ARIJIT PASAYAT, CJ" (ORAL) ( 1 ) THESE two references under Sections 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") are closely inter-linked and are disposed of bythis common judgment. ( 2 ) BOTH the assessee and the Revenue felt aggrieved by the order of Income-taxappellate aggrieved by the order of Income-tax Appellate Tribunal. Delhi Bench a ,delhi (hereinafter referred to as the "tribunal") and moved for reference. The followingquestions have been referred for opinion of this Court:- (I) Whether on the facts and in the circumstances of the case, the Tribunalwas justified in holding that the assessment made on Oriental Fire andgeneral Insurance Co. Ltd. in respect of the income for the assessment year1972-73 as a successor of M/s. Bharat General Insurance Corpn. Ltd. wasbad in law?" (ii) Whether on the facts and in the circumstances of the case, the sum of Rs. 2,85,838. 00 being the amount of management compensation, was includible inthe total income of the insurance company for the assessment year 1972-73u/s 28 (ii) (d) of the Income-tax Act, 1961 ? (iii) Whether in view of Section 44 of the Income-tax Act, 1961 and the Firstschedule thereto, the provisions of section 28 (ii) (d) would not be applicableto the management compensation of Rs. 2,85,838. 00 in computing the incomeof the assessee insurance company". The first question was referred at the instance of the Revenue while rest werereferred at the instance of the assessee. ( 3 ) THE factual position as indicated in the statement of the case is as follows:- FOR the assessment year 1972-73, assessee was assessed as successor inbusiness of M/s. Bharat General Re-Insurance Co. Ltd. (hereinafter referred to asthe "old Company" ). Old Company was carrying on business of general insuranceuntil and before 13/05/1971. On and w. e. f. 13/05/1971. management of theold Company vested in the Central Government in terms of Section 3 (10) of thegeneral Insurance (Emergency Provisions) Act, 1971 (hereinafter referred to as the"1971 Act" ). The Old Company held licence issued under the Insurance Act, 1938 (inshort the "insurance Act" ). Pending appointment of a custodian of the undertaking ofthe Old Company, persons incharge of the management of that undertakingimmediately before 13/05/1971, were to be incharge of management of theundertaking for and on behalf of the Central Government. The Old Company held licence issued under the Insurance Act, 1938 (inshort the "insurance Act" ). Pending appointment of a custodian of the undertaking ofthe Old Company, persons incharge of the management of that undertakingimmediately before 13/05/1971, were to be incharge of management of theundertaking for and on behalf of the Central Government. So far as the period from 13/05/1971 onwards was concerned, in terms of Section 6 (11) of the 1971 Actevery insurer was given by the Central Government compensation for the vesting in itunder Section 3 of the Act of the management of the undertaking of the Old Companyinsurer. The rate of compensation payable varied depending on whether the insurencewas one referred to in clause (a) of sub-section (9) of Section 2 of the Insurance Actor one referred to in clause (b) of sub-section (9) of Section 2 of the said Act. In thelatter case rates varied depending on whether the insurer concerned had or had notdeclared dividend during at least one of the three calendar years 1967, 1968 and1969. A scheme was framed by the Central Government under Section 16 (1) of thegeneral Insurance Business Nationalisation Act, 1972 (hereinafter referred to as the"nationalisation Act") The said scheme was operative from 1/01/1974 anddescribed as the Oriental Fire and General Insurance Co. Ltd. (Merger) Scheme1973 (hereinafter referred to as the "scheme" ). As provided under Clause 4 (1) of thescheme, on and from 1/01/1974 the undertaking of every merged companystood transferred to and vested in the transferee company. In the instant case, Oldcompany was the. merged company, and assessee was the transferee company. ( 4 ) BY applying Section 170 of the Act assessment was made by the Assessingofficer holding that assessee was a successor of the Old Company. The assessmentwas assailed before the Appellate Assistant Commissioner of Income-tax (in short"acc"), who affirmed views of the Assessing Officer. The matter was carried inappeal before the Tribunal which held that crucial date was 1/01/1974 andonly with effect from that date, the Assessee came to the picture. Merely because "atan earlier point of time, there was management arrangement on behalf of the Centralgovernment, that did not render the assessee a successor to bring in Applicationunder Section 170 of the Act. While holding so Tribunal observed that a sum ofrs. 2,85,838. Merely because "atan earlier point of time, there was management arrangement on behalf of the Centralgovernment, that did not render the assessee a successor to bring in Applicationunder Section 170 of the Act. While holding so Tribunal observed that a sum ofrs. 2,85,838. 00 paid as management compensation was includible in the total incomeof the assessee for the assessment year 1972-73 under Section 22 (b) of the Act. Being aggrieved by the order of the Tribunal, both Revenue and assessee filedapplication for reference and as indicated at the outset, questions have beenreferred for our opinion. ( 5 ) SECTION 170 of the Act on which reliance has been placed by learned counsel forthe Revenue, so far as relevant, reads as follows: SUCCESSION to business otherwise that on death. 170. (1) Where a person carrying on any business or profession (suchperson hereinafter in this section being referred to as the predecessor) hasbeen succeeded therein by any other person (hereinafter in this sectionreferred to as the successor) who continues to carry on that business orprofession (a) the predecessor shall be assessed in respect of the income of theprevious year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previousyear after the date of succession. (2) Notwithstanding anything contained in sub-section (1), when thepredecessor cannot be found, the assessment of the income of the previousyear in which the succession took place up to the date of succession and ofthe previous year preceding that year shall be made on the successor in lik:-manner and to the same extent as it would have been made on thepredecessor, and all the provisions of this Act shall so far as may be, applyaccordingly. Section 170 (2) has been referred to contend that atleast from 13. 5. 1971,assessee was to be treated as a successor. Learned counsel for the assesseeon the other hand submitted that the operation of the scheme as referred toabove became operative only with effect from 1-1-1974, and from that dateassessee became the transferee company. Section 170 (2) has been referred to contend that atleast from 13. 5. 1971,assessee was to be treated as a successor. Learned counsel for the assesseeon the other hand submitted that the operation of the scheme as referred toabove became operative only with effect from 1-1-1974, and from that dateassessee became the transferee company. ( 6 ) SUB-SECTION (2) of Section 170 postulates that notwithstanding anything containedinsubsection (1) when the predecessor cannot be found the assessment of incomeof the previous year in which the succession took place to the date of succession andof the previous year preceding that year shall be made on the successor in likemanner and to the same extent as it would have been made on the predecessor andall the provisions of the Act so far as may be applicable shall be so done. Successionimplies that there is end of an entity carrying on the business, and its place has beentaken by an entirely new entity to run in continuity and as a going concern, the samebusiness. Substantial identity and continuity of the business must be preserved. Inreynold Sons and Co. Ltd. Vs. Ogston, (1930) 15 Tax Cases 501, Lord Hanworthm. R. concurred with Rowlatt J. , to observe that following was the true test: "you want to measure the income of the successor by a past history of thebusiness, it is therefore essential that there should be a very close identitybetween the business in the former proprietorship and the business in thepresent proprietorship. "succession has a recognised connotation. The tests of change of ownership, integrity,identity and continuity of a business have to be satisfied before it can be said that aperson "succeeded" to the business of another (See Commissioner of Income Tax Vs. K. H. /chambers[ (1965) 55 ITR 674]. Section 170 (1) of the Act prescribes not merely for liability to tax,but also the process of computation of tax. Alongwith the recording of a findingregarding identity of predecessor and successor, assessing officer has to record thedate from which succession has come into effect and also indicate reason for suchconclusion. The provisions of Section 170 (2) overrider those contained in Section170 (1) upon happening of the prescribed condition, viz. that after the successionhaving been effected, the predecessor cannot befound. Provisions of Section 170come into operation only when there is an effective transfer of ownership of abusiness. The provisions of Section 170 (2) overrider those contained in Section170 (1) upon happening of the prescribed condition, viz. that after the successionhaving been effected, the predecessor cannot befound. Provisions of Section 170come into operation only when there is an effective transfer of ownership of abusiness. Mere agreement to effect a transfer is not enough, Managing a businesson behalf of another does not involve transfer of ownership. It involves concept ofagency. That is not sufficient to attract application of Section 170 of the Act. ( 7 ) IN the instant case, the crucial date to bring in Application of Section 170 of theact is the date of succession i. e. 1 -1-1974. Prior to that date there was no successionand merely because assessee is stated to be in management, that is of noconsequence and does not alter the date of succession. That being the position theassessment as made for the assessment year 1972-73 was clearly unsustainable. Tribunal has recorded positive findings that succession took place on 1-1-1974 and,in our opinion, rightly. We answer the question referred at the instance of the Revenuein the affirmative, and in favour of the assessee and against Revenue. So far asquestions referred at the instance of the assessee are concerned, it is conceded thatthey have become academic in nature. That being the position we decline to answerlhem. ( 8 ) REFERENCE are accordingly disposed of.