TMI Blog1952 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s contentions could not be upheld. We are, however, unable to subscribe to the conclusion reached by the learned Judge that the expression " previous year " in sub-sections (3) and (4) of Section 25 was co-related to the year of assessment 1940-41. We allow the appeal and hold that the answer given by the senior Judge to the question referred was wrong and that the answer given by Viswanatha Sastri, J., was the correct one. - - - - - Dated:- 22-12-1952 - Judge(s) : MEHR CHAND MAHAJAN., N. H. BHAGWATI., S. R. DAS JUDGMENT The judgment of the Court was delivered by MAHAJAN, J.---This is an appeal from the judgment of the High Court of Judicature at Madras in a reference made by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act (XI of 1922). For several years prior to 1939-40 the respondents, who are brothers, had been carrying on in partnership the business of " The Hindu ", a daily newspaper of Madras. The profits of this business had been charged to income-tax in the hands of the respondents under the Indian Income-tax Act of 1918. The firm's year of account was a period of twelve months ending with 30th June, each year. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the law the Tribunal's order was confirmed, it being in accordance with the opinion delivered by the senior Judge. Leave to appeal to this Court was granted and this appeal is before us on a certificate given by the High Court. The principal question to decide in this appeal is whether on a true construction of Section 25(4) of the Act, and on the facts stated the period the profits of which were entitled to exemption from the payment of tax is the period between 1st July, 1939, to 29th February, 1940, (a period of eight months) or the period commencing from 1st July, 1938, and ending with 29th February, 1940, (a period of 20 months). To decide this question it is necessary to set out the relevant provisions of the Act. Section 2(11), which defines " previous year " in so far as it is relevant for purposes of this appeal, is :--- " (II)(a) the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said 31st day of March, then at the option of the assessee the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment shall be made on the basis of the income, profits and gains of the said period, and, if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference. (6) Where an assessment is to be made under sub-section (1), sub-section (3), or sub-section (4), the Income-tax Officer may serve on the person whose income, profits and gains are to be assessed, or, in the case of a firm, on any person who was a member of such firm at the time of its discontinuance, or, in the case of a company, on the principal officer thereof, a notice containi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been discontinued by him. The scheme of the Act is that by the charging section, i.e., Section 3, income-tax is levied for a financial year at the rate prescribed by the annual Finance Act on the total income of the previous year of every individual, etc. Each previous year's income is the subject of separate assessment in the relative assessment year. Though the year of assessment is the financial year, the previous year of an assessee need not necessarily be the previous financial year, for this expression is to be understood as defined by Section 2(11)(a) of the Act. The respondents were duly assessed to tax for the year of assessment, i.e., the financial year 1939-40, on the income of the previous year ending on 30th June, 1938. Their income of the accounting year ending 30th June, 1939, would in the ordinary course be liable to assessment in the financial year 1940-41, and the profits of the year ending 30th June, 1940, would be assessable in the financial year 1941-42. Succession took place in the accounting year 1939-40. Under sub-section (2) of Section 26, as it stood before its amendment in 1939, the person succeeding to a business was liable to tax for the year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be 30th June, 1939. It is a question whether in this situation they would be entitled to the relief provided in Section 25(4). On behalf of the Commissioner of Income-tax, Madras, the learned Attorney-General contended that Satyanarayana Rao, J., was in error in granting exemption to the firm from tax in respect of the profits earned during a period of 20 months and that under Section 25, sub-section (4), the only relief permissible was in respect of profits earned during the period of 8 months from ist July, 1939, to 1st March, 1940. It was said that the profits of the year of succession were liable to assessment in the usual course in the financial year 1941-42 and the Income-tax Officer had no power to make an accelerated assessment in order to give relief to the persons succeeded in the business and that being so, it was not right to hold that the expression " previous year " in Section 25, sub-section (4), was co-related to the assessment year 1939-40, i.e., the year in which the succession took place, or to the assessment year 1941-42 in which in the ordinary course assessment for those profits would have been made but that on a true construction of this sub-section a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 1st July, 1939, to 29th February, 1940, be deemed the profits of the accounting year 1st to 30th June, 1919, and if on those profits in assessment July, 1938, year 1940-41 tax in excess of what is chargeable on the profits of this broken period has been paid, he be given refund for the excess. Truly speaking, the firm was entitled to the relief provided for in Section 25(4) in the assessment year 1941-42 but the Income-tax Officer was prepared to give him that in the assessment year 1940-41 and on that score the assessee can have no grievance. Satyanarayana Rao, J., held that the words " previous year " in sub-section (1) of Section 25 refer to the year of account relevant to the year of assessment in which the discontinuance occurs, that the section authorises the Income-tax Officer to make a cumulative assessment in respect of the profits of the period between the end of the last accounting year of which the profits have been assessed before the date of discontinuance and that date, that " sub-section (3) of Section 25 is an exception to the general rule contained in sub-section (1) of that section, and that though the language employed in sub-section (3) does not correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption in respect of profits earned between the 1st July, 1938, and 29th February, 1940. It was said that the two terminals fixed for the purposes of assessment under Section 25(1) were the terminals fixed for exemption from tax in Section 25(3) and (4) and it would be wrong to hold that the assessment under Section 25(1) could be made for a period different from that for which relief could be given under Section 25(3) and (4). It was urged that the scope of the charge authorised by Section 25(1) was co-extensive with the extent of the relief provided for in sub-sections (3) and (4). Before proceeding further it is convenient to make a few observations regarding the proposition stated by Satyanarayana Rao, J., that Section 25(1) provides for cumulative assessment in cases of discontinuance of business, The words of the section do not justify this conclusion. They do not empower the Income-tax Officer to make a cumulative assessment in respect of profits earned in two different accounting periods or entitle him to merge the profits of two years into one total sum and apply to them the rate of one of the financial years. All that the section authorises the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language of sub-section (1), but they deal with two different categories of assessees. Sub-section (1) deals with a category of assessees who were never subjected to double tax, while sub-sections (3) and (4) deal with that class who suffered assessment under the Act of 1918 and paid double tax. The liability for premature assessment imposed under Section 25(1) on the former class of assessees has been imposed on considerations entirely different from those on which provision has been made for exemption to tax in sub-sections (3) and (4) for the other class. In these circumstances, such relief cannot be said to be co-extensive with the liability imposed. Moreover, the provisions of the Income-tax Act in respect to exemptions and deductions cannot be construed on the analogy of the provisions contained in the charging sections of the Act even if the language of these provisions is similar. Mr. Aiyangar's contention that sub-section (1) crystallizes the rights of the assessee on the date of discontinuance and that not only does it relieve him from being taxed after the date of discontinuance, but that it entitles him to further relief provided for in sub-section (3) does not seem to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the previous year co-related to that assessment year would be the accounting year ending 30th June, 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 full period of twelve months and usually corresponding to a financial year preceding the financial year of assessment. It also means an accounting year comprised of a full period of twelve months adopted by the assessee for maintaining his accounts but different from the financial year and preceding a financial year. For purposes of the charging sections of the Act unless otherwise provided for it is co-related to a year of assessment immdiately following it, but it is not necessarily wedded to an assessment year in all cases and it cannot be said that the expression " previous year " has no meaning unless it is used in relation to a financial year. In a certain context it may well mean a completed accounting year immediately preceding the happening of a contingency. The construction we have placed on this expression ..... X X X X Extracts X X X X X X X X Extracts X X X X
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