Partners have come and gone over the years and a fresh deed was drawn up. Is my firm still the same assessable unit, or has a new firm come into existence?
The same unit. The Supreme Court held that under the Income-tax Act a firm is a distinct assessable entity, separate from the partners who are themselves separately assessable, and that a mere change in the personnel of the partners is not a succession and does not bring a new assessable unit into existence. The business of tea broking had gone on in the same name, at the same place, from before 1918 until the limited company took it over in 1947, with no cesser and no division of assets. The reconstitution in 1945 did not make it a different unit, so the relief for a business charged under the 1918 Act was rightly allowed.
Decided by the Supreme Court (Supreme Court of India; Mehr Chand Mahajan, S.R. Das and N.H. Bhagwati JJ. Judgment by Mahajan J) on 1953-09-24, reported as AIR 1953 SC 455; (1954) SCR 171. It bears on section 4, section 2(23), section 187, section 188 of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
This is the decision that fixed the firm as a unit of assessment distinct from its partners, and it is cited far beyond the relief it was actually about. Its key move is to refuse to carry the general law of partnership straight into the tax statute: at general law a firm is a compendious name for its partners, but the charging section, and the provisions on assessment, recovery and registration, treat the firm as a separate and distinct unit. The practical test it gives is one of identity: is the unit now before the officer the same unit as before? A change in partners, in shares, or a fresh deed does not by itself break identity where the same business continues in the same name at the same place, and there has been no dissolution, no division of assets and liabilities and no succession by an outsider. That is still the framework for distinguishing a change in constitution from a succession.
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The assessee was a firm of tea brokers, A. W. Figgies and Co. When tax was paid under the Income-tax Act, 1918 the partners were Mathews, Figgies and Notley. Mathews went out in 1924 and his share was taken by the other two. Squire was brought in in 1926. Figgies went out in 1932, leaving Notley and Squire until 1939, when Hillman joined. Notley went out in 1943, leaving Squire and Hillman, and Gilbert was brought in in 1945, when a fresh partnership deed was drawn up. That arrangement continued until 31 May 1947, when the partnership was converted into a private limited company. The 1939 deed provided that the retirement of a partner would not determine the partnership, which would be carried on by the remaining partners. For assessment year 1947-48 the firm claimed relief under section 25(4) of the 1922 Act on the footing that a business charged under the 1918 Act had been succeeded by the company. The Income-tax Officer refused, because the partners in 1939 were not the partners in 1947, and the Appellate Assistant Commissioner agreed. The Tribunal reversed, holding that the relief is given to the business and not to the persons carrying it on, that mere changes in constitution are to be ignored, and that for income-tax the firm has a separate juristic existence. The statement of case disclosed no actual dissolution, no division of assets and liabilities and no succession by an outsider. The Calcutta High Court answered the reference in the firm's favour.
The appeal was dismissed with costs. The firm as constituted on 31 May 1947 was entitled to relief under section 25(4). The section does not treat a mere change in the personnel of the partners as a succession, and disregards such a change; it follows that a mere change in the constitution of a partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity, and in such a case there is no devolution of the business as a whole. Despite the changes, the business of the firm as originally constituted continued as tea brokers from its inception until the limited company succeeded to it, it was the same unit all through, carrying on the same business at the same place, and there was no cesser of the business or change in the unit. The deed of 1945 did not make the reconstituted firm a different unit; it was silent on what became of the assets and liabilities of the firm constituted in 1939, and the High Court had in any event declined to look at it because it had not been relied on before the Tribunal or referred to by the officer or the Appellate Assistant Commissioner.
The Court read the section first. Its own words, the change not being merely a change in the constitution of a partnership, show that the legislature disregarded such changes when asking whether one person has been succeeded by another. It then addressed the general law. Under the law of partnership a firm has no legal existence apart from its partners and is merely a compendious name for them; but equally, under that law a firm is not dissolved by the mere incoming or outgoing of a partner, since a partner may retire and another be introduced with the consent of the rest, and the reconstituted firm may carry on in the same name until dissolution. The Indian Partnership Act is itself a compromise between the strict English common law view and the mercantile usage that treats a firm as a distinct person or quasi corporation. Under the Income-tax Act the position is different again: the charging section imposes tax on the total income of every individual, Hindu undivided family, company, local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually, so that the partners are distinct assessable entities while the firm is a separate and distinct unit for assessment. The provisions on assessment on change, on recovery and on registration bear the same out. The technical view of a partnership under English or Indian law therefore cannot be carried into the income-tax law. That left a single question, one of identity: was the unit assessed under the 1918 Act the same unit to whose business the private company succeeded in 1947? On the material, it plainly was.
a mere change in the constitution of the partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity
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Handle my notice → Ask a CA on WhatsAppThe same unit. The Supreme Court held that under the Income-tax Act a firm is a distinct assessable entity, separate from the partners who are themselves separately assessable, and that a mere change in the personnel of the partners is not a succession and does not bring a new assessable unit into existence. The business of tea broking had gone on in the same name, at the same place, from before 1918 until the limited company took it over in 1947, with no cesser and no division of assets. The reconstitution in 1945 did not make it a different unit, so the relief for a business charged under the 1918 Act was rightly allowed. This was decided by the Supreme Court (Supreme Court of India; Mehr Chand Mahajan, S.R. Das and N.H. Bhagwati JJ. Judgment by Mahajan J) and bears on section 4, section 2(23), section 187, section 188 of the Income Tax Act 1961. It is reported as AIR 1953 SC 455; (1954) SCR 171. This is the decision that fixed the firm as a unit of assessment distinct from its partners, and it is cited far beyond the relief it was actually about. Its key move is to refuse to carry the general law of partnership straight into the tax statute: at general law a firm is a compendious name for its partners, but the charging section, and the provisions on assessment, recovery and registration, treat the firm as a separate and distinct unit. The practical test it gives is one of identity: is the unit now before the officer the same unit as before? A change in partners, in shares, or a fresh deed does not by itself break identity where the same business continues in the same name at the same place, and there has been no dissolution, no division of assets and liabilities and no succession by an outsider. That is still the framework for distinguishing a change in constitution from a succession. If it applies to you, the first step is this: Frame the question as one of identity of the assessable unit, and set out the continuity: same business, same name, same premises, uninterrupted trading, no division of assets and liabilities.
The assessee was a firm of tea brokers, A. W. Figgies and Co. When tax was paid under the Income-tax Act, 1918 the partners were Mathews, Figgies and Notley. Mathews went out in 1924 and his share was taken by the other two. Squire was brought in in 1926. Figgies went out in 1932, leaving Notley and Squire until 1939, when Hillman joined. Notley went out in 1943, leaving Squire and Hillman, and Gilbert was brought in in 1945, when a fresh partnership deed was drawn up. That arrangement continued until 31 May 1947, when the partnership was converted into a private limited company. The 1939 deed provided that the retirement of a partner would not determine the partnership, which would be carried on by the remaining partners. For assessment year 1947-48 the firm claimed relief under section 25(4) of the 1922 Act on the footing that a business charged under the 1918 Act had been succeeded by the company. The Income-tax Officer refused, because the partners in 1939 were not the partners in 1947, and the Appellate Assistant Commissioner agreed. The Tribunal reversed, holding that the relief is given to the business and not to the persons carrying it on, that mere changes in constitution are to be ignored, and that for income-tax the firm has a separate juristic existence. The statement of case disclosed no actual dissolution, no division of assets and liabilities and no succession by an outsider. The Calcutta High Court answered the reference in the firm's favour. The matter was decided on 1953-09-24 by the Supreme Court (Supreme Court of India; Mehr Chand Mahajan, S.R. Das and N.H. Bhagwati JJ. Judgment by Mahajan J). On those facts the Supreme Court held as follows. The appeal was dismissed with costs. The firm as constituted on 31 May 1947 was entitled to relief under section 25(4). The section does not treat a mere change in the personnel of the partners as a succession, and disregards such a change; it follows that a mere change in the constitution of a partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity, and in such a case there is no devolution of the business as a whole. Despite the changes, the business of the firm as originally constituted continued as tea brokers from its inception until the limited company succeeded to it, it was the same unit all through, carrying on the same business at the same place, and there was no cesser of the business or change in the unit. The deed of 1945 did not make the reconstituted firm a different unit; it was silent on what became of the assets and liabilities of the firm constituted in 1939, and the High Court had in any event declined to look at it because it had not been relied on before the Tribunal or referred to by the officer or the Appellate Assistant Commissioner.
The Court read the section first. Its own words, the change not being merely a change in the constitution of a partnership, show that the legislature disregarded such changes when asking whether one person has been succeeded by another. It then addressed the general law. Under the law of partnership a firm has no legal existence apart from its partners and is merely a compendious name for them; but equally, under that law a firm is not dissolved by the mere incoming or outgoing of a partner, since a partner may retire and another be introduced with the consent of the rest, and the reconstituted firm may carry on in the same name until dissolution. The Indian Partnership Act is itself a compromise between the strict English common law view and the mercantile usage that treats a firm as a distinct person or quasi corporation. Under the Income-tax Act the position is different again: the charging section imposes tax on the total income of every individual, Hindu undivided family, company, local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually, so that the partners are distinct assessable entities while the firm is a separate and distinct unit for assessment. The provisions on assessment on change, on recovery and on registration bear the same out. The technical view of a partnership under English or Indian law therefore cannot be carried into the income-tax law. That left a single question, one of identity: was the unit assessed under the 1918 Act the same unit to whose business the private company succeeded in 1947? On the material, it plainly was. In the words reproduced by the source cited on this page: "a mere change in the constitution of the partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity"
It was decided by the Supreme Court on 1953-09-24 and is reported as AIR 1953 SC 455; (1954) SCR 171. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 4, section 2(23), section 187, section 188, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed with costs. The firm as constituted on 31 May 1947 was entitled to relief under section 25(4). The section does not treat a mere change in the personnel of the partners as a succession, and disregards such a change; it follows that a mere change in the constitution of a partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity, and in such a case there is no devolution of the business as a whole. Despite the changes, the business of the firm as originally constituted continued as tea brokers from its inception until the limited company succeeded to it, it was the same unit all through, carrying on the same business at the same place, and there was no cesser of the business or change in the unit. The deed of 1945 did not make the reconstituted firm a different unit; it was silent on what became of the assets and liabilities of the firm constituted in 1939, and the High Court had in any event declined to look at it because it had not been relied on before the Tribunal or referred to by the officer or the Appellate Assistant Commissioner. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 4, section 2(23), section 187, section 188 of the Income Tax Act 1961, and was decided by Supreme Court of India; Mehr Chand Mahajan, S.R. Das and N.H. Bhagwati JJ. Judgment by Mahajan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Draft the partnership deed so that retirement or death does not determine the firm and the remaining partners carry it on, as the 1939 deed here provided. If a fresh deed is executed on reconstitution, make it say what happens to the assets and liabilities of the earlier firm; the Court noted that the 1945 deed was silent, and read the silence as continuity. Raise every document you intend to rely on before the Tribunal. The High Court refused to look at the 1945 deed because it had not been relied on below, and the Supreme Court did not disturb that.
Still good law. The source page records the decision as cited in nearly one hundred and fifty later cases, and its citator shows it referred to or followed by the Supreme Court repeatedly between 1956 and 1986, with one decision distinguishing it in 1974. The proposition it is cited for, that a firm is a distinct unit of assessment and that a change in its constitution does not create a new unit, remains standard. The relief it actually granted, under section 25(4) of the 1922 Act for businesses charged under the 1918 Act, has no counterpart in the 1961 Act, and the 1961 Act deals separately with a change in constitution and a succession, so the modern provisions must be read for themselves. Its later history was not otherwise traced in this session. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line gave the sections as 2(23), 184, 187, 188 and 4. The judgment decides section 25(4) of the Indian Income-tax Act, 1922, read with the charging section 3 of that Act, whose 1961 Act equivalent is section 4, with the definitions of firm, partner and partnership now in section 2(23). Section 25(4) itself has no equivalent in the 1961 Act, since it was transitional relief tied to businesses charged under the Income-tax Act, 1918. The distinction the case draws between a change in constitution and a succession is now the subject of sections 187 and 188 of the 1961 Act, and registration, then under section 26A, was dealt with by section 184; none of those provisions was before the Court and the case is not authority on their terms. The judgment does not decide what would follow had there been a dissolution with division of assets, and it did not examine the 1945 deed on its merits. The harvested page carries a reporter's headnote above the judgment, which has been disregarded; it gives the changes of partners in a compressed and partly inaccurate form, and the judgment's own account has been followed. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed with costs. The firm as constituted on 31 May 1947 was entitled to relief under section 25(4). The section does not treat a mere change in the personnel of the partners as a succession, and disregards such a change; it follows that a mere change in the constitution of a partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity, and in such a case there is no devolution of the business as a whole. Despite the changes, the business of the firm as originally constituted continued as tea brokers from its inception until the limited company succeeded to it, it was the same unit all through, carrying on the same business at the same place, and there was no cesser of the business or change in the unit. The deed of 1945 did not make the reconstituted firm a different unit; it was silent on what became of the assets and liabilities of the firm constituted in 1939, and the High Court had in any event declined to look at it because it had not been relied on before the Tribunal or referred to by the officer or the Appellate Assistant Commissioner.
TaxSphere, “CIT v A.W. Figgies & Co”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-a-w-figgies-firm-identity-change-in-constitution/ (validity last checked 2026-08-29)
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