9911796707
TMI Blog1980 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said Act was available to the assessee in respect of super-tax ?" The assessee is a firm. The proceedings relate to its assessment for the assessment year 1961-62. The previous year was 2016-17 Diwali for guddi and other departments excepting the jute department for which the previous year was 2016-17, Ratha Jatra. The Diwali ended in the relevant year on October 20, 1960. The assessee-firm consisted of seven partners and was carrying on business under a deed of partnership. The partners had agreed that the said partnership should be governed by the memorandum and articles of association of M/s. Mugneeram Bangur & Co. Ltd., newly formed company with effect from October 18, 1960. The certificate of incorporation as a limited company, it was noted by the Tribunal, was issued by the Registrar of Companies on October 21, 1960. In the course of the assessment proceedings, the assessee had claimed reliefs under s. 25(3) and s. 25(4) of the Indian I.T. Act, 1922, on the ground that the partnership had discontinued its business and had been succeeded by a limited company styled as M/s. Mugneeram Bangur & Co. Ltd., during the relevant previous year, that is to say, Diwali year 2016- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the memorandum and articles of association of the limited company and the company was registered with the Registrar of Companies, West Bengal, on October 17, 1960. As all the properties of the firm got vested in the company on its registration on October 17, 1960, there was a succession by the company to the business carried on by the assessee-firm and relief under s. 25(4) of the Indian I.T. Act, 1922 should be allowed. After discussing the rival contentions of the parties and the relevant facts and law, the AAC held that the assessee was entitled to the relief under s. 25(4) of the Indian I.T. Act, 1922, in respect of the previous year ended on October 21, 1960, relevant for the assessment year 1961-62. He further held that, even if succession was held to have taken place on October 21, 1960, the assessee was entitled to relief under s. 25(4) of the Indian I.T. Act, 1922, in respect of the income of the previous year ended on October 21, 1960. Regarding the relief from super-tax, the AAC was of the view that the firm had an income chargeable to super-tax for the financial year 1919-20 in respect of the income of the previous year ending on November 2, 1918. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; -- --------- -------- 14,84,595 7,92,087 ( -- ) 7,92,087 --------- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a provisional computation. In that view of the matter, the Tribunal was of the view that the AAC had acted rightly in giving relief for super-tax also. In these circumstances, the three questions indicated above have been referred to this court. The first question, therefore, to which we must direct our attention is the eligibility of relief under s. 25(4) of the Indian I.T. Act, 1922, on the basis of the facts found by the Tribunal. Now, for that, it is necessary to refer to s. 25(4) of the Indian I.T. Act, 1922. Section 25 is headed as to assessment in case of discontinued business " Sub-section (1) of s. 25 deals with the situation where a business, profession or vocation was discontinued in a year. Sub-section (2) of s. 25 deals with the situation, when any person discontinues any business, profession or, vocation, as to what is to be done. Here, though we are concerned with sub-s. (4) of s. 25 in the instant case, it may be instructive, in view of the decision of the Supreme Court, to set out sub-s. (3) as well as sub-s. (4) of s. 25 of the Indian I.T. Act, 1922. These provided as follows: "(3) Where any business, profession or vocation on which tax was at any time charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian Income-tax Act 1886 (11 of 1886), or on which income-tax would have been charged in the hands of a company for the assessment year ending on the 31st day of March, 1918, if the company having been in existence in that year, had also been in existence in the year ending on the 31st day of March, 1917." Sub-section (5) of s. 25 dealt with certain conditions under which the claim could not be entertained. In the facts and circumstances of this case, we are not concerned with that situation here. Sub-section (6) of s. 25 is also not relevant for our present purpose. The scheme behind the introduction of s. 25 was explained by the Madras High Court in the case of Meyyappa Chettiar v. CIT [1943] 11 ITR 247. There, explaining the scheme of sub-ss. (3) and (4) of s. 25 of the Indian I.T. Act, 1922, Mr. Justice Patanjali Sastri, as the learned Chief justice then was, who delivered the judgment of the Madras High Court, observed as follows (p. 258): " It will be seen that sub-sections (3) and (4) of section 25, provide for two concessions in respect of a business, etc., charged under the Act of 1918, namely, (1) an exemption from tax of the income of the period between the end of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (4)' to hold that they refer only to the relief by way of adjustment of the tax levied on the income of previous year and the consequential refund, if any, for which the assessee has to make a 'claim' under sub-sections (3) and (4). The plea of limitation cannot, therefore, prevail." This passage has been relied on in disposing of the reference by this court in the case of CIT v. B. P. (India) Ltd. [1979] 116 ITR 440 at page 446. It is essential, it appears, that to give relief from double taxation, the current income was to be charged because the scheme of taxation under 1922 Act was changed from the Act of 1918. Lest there should be double taxation, the scheme, as contained in sub-s. (3) and sub-s. (4) of s. 25 of the Indian I.T. Act, 1922, was envisaged. It is significant to note that if the conditions under sub-ss. (3) and (4) of s. 25 were fulfilled, then it was the intention of the legislature that " no tax shall be payable in respect of income, profits and gains ", though sub-s. (3) dealt with some contingencies and sub-s. (4) dealt with another contingency, but the clear mandate was that no tax should be payable in respect of the income, profits and gains for a particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at any time under Act 7 of 1918 to tax was, on discontinuance of that business, profession or vocation, exempt from liability to tax under Act 11 of 1922 between the end of the previous year and the date of such discontinuance. The tax was charged, the Supreme Court noted, under the Indian I.T. Act, on specific units such as, individuals, HUFs, companies, local authorities, firms and association of persons or partners of firms or members of associations individually and a business, profession or vocation was not a unit of assessment by itself. When, therefore, s. 25(3) enacted, according to the Supreme Court, that the tax was charged at any time on any business, it was intended that the tax was at any time charged on the owner of any business. If that condition was fulfilled in respect of the income of the business under the Act of 1918, the owner or his successor-in-interest qua the business, would be entitled to get the benefit of the exemption under it if the business was discontinued. The section in terms referred to tax charged on any business, that is to say, tax charged on any person in respect of income earned by carrying on the business. Undoubtedly, it was not all incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable under the head " Salaries " to deduct income-tax and super-tax on the amount payable. Similarly, under s. 18(3), the person responsible for paying income under the head " Interest on securities " was liable to deduct income-tax and, super-tax at the prescribed rates on the amount of interest payable, Section 24, similarly, prescribed a set off in respect of the loss sustained under any of the heads mentioned in a. 6 against the income, profits and from any other heads in that year. The Supreme Court observed that these were some of the provisions in which reference was made to specific heads of items of " taxation ". But the exemption under s. 25(3) of the Indian I.T. Act, 1922, was general. It was not restricted to income chargeable under s. 10 of the Act only. Some indications, according to the Supreme Court, were also furnished by the scheme of sub-ss. (1) and (2) of s. 25. Under sub-s. (1), the ITO was given power to make what was called " accelerated assessment " when a business, profession or vocation was discontinued in any year. The reason for the rule contained in sub-s. (1) of s. 25, according to the Supreme Court, was to prevent the loss of revenue by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish India and Federated Malaya States. It was assessed to tax under the Indian I.T. Act, 1918. The entire profits of the foreign business came to be assessed in the hands of the family under that Act as they were remitted to British India. In 1938, there was a partition in the family and, therefore, the members of the family constituted themselves into firm and continued the business as partners. The firm was dissolved on March 22, 1952, and had claimed relief under s. 25(3) of the Indian I. T. Act, 1922, on the ground of discontinuance of the business. It was held that the foreign business must be held to have been charged under the provisions of the Indian I.T. Act, 1918, within the meaning of s. 25(3) and the firm was entitled to the relief claimed. The Supreme Court observed in that case that the firm was entitled to relief under s. 25(3) with regard to the rental income from the house properties owned by the foreign business. This decision of the Supreme Court was rendered in an appeal from a decision of the Madras High Court in the case of the same assessee in 0. RM. M. SP. SV. Firm v. CIT [1964] 52 ITR 801, where, dealing with the second question regarding the entitlement to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 25(3) of the 1922 Act. It was held by this court that the assessee was entitled to exemption under section 25(3 ) in respect of interest on securities as well. It was pointed out that there was no reason to restrict the condition of the applicability of the exemption under section 25(3) only to income on which the tax was payable under the head 'Profits and gains of business, profession or vocation'. The exemption under section 25(3) is general. It was explained by this court that the heads of income described in section 6 of the 1922 Act, and further elaborated for the purpose of computation in sections 7 to 10 and 12, 12A, 12AA and 12B, are intended merely to indicate the classes of income. The heads do not exhaustively delimit sources from which income arises. Business income is broken up under different heads only for the purpose of computation of the total income. By that breaking up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Income-tax Act for computation. The ratio of this decision applies to the present case and it must accordingly be held that the assessee was entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m must be regarded as held by it for the purposes of its business." Incidentally, we may mention that in the case of CIT v. B. P. India Pvt. Ltd. [1979]116 ITR 440 (Cal.), we had referred to the 12th Report of the Law Commission which made it clear that the levy contemplated under s. 25(3) of the Indian I.T. Act, 1922, was mainly there in that Act to give relief to those assessees who had paid tax under the 1918 Act and was to really save them from double taxation for one year, on the introduction of the 1922 Act, which changed the basis of the charging period. By applying the ratio of the decision of the Supreme Court, referred to hereinbefore, in this case, we answer question No. 1 in the affirmative and in favour of the assessee. The next question with which we are concerned is the second question which we have set out hereinbefore. It was urged on behalf of the assessee that this was really an alternative contention and if the decision on the first question was in favour of the assessee then this question would not arise. It is true that this was an alternative submission made on behalf of the assessee. But in view of the specific question referred to this court and in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section provides that sub-ss. (3) and (4) shall not apply to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either in the beginning of April 1, 1920, or for the year beginning on April, 1, 1921. In other words, the assessee would be entitled to relief in respect of super-tax also provided the income, profits and gains of the business had been assessed to super-tax for the year either in the beginning of April 1, 1920, or for the year beginning on April 1, 1921. That the assessee had been assessed to super-tax to one of these two years is not in dispute. The dispute is whether the assessee was assessed for any earlier year even in which it could not be said that the assessee was assessed to super-tax for the first time in those years mentioned in the proviso. The Excess Profits Duty Act was passed in 1919. It applied for the accounting period for the 12 months ending on March 31, 1919, or any other date on which the assessee had closed the account. Section 19 of the said Act is material and provides as follows: " 19. Where the profits of any business in the accounting period are chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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