Law:

Section:

Section 176 of the Income-tax Act, 1961 [Corresponding to section 25 of the Indian Income-tax Act, 1922] - Business discontinued - A HUF, consisting of father and son (assessee), was carrying on money lending business - There was partition in family and as a result of said partition, entire assets of family belonging to business were divided and were allotted to father and son separately - Whether process of partition involves restriction of what was joint right of member extending to entirety of properties to some of assets of family which were allotted at partition - Held, yes - Whether since under partition father acquired an exclusive right to some of assets as did son to other assets, son had no interest in business of father and vice versa - Held, yes - Whether, therefore, joint family business no longer continued its existence but terminated and, as such, assessee was entitled to benefit of section 25(3) of 1922 Act - Held, yes FACTS A HUF consisted of father and son (the assessee). The family was carrying on money-lending business under four different vilasams or styles and had also a share in another concern. In the partition of the family on 28-3-1939, two of the properties were allotted to the father and the son took the remaining three assets. During the assessment year 1939-40, the assessee claimed that the joint family was not liable to be taxed for the period between 13-4-1938 and 28-3-1939, on the basis that it was entitled to the benefit of section 25(3) of the 1922 Act. The assessee claimed that the joint family business which was taxed under the Indian Income-tax Act, 1918, became "discontinued" by reason of the partition in March, 1939, and that, therefore, section 25(3) of the 1922 Act applied. The ITO held that there was no discontinuance within the meaning of section 25(3) of the 1922 Act. On appeal, the AAC held that as a result of the partition the entire assets of the family belonging to one single business were divided and were allotted to the father and the son separately and that it could not be held that the joint family business continued after partition. The Tribunal reversed the decision of the AAC holding that there was no…

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