Judgment

SARKAR, J. : These two appeals arise out of assessments of the appellant to income-tax for the years 1948-49 and 1949-50. The question in these appeals is whether on the facts to be presently stated, the appellant was entitled to relief under S. 25 (4) of the Indian Income-tax Act, 1922.

2. The appellant claimed relief under S. 25 (4) contending that it had transferred its business to a limited company with effect either from November 13, 1947 or February 13, 1948, by an instrument executed on February 7, 1948. The claim was rejected by the Income-tax Officer and by the Appellate Assistant Commissioner and also by the Income-tax Appellate Tribunal on appeal to it. The appellant then moved the Tribunal to refer a certain question to the High Court at Madras under S. 66 (1) of the Act but that application was rejected. It then moved the High Court under S. 66 (2) of the Act and the High Court directed the Tribunal to refer the following question for determination by it:

"Whether, on the facts and in the circumstances of the case, the assessee is not entitled to relief under Section 25 (4) of the Indian Income-tax Act, and to what extent?"

3. The Tribunal duly drew up a statement of case and referred the question along with it to the High Court. There were really two references as there were two cases before the Tribunal. These however were heard together by the High Court and disposed of by one judgment. The High Court held that the appellant was not entitled to any relief under S. 25 (4). The present appeals are from the judgment of the High Court.

4. The facts have to be stated at some length but before we do that we think it would be profitable to set out the statutory provisions concerned. Though we are directly concerned with sub-s. (4) of S. 25, a consideration of sub-s. (3) of that Section will throw useful light on the matter in question and so we set both these sub-sections out below :

S. 25 .. ...............

(3) Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918 is discontinued, then, unless there has been a succession by virtue of which the provisions of sub-section (4) have been rendered applicable no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance ......

4. Where the person who was at the commencement of the Indian Income-tax (Amendments Act, 1939 carrying, on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession..........

Both these sub-sections gave a further right to the assessee but with that right we are not concerned and shall, therefore, make no more reference to it.

5. Now it will be seen that under sub-s.(3) the discontinuance of the business gave rise to a relief from taxation in respect of its income provided however that there had not been a succession to the business as mentioned in sub-s.. (4) which,, as will later be seen, has to be a succession taking place after April 1. 1939. The succession contemplated in sub-s. (4) again must have taken place before the discontinuance for if the business is discontinued it ceases to exist and cannot be succeeded to.

6. Sub-section (4) requires certain conditions to be fulfilled before a claim to relief under it can be made. As the present appeals relate only to a business carried on by a firm, in discussing these conditions we will omit all references to the professions, vocations and owners of businesses other than firms. We would like to remind here that a firm is a taxable unit under the Income-tax Ac