Law:

Section:

Section 176 of the Income-tax Act, 1961 [Corresponding to Section 25(3) of the Indian Income-tax Act, 1922], read with section 25(3) of the Mysore Income-tax Act, 1923 - Business discontinued - Pursuant to description of joint family all family assets including cotton business run by it were divided among three coparceners who then formed a partnership by inducting a forth partner - Business assets and liabilities falling to each partner's share were entered in their personal accounts and then retransferred to partnership firm as contribution of capital - ITO found that cash balance, bank accounts and stocks of family business had been transferred from books of family to that of firm - Apart from that, partnership deed itself stipulated that it would carry on as successor to business originally carried on by HUF of cotton givens and pressers - Whether, on facts, there was merely a change of ownership and business was never discontinued - Held, yes FACTS Pursuant to a partition and disruption of the joint family all the family assets including its cotton business were divided amount its three coparceners. A partnership firm was then formed by the said three coparceners by including a fourth partners, for doing the same business. The business assets and liabilities falling to each coparcener's share were entered in their personal accounts and then retransferred to the partnership firm as contribution of capital with the exception of a few trade debts. For the assessment year 1949-50, when the assessment was reopened under section 34 of the Mysore Act, an exemption was claimed on behalf of the disrupted HUF under section 25(3) of the Mysore Act, on the ground that on partition the business had disintegrated into several parts which had been allotted individually to each coparcener thereby connoting discontinuance of the business and that assets acquired by firm were of divided members and did not belong to HUF. The ITO rejected these contentions and relying on the partnership deed which showed that the HUF business continued to be carried on by the partnership firm and that the cash balance, bank account and the stocks of the family business had been transferred…

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