TMI Blog1961 (3) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner). This fact is also admitted in the statement of the case filed by the assessee along with the application. Before the department as well as before the Tribunal, the assessee claimed that he is not liable to be taxed for the whole of the period beginning from October 19, 1942, to October 7, 1943. Reliance was placed by the assessee for this relief on the provisions of section 25(4) of the Income-tax Act which reads as follows: Where the person who was at the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a, partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e draft statement of the case was drawn by Shri A.R. Aggarwal and Shri B.N. Mukherjee and later on was finalised by B.N. Mukherjee and Shri N.D. Karthanis). B. L. Gupta, for the assessee Gopal Behari and U. N. Chatterji, for the Commissioner JUDGMENT [The matter originally came before Bhargava and Upadhya JJ. who on May 20, 1960, delivered the following judgments.] BHARGAVA J.--The question referred by the Income-tax Appellate Tribunal for opinion of this court is: Whether on the facts of the case, the assessee family is entitled, in respect of its Benaras business, to exemption from tax under section 25(4) of the Income-tax Act for the period from October 19, 1942, to October 7, 1943? The assessee is a Hindu undivided family which was carrying on business at Banners in the name of Dalsukh Rai Jai Dayal. This Hindu undivided family was succeeded by a partnership firm in carrying on that Banaras business with effect from October 8, 1943, and the question that arose was as to the relief to which the assessee family became entitled under section 25(4) of the Income-tax Act. This question fell for decision in the proceedings for assessment fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d between the end of the previous year and the date of succession. In this case, therefore, the income, that would be exempted from tax under this part of section 25(4) of the Income-tax Act, would be the income earned between October 7, 1943, which was the date on which the previous year ended, and October 8, 1943, which was the date on which the succession took place. Consequently, the contention of the assessee that under the first part of section 25(4) of the Income-tax Act the income earned during the period October 19, 1942, to October 7, 1943, is exempted is incorrect and cannot be accepted. It may be unfortunate that the succession took place on October 8, 1943, which was the very first day of the next accounting period following the previous year October 19, 1942, to October 7, 1943, with the result that the assessee in effect gets no relief at all because no income was earned by the assessee between October 7, 1943, and October 8, 1943. If the date of succession had been later than October 8, 1943, and any income had been earned during that period that could have been the income of the assessee which would have been exempt from the tax Even in the present case, if the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence maybe returned to the Tribunal with this answer. The department will be entitled to the costs of this reference which is fixed at ₹ 200. UPADHYA J.- I have had the advantage of reading the order proposed by my learned brother but with great respect I regret I am unable to agree. The question referred by the Income-tax Appellate Tribunal for the opinion of this court is as to whether on the facts of the case the assessee is entitled in respect of its Banaras business to exemption from tax under section 25(4) of the Income-tax Act for the period from October 19, 1942, to October 7, 1943. The relevant faces as set out in paragraph 2 of the statement of the case are that after the period October 19, 1942, to October 7, 1943, which is the accounting period of the previous year for the assessment year 1944-45, the assessee's business at Banaras was taken over by a partnership firm with effect from October 8, 1943, and the assessee claims that no tax could be levied in respect of the income of the period October 19, 1942, to October 7, 1943, because of the provisions of section 25(4) of the Income-tax Act. Section 25(4) of the Income-tax Act reads a follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 23 I.T.R. 250 (All.) a Bench of this court of which my learned brother was a member held that the previous year means the account year preceding the date of succession. In Commissioner of Income-tax v. Srinivasan [1953] 23 I.T.R. 87, 99 (S.C.) the Super Court laid down: ....the expression 'end of the previous year' in sub-section (3) and (4) of section 25 of the Indian Income-tax Act, 1922, in the context of those sub-sections means the end of an accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession. The expression 'previous year' substantially means an accounting year comprised of a full period of twelve months and usually corresponding to a financial year preceding the financial year of assessment. In view of these weighty pronouncements as to the earning of the expression previous year in section 25(4) learned counsel for the department contends that the previous year in this case ended on October 7, 1943, and the period in respect of which exemption was granted by section 25(4) was thus nil. Learned counsel also contended that the assessee can get no reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the date of succession, their Lordships held that this period alone could be the subject-matter of relief. It is in this connection that the phase came up for considerate before the Supreme Court and on the facts of that case their Lordships found that the year ending on June 30, 1939, was the previous year means for determining the period in respect of which a relief could be granted. In the same case the Supreme Court has set out the history and object of the statutory provisions and has observed how under the Income-tax Act of 1918 tax was levied on the income of the year of assessment and later an adjustment was made when the year was over and how this basis of assessment was altered by the Act of 1922. They have observed that under section 3 of the Act the income of the previous year is made the subject of the charge. On the passing of the Act of 1922, the previous system of assessment was kept alive for one year with the result that two assessments, one under the Act of 1922 on the income of 1921-22 and another under the old system by way of assessments on the income of the same year 1921-22 were made. In other words the income of the year 1921-22 was assessed twice, once u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature should have discriminated between assessees whose business is succeeded to towards the closes to the previous year and those whose business is succeeded to immediately after the close of the previous year. The expression end of the previous year in section 25(4) should be construed, any opinion, is such a way that there shall always be some period of time between the end of the previous year and the date of succession. I am therefore of the view that a construction should be placed on the expression end of the previous year in section 25(4) which should be consistent with the object of this provision. This end of the previous year therefore could not be taken to be October 7, 1943, in the present case, for that would leaves no period at all between the end of the previous year and the date of succession. Having regard to the object of this statutory provision it appears property to construe the purse end of the previous year as meaning the end of that previous year which precedes the succession and the period in respect of which exemption is claimed. I am alive to the fact that in Srinivasan's case [1953] 23 I.T.R. 87 (S.C.) relief had been claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore from October 19, 1942, to October 7, 1943, is the relevant period for which the assesses entitled to an exemption. In Srinivasan's case [1953] 23 I.T.R. 87 (S.C) at page 99 of the Income-tax Reports the Supreme court laid down: ...the expression 'end of the previous year' in sub-section (3) and (4) of section 25 in the context of those sub-sections means the end of and accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession... Learned counsel for the department urged that this meaning of the expression end of the previous year should be applied to the instant case and it should be held that the end of the accounting year which fell on October 7, 1943, immediately preceded the date of succession, October 8, 1943. I fear the word immediate cannot be construed in its literal sense for when using this word their Lordships were conscious of the fact that the end of the accounting year which in the case before them was held to be June 30, 1939, did not in fact precede immediately the date of discontinuance or succession which was March 1, 1940. A full period of eight months interve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or at the end of a year but on any date before the expiry of a full year the law casts a duty on the Income-tax Officer not to tax the income for that part of the previous year or accounting period which ends with the date of the discontinuance or succession and commences with the end of the preceding accounting period. This end of the preceding accounting period has been expressed as the end of the previous years in these provisions. In addition to this it is further provided that if an assessee makes a claim to that effect he may get full relief in respect of the income of one entire previous year by asking that the income of the broken period should be substituted for the income of the preceding previous year and if the assessment for that preceding previous year has already been made on a higher income, the excess paid should be refunded. This provision clearly indicates that the legislature intended to give relief in respect of one whole year's income. If the succession taken place on a date prior to the close of the year the assessee gets the relief in respect of the income up to the date of succession. This period will not be a full period of 12 months but would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai Jaidayal. The case of the assessee was that till October 7, 1943, it was carrying on the business but on October 8, 1943, the same was succeeded to by a partnership firm. For the accounting period October 19, 1942, to October 7, 1943 (the assessment year being 1944-45), the assessee was assessed to income-tax. The assessee's objection was that it was not liable to pay any tax for this period by virtue of the provisions of section 25(4) of the Act. The Income-tax Appellate Tribunal has referred to this court the following question for its opinion: Whether on the facts of the case the assessee family is entitled in respect of its Benaras business to exemption from tax under section 25(4) of the Income-tax Act for the period October 19, 1942, to October 7, 1943? According to the statement of the case submitted by the Tribunal to this court the account year of the assessee corresponding to the assessment year began on October 19, 1942, and ended on October 7, 1943, and the partnership firm succeeded to the business on October 8, 1943. On behalf of the assessee it has been contended that on a correct interpretation of section 25(4) of the Act no tax should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 31st days of March, 1917. It is well known that the provisions of section 25(3) and (4) were introduced into the Act in order to give relief to assessees against double taxation. Under the Act of 1918 income-tax was levied on the income of the current year, i.e., the year of assessment, but as the correct income for the year could not be known till the expiry of the year assessment used to be made on the basis of the income of the previous year but after the close of the assessment year an adjustment used to be made on the basis of the income of the assessment year. The 1922 Act brought about a change and section 3 in it was so worded as to make the income of the previous year the subject of the charge and tax in the assessment year. Even after the passing of the Act of 1922 for one year the Previous system of assessment was kept alive with the result that for the year 1922-23 there were two assessments, one under the Act of 1922 on the income of 1921-22 and the other under the old system by way of assessment on the income of the same year 1921-22. To remover the hardship of the same income being subject to taxation twice the Act of 1922 introduced section 25(3) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inasmuch as the law required a period to be found out the previous year in this case would be deemed to be the year ending with October 18, 1942. It is also contended that the words in the section are between the end of the previous year and the date of succession which means that in determining the period, the date of succession has got to be excluded and the period contemplated by the section is one of which no part projects into the date of succession, in this case the 8th of October, 1943. In the present case there is no difficulty about the date of succession, it being the admitted case of the parties as also found in the statement of the case submitted by the Tribunal that the date of succession was October 8, 1943. The difficulty is with regard to the date on which the previous year began and ended. In the case of Commissioner of Income-tax v. Srinivasan [1953] 23 I.T.R. 87 (S.C.) their Lordships of the Supreme Court were concerned with deciding as to what does the expression end of the previous year occurring in sub- section (3) and (4) of section 25 of the Act mean. In that case what had happened was that the two brothers K. Srinivasan and K. Gopalan were carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profits earned between July 1, 1938, and February 29, 1940, a period of 20 months. The Lordships of the Supreme Court after considering the provisions of section 25 observed as follows in the case mentioned above [1953] 23 I.T.R. 87 99-100 (S.C): After a careful consideration of the different provisions of the Act relevant to this enquiry, we have reached the conclusion that the expression 'end of the previous year' in sub-sections (3) and (4) of section 25 in the context of those sub-sections means the end of an accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession, (in this case June 30, 1939)....The profits of the year of discontinuance could not, according to the scheme of the Act, be taxed till the financial year 1941-42 and the previous year co-related to that assessment year would be the accounting year ending June 30, 1940. It is obvious that the end of the accounting year falling after the date of discontinuance could not appositely be said to be the end of the previous year preceding that date. The expression 'previous year' substantially means an accounting year comprised of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and at some hour on the 8th there may be a very short period between the end of the previous year and the exact hour on October 8, 1943, on which the succession by the partnership took place. There are no facts in the statement of the case to indicate at what time on October 8, 1943, the succession took place. It is not possible to presume anything in this connection and there are only two ways of looking at the matter. One way of looking at it would be to say that the period between 7th and 8th of October, 1943, was the period for which the assessee would be entitled to an exemption. The second way of looking at it would be that inasmuch as there was no period intervening the assessee would not be entitled to any exemption. In either case the result for the assessee would be the same because admittedly he made no income between the 7th and 8th of October, 1943, or between the end of the previous year and the date of succession. It is true that in the view that I am taking the assessee would stand to be treated worse than those whose business was succeeded to not at the very commencement of the new year but on a date some time after that. One can clearly see some anomaly in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The assessee in order to gain the benefit of section 25(4) should have allowed the succession to take place on October 9, 1943, or some subsequent date. In that case it could not only have got an exemption in respect of the payment of tax on any income that may have accrued to it but would also have been entitled, on an application being made, to get the income for the year October 19, 1942, to October 7, 1943, treated as the income for that period and obtained relief under the second part of section 25(4). For the reasons mentioned above, in my opinion, the reference should be answered in the negative but it appears to be just and proper that the parties should bear their own costs. The fee of the learned counsel for the department should be fixed at ₹ 200. [The matter again came before Bhargava and Upadhya JJ. who made the following order on April 3, 1961.] BY THE COURT.--In this case there was a difference of opinion between us when this case was first heard by us. The question of law referred by the Tribunal to this court for opinion was therefore referred to a third Judge. Now in accordance with the opinion of the third judge who has agreed with one of us, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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