TMI Blog1984 (5) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... years for his salary income could and should be only as under : Asst. Yr. Accounting year claimed by the assessee Remarks 1976-77 . The assessee started earning salary from 1st Dec., 1975. The company's accounting year ended on 31st July, 1976. Hence, there was no salary income assessable for this assessment year. (The salary for the period 1st Dec., 1975 to 31st July, 1976 was, therefore, shown by the assessee as income assessable for the next assessment year) 1977-78 1-12-1975 to 31-7-1976 ----- 1978-79 1-8-1976 to 31-7-1977 ----- 3. Shri M. Naganathan, the authorised representative of the assessee, pointed out that assessments for the first two years had been reopened under section 147(a) of the Income-tax Act, 1961 ('the Act') to redetermine the salary income on the basis of the previous year being the financial year concerned, but that, however, no objection has been taken to the validity of the action under section 147(a). Shri Naganathan's grievance is that in terms of section 3(3) of the Act the assessee had the option to choose the previous year for his salary income. In accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution of India, being payable from out of the consolidated fund of the State. Hence, it constituted a 'separate and distinct' source of income. Secondly, in that case the finding of the Tribunal was that accounts for this new source of income 'were opened on 21-8-1968 and were made up till 31-7-1969'. Both these features (according to Shri Martin David) being absent in this case, the assessee's reliance on K. Ramachandra Rao's case is misplaced. 6. The first question is whether there could be a previous year other than the financial year for income from salary. In view of the ruling in K. Ramachandra Rao's case this question has to be answered in the affirmative. We do not think it necessary that to constitute such a separate source, the salary has to be paid under a constitutional provision from out of the Consolidated Fund of India. Salary per se is a 'separate and distinct' source of income and is distinguished as such from other specified sources of income in the Act itself. 7. Section 3(1)(a) provides that 'previous year' means the financial year immediately preceding the assessment year. However, section 3(1)(b) provides that if the accounts of the assessee had been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The assessee had also filed a certificate of deduction of tax from income charged under salaries showing income of Rs. 20,000 for the period December 1975 to July 1976. The assessment was completed, accordingly, on 6-11-1979 taking the income from salary at Rs. 17,000. For the next assessment year 1978-79, the assessee showed income from salary at Rs. 30,500. The statement filed along with the return explained that this was the managing director's remuneration from Sphinax Chemical Industries (P.) Ltd. for the period ended 31-7-1977 amounting to Rs. 34,000 less standard deduction of Rs. 3,500. A certificate of deduction of tax was also filed showing that the income was for the period August 1976 to July 1977. But the ITO was of the view that in the case of salary, the previous year should be taken as the year ending with 31st March and he proposed to assess the salary income accordingly and, therefore, issued notice under section 148 of the Act in respect of the preceding assessment years 1976-77 and 1977-78 also. The assessee filed a reply dated 6-3-1981 to the notices and stated that he was appointed as the managing director of Sphinax Chemical Industries (P.) Ltd. which came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this issue, the contention of the revenue is that the assessee not having any accounts for the income derived under the head 'Salaries', the provisions of section 3(1)(b) should not at all apply. The answer of the assessee to this contention is that the very fact that the assessee has filed a return along with the statement showing the income computed on the basis of the accounting year of the company satisfies this provision. It does not appear that when section 3(1)(b) talks of accounts being made up, it could refer to any regular books of accounts maintained by the assessee because even in the case of K. Ramachandra Rao, we do not find any reference to the assessee maintaining regular books of accounts, such as, cash book, ledger, etc. That was a case of a judge of the High Court who was only getting a monthly salary and it would be difficult to imagine the maintenance of regular cash book only to show the receipt of salary in each month. If that was all that was required, it would be quite easy for the assessee even in the present case to prepare a note book showing his monthly income and close the accounts up to July of every year for the purpose of satisfying that definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, we need only refer either to the statement filed along with the return showing the income of the assessee from under the head 'Salaries' determined at the end of the accounting period of the company or if necessary to the certificate of deduction of tax at source given by the company. It can even be said that the ledger page maintained by the company in which the salary and remuneration paid to the managing director is credited could as well be regarded as the accounts maintained by the company on behalf of the assessee if the section had required that the assessee should have maintained the accounts instead of only making up the accounts. But it is unnecessary to go to that extreme step of recognising the accounts of the company as that of the assessee as it would be sufficient to confine to the statement filed with the return which shows that the assessee had consciously adopted the year ending July as the year of account as far as the income under the head 'Salaries' is concerned. There is no reason to reject this claim especially when it would be so convenient for the assessee as well as the ITO who could easily verify the income accruing to the assessee with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Salaries' in the three assessment years 1976-77, 1977-78 and 1978-79. The assessee, Mr. John Peter, started earning salary from 1-12-1975. The accounting year of the company ended on 31-7-1976. The assessee adopted the previous year as in the case of the company's accounting year and the salary for the period from 1-12-1975 to 31-7-1976 was offered for assessment in the assessment year 1977-78. The contention of the revenue is that for the salary income, the previous year can only be the financial year and, therefore, the income from salary for the above period should be assessed for the assessment year 1976-77. For the other two years 1977-78 and 1978-79, the assessee adopting the previous year as that of the company's accounting year, returned the salary for the subsequent two years which the revenue negatived. Another point we may notice here is that the ITO had accepted the assessee's contention and completed the assessments originally taking the income from salary for the year 1976-77 at nil and at Rs. 26,990 for the assessment year 1977-78. Thereafter, the ITO reopened the assessments under section 147(a) and revised the total income at Rs. 38,601 for the year 1976-77, Rs. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Member took the view that when section 3(1)(b) refers to 'accounts' being made up to a date, it could not refer to any regular books of account maintained by an assessee because even in the case before the Andhra Pradesh High Court, there was no regular books of accounts maintained such as cash book and ledger and, therefore, 'accounts' must be such that would furnish the required information and that information was furnished by the statement of account that the assessee had filed before the ITO. 5. It was this difference of opinion that I am called upon to resolve. 6. The point of difference as framed by my learned brothers also points out whether the statement filed along with the return is sufficient to show that the assessee has made up his accounts within the financial year within the meaning of section 3(1)(b). It is to be noted at the outset that the Act does not anywhere define 'accounts' and for that matter even the method of account referred to elsewhere in several sections of the Act. The expression 'accounts' used by the Parliament in section 3(1)(b), which I do not think I need quote here, is to be understood in the same sense in which that expression is common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have taken place so as to provide the relevant information to different users of the accounts, constitute accounts and accounting. Thus, the art of classifying transactions must necessarily depend upon the need and the skill of the person maintaining accounts subject to the conventions, methods and standards which have by experience proved acceptable and useful, taking into account the regulations of governmental agencies, if any. If accounting or maintaining accounts is regarded as an art of recording transactions, the art of recording, classifying and summarising the transactions relating to income from salary can be maintained in as many ways as human ingenuity can think of alternatives. It cannot, thus, be laid down rigidly that recording of salary transactions must of necessity be always in a particular way. The object of accounts being to provide the relevant information concerning salaries, the accounts can be maintained in any manner provided the relevant information is furnished and its authenticity is established. 10. In the case of an assessee who has got income only from salary, he can maintain the salary particulars on a sheet of paper showing the date of receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the income on the basis of that account is another thing and accepting the results as disclosed by those accounts as reflecting the true income is yet another thing. It is the third part that is causing confusion in understanding, the meaning of the expression as used in section 3(1)(b). It is also judicially noticed that for entitling an assessee to exercise an option under section 3(1)(b) in respect of any separate source of income, it is not necessary for him to have either a separate book of account in respect of the income from the separate source or even to have a separate part of the book confined to income from that source. It is enough if the account in respect of the separate source of income has been maintained by the assessee, and that account has been made up to a date within the twelve months ending on the 31st day of March next preceding the year for which assessment is to be made to entitle an assessee to exercise the option in question for the first time in respect of the separate source--CIT v. Patiala Sales Corpn. (P.) Ltd. [1970] 77 ITR 443, 448 (Punj. Har.). In this case the question was whether the assessee could have a separate previous year for the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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