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1963 (8) TMI 69

..... e on this reference. One, which is relatively simple, raises the question as to whether an assessee can have two or more different statuses for the same assessment year. There are two decisions, one a decision of the Privy Council and the other a decision of the Madras High Court, which throw considerable light on this question and render it easy of solution. But the second question is one of some difficulty and no guidance to its solution is to be derived from any decided authority. That question turns on the true interpretation to be put upon the provisions of section 17(1) of the Income-tax Act, 1922. These questions which have been submitted to this court by the Tribunal arise out of an assessment made on one Girdharlal Ghelabhai as an individual for the assessment year 1956-57. The assessee had at the material time two sources of income, namely, (1) property, and (2) business. The previous year in respect of the first source, namely, property, was the financial year ending 31st March, 1956, while in respect of the second source, namely, business, having regard to the accounting year adopted by the assessee for the maintenance of his accounts, the previous year was Samvat year .....

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..... different previous years but could have only one status according to the financial year and the financial year, according to the assessee, was the financial year immediately preceding the assessment year. This contention was advanced obviously because if it were correct, the assessee in the present case would be a resident and in that event section 17(1) admittedly would not apply. The second contention which was urged in the alternative was that even if the tests laid down in section 4A(a) were to be applied with reference to each different previous year which an assessee may have in respect of his separate sources of income and an assessee could, therefore, have different statuses for the same assessment year according to the application of the tests with reference to different previous years, section 17(1) could not be attracted unless an assessee was non-resident in all the different previous years corresponding to the assessment year, that is, in respect of all sources of income. It was contended on behalf of the assessee that since in the present case he was not non-resident in both the previous years but was resident in one of the two previous years, namely, the financial y .....

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..... in section 4A(a). Section 3 is the charging section and it imposes tax for each assessment year at the rate or rates prescribed in the Finance Act for the time being in force and such tax is charged on "the total income of the previous year". "Previous year" as denned in section 2(11) may be either the financial year immediately preceding the assessment year or, at the option of the assessee, any other period of twelve months ending with such year for which he has made up his accounts. It was at one time held by the High Court of Bombay in Commissioner of Income-tax v. Abubaker Abdul Rehman [1937] 5 ITR 233 , on a construction of section 2(11) as it stood prior to its amendment in 1939, that an assessee could not have two different previous years for the same assessment year but that view was altered by the amendment effected by the Income-tax (Amendment) Act, 1939, and it is now possible for an assessee to have different previous year for each separate source of income. The language of the opening part of section 2(11) clearly shows that "previous year" is defined in reference to each separate source of income and consequently there can be different p .....

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..... e is to be computed. The tests of residence are to be found in section 4A. We are concerned in this reference only with the provisions of section 4A. Turning to section 4A, we find that four alternative tests are provided for individuals, two for companies and one for Hindu undivided families, firms and other associations of persons. As the very opening part of the section shows, these tests are provided for determining the residence of an assessee for the purpose of the Act. The assessee before us is an individual and we need, therefore, concern ourselves only with section 4A(a) which lays down the tests for determining the residence of an individual. According to section 4A(a), for the purpose of the Act, an individual is resident in the taxable territories in any year if he satisfies any of the four tests specified in the section with reference to that year. The plain and natural meaning of these words is that whenever it is necessary to determine for the purpose of the Act whether an assessee is resident within the taxable territories in any year, the tests set out in section 4A(a) must be applied with reference to the year in respect of which the question arises and if any one .....

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..... of twelve months computed in any particular manner. All that is intended to be conveyed by using this expression in section 4A(a) is that whenever a question arises for the purpose of the Act whether an assessee is resident in the taxable territories in any period of twelve months, the tests laid down in the section must be applied with reference to such period and the question must be determined on the application of such tests. The previous year comes in not by reason of any interpretation which we put upon the expression "year" in section 4A(a) but by reason of the scheme of taxation embodied in the Act and particularly section 4(1) which deals with the computation of total income of the previous year. In this view which we take, we are supported by the high authority of the decision of the Privy Council in Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax [1948] 16 ITR 240 . It is true that in that case the assessee was a company and the Privy Council was, therefore, concerned with section 4A(c) which defines residence of a company but the scheme underlying the definition of residence is the same in section 4A(c) as in section 4A(a) (merely the tests being d .....

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..... ready pointed out that for the same assessment year there can be different previous years in respect of separate sources of income. If there can be different previous years, the total income of each previous year derived from the sources of which such year is the previous year would have to be computed under section 4(1) and for such computation it would have to be determined by the application of the tests laid down in section 4A(a) whether in such previous year of which the total income is being computed, the assessee is resident or not and the tests laid down in section 4A(a) would have, therefore, to be applied in respect of each different previous year. It may be that on an application of the tests laid down in section 4A(a) to one previous year, the assessee may be found to be resident while on the application of the tests with reference to another previous year, the assessee may be found not resident. Such a contingency may well happen and in fact it has happened in the present case. It is, therefore, quite possible that an assessee may have different statuses in different previous years though the assessment year may be the same. We find that this view which we are taking h .....

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..... he Central Board of Revenue may, by notification in the Official Gazette, specify in this behalf, by notice in writing to the Income-tax Officer declare (such declaration being final and being applicable to all assessments thereafter) that the tax, including super-tax payable by him or on his behalf on his total income shall be determined with reference to his total world income, and thereupon such tax shall be an amount bearing to the total amount of tax including super-tax which would have been payable on his total world income had it been his total income the same proportion as his total income bears to his total world income. " The section obviously prescribes a higher rate of taxation in the case of an assessee other than a company who is not resident in the taxable territories. The section enacts that if an assessee other than a company is not resident in the taxable territories, the tax, including super-tax, payable by him or on his behalf on his total income shall be an amount equal to the income-tax which could be payable on his total income at the maximum rate, plus either the super-tax which would be payable on his total income at the rate of nineteen per cent. or t .....

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..... he assessee was not resident. But if that be the true meaning of the expression "total income" occurring in section 17(1), the construction contended for by the learned Advocate-General would involve this result, namely, that even if an assessee was not resident in the taxable territories only in respect of some source or sources of income and was resident in the taxable territories in respect of other sources of income, he would be liable to be charged to tax at the higher rate provided in section 17(1) not only on his total income as a non-resident but also in his total income as a resident, since the total income liable to bear the higher rate of tax under that section would be the total income of the assessee from all sources whether as a resident or as a non-resident. The consequence which would arise from this interpretation would be that if an assessee had some income as a non resident, not only his income as a non-resident but also his income as a resident would be liable to be taxed at the higher rate even though his income as a non-resident might be very small compared to his income as a resident. The learned Advocate-General agreed that such would be the conseq .....

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..... ent in the taxable territories in respect of all sources of income so that it can be said of him when making the assessment for the assessment year that he is not resident in the taxable territories. So long as an assessee is resident in the taxable territories in respect of any source of income, it would be inappropriate to describe him as not resident in those taxable territories generally without any limitation as to source of income which is the only sense in which an assessee must be non-resident in the taxable territories in order to attract the applicability of the section. The legislative intent is very clear and it is that where an assessee is not resident in the taxable territories in respect of all sources of income in a particular assessment year so that his total income chargeable to tax for that assessment year is derived wholly as a non-resident, he shall be liable to pay tax on such total income at the higher rate of taxation provided in the section. This construction would render the higher rate of taxation provided in the section applicable only to income derived by an assessee as a non-resident and would not subject the income derived by him as a resident to such .....

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..... espect of a particular source or sources of income would be at an advantage as against his counterpart, namely, an assessee resident in the taxable territories in respect of all sources of income, for the income accruing or arising to the former without the taxable territories from sources in respect of which he is not resident would not come within the ambit of taxation whereas in the case of the latter, income from all sources would come within the ambit of taxation and yet the rates applicable to both would be the same. This, however, is not such a startling result as would make us pause to consider whether we should refuse to place upon the. section a construction which the language according to its natural and ordinary sense reasonably yields. Moreover, this result does not appear to us to be at all anomalous, but even if it were, it would certainly be less anomalous than the result which would arise if the construction contended for by the learned Advocate-General were accepted, for in that case an assessee who is not resident in the taxable territories even in respect of one source of income would be subject to the higher rate of taxation on his total income including his in .....

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