The Commissioner of Income Tax vs Messrs. Best and Co., Ltd.

Horace Owen Compton Beasley, Kt., C.J.—The following question has been referred to us by the Income Tax Commissioner, viz.:

Whether the transfer by the petitioners of Eagle Rolling Mills to a limited company on the 31st December, 1926, constitutes the latter company

successor to the petitioners within the meaning of Section 26(2) of the Act.

Section 26(2) of the Indian Income Tax Act reads as follows:

Where, at the time of making an assessment u/s 23, it is found that the person carrying on any business, profession or vocation has been succeeded

in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business,

profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year.

As the question referred shows, there was a transfer by the petitioners of the Eagle Rolling Mills to another company at the end of 1926.

Messrs. Best & Co., the petitionershere, were up to that time the owners not only of the Eagle Rolling Mills but of other companies carrying on a

very extensive business in Madras. On the 31st December, 1926, the petitioners transferred the business of the Eagle Rolling Mills to a company

formed expressly for the purpose of buying it. The petitioners claimed the benefit of the deductions allowed in the shape of depreciation and also

for expenditure for the purpose of earning profits in the year of account u/s 10(2) of the Act. The Income Tax authorities, however u/s 26(2)

assessed the new company holding that the new company had succeeded Best & Co. as owners of the Ragle Rolling Mills. The point taken here

by the petitioners is that in accordance with the decision in Commissioner of Income Tax v. Arunachdlam Chettiar (1923) I.L.R.47M.660 : 46

M.L.J. 68 Section 10(1) of the Indian Income Tax Act, where it deals with the ascertainment of the profits of a business, means the ascertainment

of the profits of each and every business carried on by an assessee, that is to say, that the profits and losses of all the businesses can be lumped

together and so can the other items allowable as deductions and the resulting profit is assessable to Income Tax. It is consequently argued that the

use of the words ""any business"" in Section 26 means ""each and every business"" carried on by the former owner of a business and that as, in this

case, the new company has not succeeded to all the businesses which Messrs. Best & Co. own and control, Section 26(2) has no application and

that the proper persons entitled to be assessed and to claim the deductions are the petitioners. As the learned Income Tax Commissioner points

out, to introduce the words ""each and every"" into Section 26(2) in place of ""any "" would be to deprive it of any logical meaning and indeed to

make an absurdity of it. It would mean this that, where a company, which owns or controls a dozen other companies, sells one of them to another

company, unless the Income Tax authorities can show that the purchasing company succeeded to all the other companies owned or controlled by

its vendor, it cannot be assessed u/s 26(2). That, to my mind, is an impossible position. Section 26 was designed for the purpose of making

somebody assessable to Income Tax, and the whole scheme of the Act is not to assess two people at the same time but is to find somebody who

is either properly assessable or more conveniently assessable; and what Section 26(2) says is that, where a person who was not the former owner

of a company is found to be owning that company in the year of assessment, that person is to be assessed. That is not only a convenient course but

seems to me to be a just one. Upon whom the burden is ultimately to fall is a matter of arrangement between the vendor company and the

purchaser company. Taking this view, in my opinion, our answer to the question referred must be that the new company is the successor of the

petitioners. Costs to the Commissioner Rs. 250.

Ramesam, J.

I agree.

Cornish, J.

I agree.