Vimadalal, J.
1. The facts giving rise to this reference are that there was a firm of the name of Ramdas Khimji & Co. doing cotton mukadami business for a Japanese firm called Gosho Kabushiki Kaisha Ltd. (hereinafter referred to as 'the Japanese firm') which was in existence in 1921 and the income from which had been charged to income-tax under the Indian Income-tax Act of 1918. It was first charged to super-tax in 1920-21. The constitution of that firm was changed from time to time and some of the partnership deeds relating to the name are on record. On 11th December, 1933, Ramdas Khimji & Co. ceased to act as mukadams for the Japanese firm, and from that date a firm which bore the name of Ramdas Khimji Bros. was appointed as mukadmi and broker to the Japanese firm. The constitution of the firm of Ramdas Khimji Bros. changed from 1st September, 1935, and it thereafter consisted of two partners, viz., Ramdas Khimji and Gopaldas Khimji, and a partnership deed was executed on 26th March, 1936, which is one of the documents on record. Under clause 8 of the said partnership deed, Ramdas Khimji was entitled to 20 cents in a rupee of hundred cents out of the profits of the firm, and Gopaldas Khimji was entitled to 14 cents. Out of the remaining 66 cents, 63 cents were to be kept apart every year to be applied for discharging the liability of Ramdas Khimji to the firm of Ramdas Khimji & Co. when the same was ascertained. In 1941, the Japanese firm being declared an enemy firm, the business of Ramdas Khimji Bros. with the Japanese firm was discontinued and Ramdas Khimji Bros. thereafter continued cotton business on their own. After some changes in its constitution, the business of Ramdas Khimji Bros. was ultimately taken over on the 29th of December, 1951, by Mathurdas Ramdas, one of the partners as a proprietary concern.
2. The said firm of Ramdas Khimji Bros. claimed to be entitled to relief under section 25 (4) of the Indian Income-tax Act, 1922, in respect of the profits from its business for the period from October 1, 1951, to December 28, 1951, the relevant assessment year being 1953-54. The Income-tax Officer rejected the claim of the said firm to relief under section 25 (4) in respect of Income-tax but on appeal, the Appellate Assistant Commissioner allowed the assessee-firm's claim to relief in toto. On further appeal to the Tribunal, the case was remanded back to the Appellate Assistant Commissioner to further investigate into the records of the case referred to in an affidavit filed by one D. Goswami, 1st Income-tax Officer, A-V Ward, Bombay. On remand, the Appellate Assistant Commissioner confirmed the view which his Predecessor had taken earlier, granting, in toto, the relief claimed by the assessee-firm. The matter thereafter came up again before the Tribunal. Before the Tribunal, two main contentions were advanced on behalf of the revenue. It was first contended that the assessee-firm was doing pure cotton business, whereas the business which had suffered tax under the 1918 Act was the business of mukadami of the Japanese firm. Secondly, it was contended that the arrangement under which the assessee-firm came into existence clearly showed that the old firm was dissolved and its liabilities taken over by one of the partner, viz., Ramdas Khimji in his individual capacity, land an altogether new firm was constituted to carry on the business of mukadami with the result that there was a discontinuance, and not a succession within the terms of section 25 (4) of the Act. As far as the first contention was concerned, the Tribunal gave a finding in favour of the assessee-firm and held that it would be unrealistic to take up the position that cotton mukadami was something different from cotton business and to categories the business in such water-tight compartment, and it, therefore, held that it could not be said that the business which the assessee-firm was doing was not the same business which had suffered taxes under the 1918 Act. That is a finding of fact by the Tribunal which must be accepted for the purpose of this reference. As far as the second contention advanced before the Tribunal on behalf of the revenue was concerned, the Tribunal, however, decided in favour of the revenue and held that when the assessee-firm was constituted, there was a complete break with the past and the old firm was dissolved and the new firm started without any assets of the old firm, land it, therefore, held that the business which was carried on by the assessee-firm from the 1st April, 1939, up to the date of dissolution had not been charged to tax under the 1918 Act. From that order of the Tribunal a case has been stated to us, land the question of law which has been referred to us is in the following terms :
'Whether, on the facts and in the circumstances of the case, the firm of M/s. Ramdas Khimji Bros. was entitled to relief under section 25 (4) of the Indian Income-tax Act, 1922, in respect of the profits from its business for the period from October 1, 1951, to December 28, 1951, relevant to the assessment year 1953-54?'
3. It will be convenient at this stage to refer to the provisions of section 25 of the Indian Income-tax Act of 1922 with which the court is concerned in the present case. It may be stated that sub-section (1), (2) and (3) of the said section refer to a case in which a business, which has suffered tax under the 1918 Act, has been discontinued. Sub-section (4) of that section then proceeds to deal with a different case, and that is, a case of succession as distinguished from discontinuance, and entitles an assessee, who has succeeded to a business which has paid tax under the 1918 Act, to certain reliefs in respect of income-tax. The relevant portion of sub-section (4) of section 25 is in the following terms :
'(4) Where the person who was at the commencement of the Indian Income-tax (Amendment) Act, 1939 (7 of 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 (7 of 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 .....'
4. A plain reading of the section, as well as the accepted judicial interpretation thereof, show that, in order to attract the applicability of sub-section (4) of section 25 and to constitute succession within the meaning thereof, a change of ownership of the business, whether by transfer, inheritance or devolution in any other was is essential.
5. From the order of the Tribunal out of which the present reference must proceed on the basis of the finding of fact at which the Tribunal had arrived, viz., that the business carried on by the assessee-firm is the same business as that which suffered tax under the 1918 Act. The area of controversy in the present reference is, therefore, limited and the contention which Mr. R. J. Joshi advanced before us on behalf of the revenue was that Ramdas Khimji & Co. was dissolved and closed on the 11th of December, 1933, and there was no evidence to show that there was a succession to the business which it had carried on. In this connection, it may be mentioned that there is a finding of the Tribunal that the firm of Ramdas Khimji & Co. was dissolved on the 11th of December, 1933, and indeed, the assessee's own letter dated 13th March, 1958, addressed to the Income-tax Officer, which is annexure 'O' to the statement of the case before us, shows that on that day Ramdas Khimji & Co.'went out of existence' though it proceeds to state, 'and M/s. Ramdas Khimji Bros. were appointed as agents of the Japanese firm'. The fact that the firm of Ramdas Khimji & Co. was dissolved on the 11th December, 1933, is however, not conclusive of the question as to whether there was a total discontinuance or a succession by Ramdas Khimji Bros. to the business which Ramdas Khimji & Co. had carried on till the said date. It is true that since the assessee has led no evidence at all to prove succession. In my opinion, it is impossible to say that the assessee has placed no evidence on record whatsoever in regard to its case of succession and the question is only whether the evidence, which it has undoubtedly placed on record, is sufficient to make out a case of succession as understood in law which, it may be stated, is a mixed question of law and fact. As against the material which has been brought on the record on behalf of the assessee with which I will deal later on in this judgment, the Tribunal has relied only on two facts and they are : (1) there is no reference in the partnership deed dated 26th of March, 1936, about any take-over of business by the new firm from the old firm as a going concern, or any mention of the taking-over of the assets of the old firm and that, in fact, there is 'a complete black out about what happened between December 11, 1933, and 26th May, 1934'; and (2) that on the 11th of December, 1933, there was a dissolution of the business of the old firm and the closure of its business and the discontinuance thereof, and discontinuance cannot amount to succession within the terms of sub-section (4) of section 25 of the Act. These are also the two contentions which have been advanced before us by Mr. Joshi on behalf of the revenue. As far as the first of those contentions is concerned the mere fact that there is no reference in the partnership deed dated 26th of March, 1936 to any take-over of the business of the old firm by the new firm, is not by itself sufficient to negative succession within the terms of section 25 (4), if the other evidence placed on record by the assessee is found sufficient to bring the case within the concept of succession in law, as I shall presently point out. As far as the second of those contentions is concerned, the same is, in my opinion, disproved by the evidence which the assessee has placed on record and which I will presently discuss. Before I do so, I would, however prefer at this stage to consider what is the legal concept of succession within the meaning of section 25 (4) of the Indian Income-tax Act, 1922.
6. Many cases were cited before us in the course of the hearing of this reference, but I propose to refer to only two of them. The first of them is the decision of this court in the case of Ramgopal Ganpatrai & Sons Ltd. v. Commissioner of Excess Profits Tax, where the question of succession arose, not in regard to section 25 (4) of the Indian Income-tax Act 1922, but in regard to the second proviso to section 6 (1) of the Excess Profits Tax Act, 1940 under which as certain benefit was available to a business which had commenced on or after 31st March, 1936. I am not concerned with the nature of the concession allowed to such business under that proviso, and indeed, the court in Ramgopal's case was itself not concerned with the same. As stated in the judgment in the said case, the only question that the court had to decide thereunder was whether, for the purpose of the said proviso it could be said that the business of the assessee-company was that its business commenced on or after the 31st of March, 1936, while the contention of the Commissioner was that it had commenced prior to the said date. It was not disputed in the said case that the assessee-company which had been incorporated on 23rd June, 1943, had succeeded to the same business that was carried on by the Hindu undivided family, but the question that the court had to consider was whether the business that was started by the Hindu undivided family as managing agent on 3rd September, 1937, was a new business or whether that family had in its turn succeeded to some earlier business. The facts of the case were that on the 13th July, 1935, Raja Dhanrajgirji had been appointed as the managing agent the Dhanraj Mills Ltd., that the Hindu undivided family came to be the managing agents on the 3rd September, 1937, and that managing agency was assigned to the assessee-company on the 23rd of June, 1943. It was on those facts that it was contended on behalf of the revenue that the business of the assessee-company had not commenced on or after 31st March, 1936, but had commenced on the 13th of July, 1936, but had commenced on the 13th of July, 1935, when the managing agency business was initially started by Raja Dhanrajgirji, and the Hindu undivided family had succeeded to that business and the assessee company had in its turn succeeded to the same. Negativing that contention, it was held by this court (at page 374) that when, on the 3rd of September, 1937, the Dhanraj Mills cancelled the managing agency agreement in favour of Raja Dhanrajgirji and Raja Dhanrajgirji ceased to be the managing agent, and it was by a new agreement and by a fresh appointment that the Hindu undivided family came to be the managing agents on that day. The judgment proceeds to state that when a person talks of succession, there had to be a subsisting business which could be handed down to a successor and, if Raja Dhanrajgirji's business ceased to exist by his managing agency being cancelled, there was nothing which could be handed down to the Hindu undivided family and there was nothing which the Hindu undivided family could succeed to. It was further held that the mere fact that the nature of the business was the same did not mean that in law, the businesses were the same. The court, therefore, held that 'on the facts on the record and on the documents on the record' it was clear that the Hindu undivided family did not succeed to the business of Raja Dhanrajgirji, but there had been a discontinuance on the 3rd of September, 1937, and a new business was commenced. This decision was strongly relied upon by Mr. Joshi in support of his contention that when the Japanese firm by its letters dated 11th of December, 1933, discontinued the appointment of Ramdas Khimji & Co. as its mukadamis and appointed Ramdas Khimji Bros. as mukadams as from the same day it must be held that there had been a discontinuance of that business in so far as the old firm had ceased to be the mukadams and the new firm had become mukadams and there had, therefore been no succession within the terms of section 25 (4) of the Act. On first impression, the decision of this court in Ramgopal Ganpatrai's case does seem to support Mr. Joshi's contention, but it is clear that what has been held in the said case is that, 'on the facts on the record and on the documents on the record' in that case, it could not be said that there had been a succession. In my opinion, there can be no question of a court being bound by authority as far as the facts before it are concerned. I am, therefore, not prepared to regard the decision in Ramgopal Ganpatrai's case as binding upon us in the present case where the question of succession has to be considered on what has been placed on record before us by the assessee-firm.
7. That brings me to a consideration of the decision of the Supreme Court in the case of Commissioner of Income-tax v. K. H. Chambers. The facts of that case were that one G. A. Chambers (hereinafter referred to as 'the father') was carrying on two independent businesses, one in the export of hides, skins and mica as well as insurance and shipping brokerage under the name of 'Chambers & Co.' and the other under the name of 'Chrome Leather Company'. In 1932, he had handed over the sole management of the business of Chambers & Co. to his son K. H. Chambers (hereinafter referred to as 'the son'). On 7th July, 1932, the father wrote a letter to the son informing him that by the end of August, 1932, he sum of Rs. 40,000 invested by him in the business would run out, and that unless Rs. 60,000 was invested by the father, which he could not afford to risk, the business could not be conducted. The father, therefore suggested to the son that Chambers & Co. could be wound up and, if the son chose, he could have the goodwill so as to get the advantage of the business connections of Chambers & Co. On 8th July, 1932, the son replied to the father to the effect that he would prefer to start right afresh in his own name or in the name of Chambers & Co. and also suggested that he could get a place for less rent and use smaller staff, but requested the father to allow him to use the existing private codes. On 5th December, 1932, the father wrote a letter to his auditors to close the accounts of Chambers & Co. and informed them that from the 1st of December, 1932, the son would be running the export business separately in his own name. He further asked that his own account in Chambers & Co. would be transferred to the account of Chrome Leather Company. Under the arrangement made between the father and the son, the father took over the liabilities of Chambers & Co. and assets, including buildings and machinery sufficient to discharge those liabilities, while the some was given the stock-in-trade and a small amount of debts, and it was an admitted position that thereafter the son continued to operate the same lines of business as were carried on by Chambers & Co., taking over all the constituents of that business, using the same premises, the same telephone number, post box number, private codes and trade marks and the important sections of the staff of Chambers & Co. On 23rd May, 1933, the father wrote to the Liverpool and London and Globe Insurance Company, Calcutta, land used his good offices in getting the said insurance company to transfer the agency of that company to Chambers & Co. run by the son. On 1st January, 1948, the son transferred the business to a limited company, and for the assessment year 1948-49, he claimed relief under section 25 (4) of the Indian Income-tax Act, 1922 and the question which arose was, whether on the facts stated above, there was a succession to the business within the terms of the said section 25 (4). It was held by the Supreme Court, confirming the view taken by the High Court, that there was a succession within the meaning of section 25 (4) and the son was entitled to relief under that section. In the course of its judgment, the Supreme Court stated (at pages 680-681) that succession involved 'change of ownership' and implied that 'substantially the identity and the continuity of the business are preserved.' It further took the view that if there was a transfer of business, any arrangement between the transferor and the transferee in respect of some of the assets and liabilities, not with a view to enable the transferor to run a part of the business transferred, but to enable the transferee to run the business unhampered by the load of debts or for any other appropriate collateral purpose could not detract from the totality of succession. The main test to determine that there was succession to the business was whether there had been a taking over of the whole business and, in that connection, some other factors which have been used as tests were indicated in the judgment of the Supreme Court as being : (1) whether a similar trade had been carried on after the transfer; (2) whether the goodwill or other intangible assets were included in the transfer; (3) whether staff was taken over; (4) the treatment on transfer of the stock and debts of the transferor and (5) whether there was an interval in the carrying on of the trade as a result of the transfer (at page 679). In my opinion, however, these other factors which the Supreme Court has referred to are merely illustrative and cannot be considered to be exhaustive. For instance, though in the said case it was held that the reservation of the liabilities by the father did not detract from there being a succession, it could hardly be disputed that the question as to whether liabilities had been transferred or not though not a conclusive factor, would be one of the factors that has to be considered in deciding whether there has been a succession. It has also been pointed out to us by Mr. Kaka on behalf of the assessee-firm that, as far as the agency business of the insurance company was concerned, though the transfer of the business to the son took place on the 1st of December, 1932, it was not until the father wrote the letter dated 23rd May, 1932, to the insurance company that the son was able to do the agency business of that insurance company with the result that the fact that there was an interval in the carrying on of the business was not held to be a conclusive factor though the Supreme Court has itself stated that that was also one of the factors that was generally considered in deciding whether there is a take-over of the whole business so as to constitute succession within the meaning of section 25 (4) of the Act. The main test which emerges on a fair reading of the decision of the Supreme Court in Chambers case, in my opinion, is that in order to constitute succession, there must have been a change of ownership but the substantial identity and the substantial continuity of the business must have been preserved. It is therefore, important to bear in mind that the test for succession is not an absolute identity or complete continuity of the business of the old firm by the new firm.
8. Turning to the material which the assessee has placed on record in the present case, in the light of the law laid down by the Supreme Court in Chambers case the documentary evidence to which I would like to refer first is the two letters, both dated 11th December, 1933 written by the Japanese firm, one to Ramdas Khimji & Co. and the other to Ramdas Khimji Bors., discontinuing the mukadami of the former firm and appointing the latter firm as mukadam as from the date of those letters. I am not prepared to accept Mr. Joshi's contention that the said letters must be read as showing a discontinuance of that business, as was held in Ramgopal Ganpatrai's case. These two letters, in the context of the other facts on record to which I will presently refer, in my opinion, show that Ramdas Khimji Bros. succeeded to the mukadami business of the Japanese firm as I cannot conceive of any other way in which succession to business could have been effected in respect of the agency of a foreign firm. The second piece of evidence placed on record by the assessee to show that there had be been a succession and no break or discontinuance, as alleged by the revenue, was that the Income-tax examiner's note of 4th March, 1936 (annexure 'Z' to the statement of the case), shows a certain amount in respect of mukadami for the Japanese firm from 11th December, 1933, to 25th March, 1934 out of which, after deduction of expenses and outgoings, a sum of Rs. 15,600 was taken as profit to the vatav account. The said note of the examiner also shows a certain amount by way of brokerage in respect of the business of the Japanese firm which, after deduction of expenses and outgoings, shows a profit of Rs. 19,994. It is significant that both these amounts are shown in the order of the Income-tax Officer for the assessment year 1935-36 as emerging from the first of the two sets of books of account produced before him which set was for the period from 11th December, 1933 to 31st May, 1934. This negatives the Tribunal's view that there is a 'complete black out' about what happened between 11th December, 1933 and 26th May 1934. There are also three letters dated 16th August, 1962, produced by the assessee-firm from M/s. Khimji Poonja & Co. M/s. C. Parekh & Co., and M/s. Valji Ladha & Co. reprectively, certifying that Ramdas Khimji & Co. had dealt with them in cotton on a very large scale since 1927 or 1928 the business of dealing in cotton being business which is being carried on by Ramdas Khimji Bros. also, before and after the Japanese firm had ceased to exist. In a letter addressed by Ramdas Khimji Bros. on the 13th of March, 1958, to the Income-tax Officer (annexure 'O' to the statement of the case) to which I have already referred in another context, it had been set out that, apart from the mukadami business of the Japanese firm, Ramdas Khimji & Co. had also other activities, and that M/s. Ramdas Khimji Bros. which came into existence on the 11th of December, 1933 had continued all those activities, and that even in 1933-34 it had done some small business in cotton vaida. This position is also borne out by the affidavit of Mathurdas Ramdas dated 6th September, 1962, filed in reply to the affidavit of the Income-tax Officer, Mr. Goswami in the present case. There is one other factor which must also be considered in judging the question of succession, land that is the provision for meeting the liabilities of the firm of Ramdas Khimji & Co., that is to be found in the partnership deed of Ramdas Khimji Bros. dated 26th March, 1936 (annexure 'C' to the statement of the case). It is true that the said partnership deed has not, by the terms thereof, taken over the liabilities of the firm of Ramdas Khimji & Co. in which case the question of succession would have been much simpler. What it has, however, done is that the said partnership deed of Ramdas Khimji Bros. makes an indirect provision for meeting the liabilities of the old firm of Ramdas Khimji & Co., through he person of Ramdas Khimji who was one of the common partners. This arrangement, in my opinion, though it is not as strong evidence as a transfer of liabilities would be is also indicative of a succession to the business of the old firm. I do not agree with the view taken to the contrary by the Tribunal in paragraph 11 of its order out of which order the present reference arises. The record of the case also shows that under the partnership deed of Ramdas Khimji & Co. dated 2nd June, 1931 (annexure 'B' to the statement of the case), Khimji Gooverji and Ramdas Khimji were two of the seven partners till 11th December, 1933. A reference to the Income-tax examiner's note of 4th March, 1936 shows that in the firm of Ramdas Khimji Bros. the same two persons were partners during the period from 11th December, 1933 to 31st May, 1934 and that even thereafter Ramdas Khimji continued to be a partner therein. It is true that the mere fact that there are common partners between two firms cannot by itself indicate a succession for the purpose of section 25 (4) but the court is entitled to consider this as one of the factors or pieces of evidence which, taken together with the other material on record, which I have already discussed, in my opinion, shows that there was not a discontinuance or a complete break with the past when the old firm has dissolved as the Tribunal has held, but there was a succession to the business of the old firm within the terms of section 25 (4) of the Indian Income-tax Act 1922. In this connection, it is important to bear in mind that the decision of the Supreme Court in Chamber's case shows unmistakably that no formal transfer is necessary and that it is sufficient if the over all business effect of the whole transaction or arrangement between the old firm and the new firm results in succession to the old business. Viewed in that manner, I have come to the conclusion that the question referred to us must be answered in the affirmative.
9. As far as super-tax is concerned, the finding of the Tribunal is in favour of the assessee and I am not, therefore, called upon to deal with the same on this reference.
S.K. Desai, J.
10. I agree.
BY THE COURT.
11. Question answered in the affirmative in favour of the assessee.
12. The Commissioner to pay the assessee's costs of the reference.