1945 (5) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the term "discontinued" in Section 25(3) of the Indian Income-tax Act, 1922.
2. Applicability of the amended provisions of the Indian Income-tax Act, 1922, and their impact on the case.
3. Interaction between Sections 25 and 26 of the Indian Income-tax Act, 1922, and the implications for tax relief and assessment.

Issue-wise Detailed Analysis:

1. Interpretation of the term "discontinued" in Section 25(3) of the Indian Income-tax Act, 1922:
The central issue in this appeal is the interpretation of the term "discontinued" in Section 25(3) of the Indian Income-tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1939. The High Court of Bombay interpreted "discontinued" to include cases where the business was transferred or assigned to another person who continued to carry it on. In contrast, the High Court of Madras in Meyyappa v. Commissioner of Income-tax, Madras [1943] 11 I.T.R. 247; I.L.R. 1944 Mad. 166, gave it a narrower meaning, limiting it to a complete cessation of the business. The judgment under review aligns with the narrower interpretation, emphasizing that "discontinued" refers solely to a complete cessation of the business, not a mere change in ownership.

2. Applicability of the amended provisions of the Indian Income-tax Act, 1922, and their impact on the case:
The amendments introduced by the Indian Income-tax (Amendment) Act, 1939, added a new sub-section (4) to Section 25, which provided relief in cases of succession, not just discontinuance. However, this new sub-section (4) does not apply to the respondent, as he ceased to be the owner of the business before the amending Act came into force on April 1, 1939. The amendments aimed to extend relief to cases of succession but did not alter the natural meaning of "discontinued" in sub-section (3). The judgment clarifies that the amendments did not impose a different interpretation on the term "discontinued" and reaffirmed its original meaning as a complete cessation of the business.

3. Interaction between Sections 25 and 26 of the Indian Income-tax Act, 1922, and the implications for tax relief and assessment:
Section 26 deals with the apportionment of tax in cases of changes in the constitution of a firm or succession in a business. The amended sub-section (2) of Section 26 applies to the case under appeal, as the respondent had been succeeded by the company at the time of making the assessment. The judgment notes that the language of Section 26, both in its original and amended forms, is unambiguous and does not affect the interpretation of Section 25. The respondent may have faced an unintended disadvantage due to the legislative changes, but this does not influence the clear interpretation of the sections. The judgment suggests that any perceived flaw in the legislative scheme requires remedy through amending legislation, not judicial interpretation.

Conclusion:
The appeal is allowed, and the two questions referred to the High Court by the Commissioner of Income-tax are answered in the negative. The respondent must pay the appellant's costs of the appeal and the reference. The judgment supports the narrower interpretation of "discontinued" and emphasizes the need for legislative clarity to avoid unintended consequences in tax assessments.