitution of the firm should be disregarded for the purpose of relief under Section 25(4). Revenue's contention: The Revenue contended that Section 25(4) requires the same person to be carrying on the business at the commencement of the Indian Income-tax (Amendment) Act, 1939, and at the time of succession. Since the partners in 1939 were different from those in 1947, there was no continuity of the same entity, and therefore, no relief was admissible. The Revenue relied on the principle that a firm is an association of persons.

Which sections of the Income-tax Act were involved?

Section 25(4),Section 3,Section 66(1)

AI-generated summary — verify with the full judgment below

.. - • S.C.R. SUPREME COURT REPORTS 171 should have resulted from such a course of dealing in 1953 securities as by itself would amount to the carrying on Sardar Indra of a business o~ buying and selling securities. It would Singh and Sona be enough if such sales were effected in the usual course Ltd. of carrying on the business or, in the words used by the v.

Privy Council in Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax Commissioner, Lahore('), if the realisation Income-tax, West Bengal. of securities is a normal step in carrying on the assessee's business. Though that case arose out of the assessment Patanjali of a banking business, the test is one of general appli- Sastri a. J. cation in determining whether the surplus arising out of such transactions is a capital receipt or a trading profit.

The question is primarily one of fact and there are numerous cases falling on either side of the line but illustrating the same principle.

On the facts found in regard to the nature and course of the company's busi- ness, there can be no doubt that the present case falls on the Revenue's side of the line.

Agreeing with the High Court that there

The order continues below.

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