9911796707
TMI Blog1952 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... oing concern to a private limited company called " Kasturi and Co. Ltd." For the assessment year 1940-41 the respondents claimed that the firm was not liable to pay any income-tax on the income of its business from the end of the accounting year ending 30th June, 1938, to 29th February, 1940, the date on which the limited company succeeded to the business of the firm (i.e., for a period of 20 months) under Section 25(4) of the Act, as it had been assessed under the Indian Income-tax Act, 1918. The Income-tax Officer disallowed the claim and held that since the assessment pertained to the year 1940-41 the previous year with reference to that assessment would be the year ending 30th June, 1939, and the period for which exemption could be claimed under Section 25(4) of the Act was the interval from the end of that previous year, i.e., the 1st July, 1939, upto the date of succession, i.e., 29th February, 1940, i.e., a period of eight months. This order was confirmed on appeal by the Appellate Assistant Commissioner. On further appeal the Tribunal held that on a proper construction of Section 25(4) of the Act, tax was not payable by the firm in respect of the profits and accounts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually." This is the charging section. Section 25 of the Act makes different provisions to cover some special cases. The parts of the section relevant to this appeal provide as follows :--- " (1) Where any business, profession or vocation to which sub-section (3) is not applicable, is discontinued in any year, an assessment may be made in that year on the basis of the income, profits or gains of the period between the end of the previous year and the date of such discontinuance in addition to the assessment, if any, made on the basis of the income, profits or gains of the previous year. (3) Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918 (VII of 1918), is discontinued, then, unless there has been a succession by virtue of which the provisions of sub-section (4) have been reder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of Section 25 it is also necessary to set out the history and object of this enactment. Under the Act of 1918 income-tax was levied on the income of the current year, i.e., the year of assessment, but as the income of that year could not be known till after the expiry of the year, the assessment was made on the basis of the income of the " previous year " but after the close of the assessment year an adjustment used to be made on the basis of the income of the assessment year. The Act of 1922 introduced a change in this respect. Under Section 3 of the Act, the income of the previous year is made the subject of the charge and tax is levied on the income of the previous year though it is a tax for the assessment year. On the passing of the Act of 1922, the previous system of assessment was kept alive for one year. The result was that for the year 1922-23, there were two assessments, one under the Act of 1922 on the income of 1921-22 and another under the old system by way of assessment on the income of the same year 1921-22. In other words, the income of the year 1921-22 was assessed twice, once under the Act of 1918, and again under the Act of 1922. To remove this anomaly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective of the fact that actually they would have only received profits in that year for a period of four months. After the amendment in 1939 sub-section (2) of Section 26 provides that the person succeeded and the person succeeding " each be assessed in respect of his actual share, if any, of the income, profits and gains of that year." Thus the profits of the year in which the succession occurs are to be apportioned between the predecessor and the successor according to the actual share of each in the year's profits ', the predecessor and the successor are each liable to tax at the rate applicable to each and the profits of each have to be computed separately in accordance with the provisions of Section 10 and other sections and each has to be granted the deductions and allowances appropriate to his case, and assessment on each has to be separate and distinct. If the business was charged under the Indian Income-tax Act, 1918, and the person succeeded is exempt from tax under Section 25(4) he would not be charged in respect of the profits of the period from the end of the previous year up to the date of succession, while the person succeeding would be liable under sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to us that there is force in this contention. Section 25(4) was inserted in the Act of 1922 in the year 1939 at the same time as Section 26(2) was amended. On a plain reading of these two sections together, it is quite clear that the Income-tax Officer is not empowered to make an accelerated assessment in the year in which succession occurs on the profits of that year, and prematurely assess the person succeeding to a business so that he may be able to give relief to the person succeeded. The exemption provided for in Section 25(4) and the apportionment mentioned in Section 26(2) have to be made in the assessment year in which the profits of the year of succession fall to be assessed under Section 3 of the Act, and in this situation the end of the previous year in this case can, in no circumstance, be the end of the accounting year beginning 1st of July, 1937, and ending 30th of June, 1938, because the income, profits and gains of the accounting year of succession (i.e., year beginning 1st July, 1939, and ending 30th June, 1940) which have to be apportioned between the predecessor and successor of the business under Section 26(2) and for which the successor becomes liable in case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion ' previous year ' in this sub-section from the one placed on sub-section (1)." On the same line of reasoning the learned Judge gave the same meaning to the expression " previous year " in sub-section (4) of Section 25 and as a result held that the firm was entitled to exemption from tax for profits earned between the 1st July, 1938, and 29th February, 1940, a period of 20 months. Mr. Krishnaswami Aiyangar appearing for the respondents was not prepared to support the whole of the reasoning of Satyanarayana Rao, J., but he contended strenuously that the conclusion reached by the learned Judge was the only one that could be reached on a true construction of the phraseology employed in the various sub-sections of Section 25. In short, his argument was that sub-section (1) of Section 25 confers an option on the Income-tax Officer, in case of discontinuance of a business which was not assessed under the Act of 1918, to make an accelerated assessment in the year of discontinuance itself on the income, profits and gains earned up to the period of discontinuance and not assessed before in any preceding assessment year ; that the expression " previous year " in the context of this su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment for the financial year of discontinuance. Mr. Aiyangar very rightly conceded that the construction aced on sub-section (1) of Section 25 by the learned Judge in this respect was not right. As regards the main contention of Mr. Aiyangar based on the analogy of the language employed in sub-section (1) of Section 25, we are of the opinion that this contention is based on a fallacy and can. not be sustained. As above pointed out, sub-section (1) of Section 25 merely empowers the Income-tax Officer, if he so chooses to do, to make an accelerated assessment in case of discontinuance of business at the time of discontinuance to save loss of revenue by the disappearance of an assessee. In other words, the sub-section imposes a liability of premature assessment on the assessee. It confers no benefit on him. Sub-sections (3) and (4) of Section 25 have a different end in view and are not in pari materia with sub-section (1). They are in the nature of substantive provisions intended to give relief from tax charged in certain cases. The mere circumstance of their being grouped together with sub-section (1) in Section 25 cannot lead to the conclusion that the provisions therein containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee which but for this sub-section he could not be called upon to bear till the appropriate year of assessment was reached. The learned Attorney-General was not prepared to accept the construction placed on sub-section (1) of Section 25 by Mr. Aiyangar and contended that that sub-section did not authorise the Income-tax Officer to make an assessment in the year of discontinuance on the profits of an accounting year which had come to a close before the date of discontinuance, and that those profits had to be assessed in the usual way in the appropriate financial year, and that authority given to make an accelerated assessment only related to the broken period beginning with the end of the completed accounting year immediately preceding the date of discontinuance and ending with the date of discontinuance. In our opinion, it is not necessary for the purposes of deciding this case to finally express an opinion as to the true meaning of the words " between the end of the previous year to the date of discontinuance used in Section 25(1) of the Act. After a careful consideration of the different provisions of the Act relevant to this enquiry, we have reached the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt is the financial year, exemption from tax under Section 25(3) or (4) could never be given for a period of more than twelve months, while in case of persons who adopt different accounting year, exemption would become available for a period extending up to 24 months. Such could never have been the intention of the framers of the Act. That the " previous year " in the context of Section 25(3) and (4) means a completed accounting year immediately preceding the discontinuance or succession is borne out by the provisions as regards non-liability for tax for the broken period and the claim to be made by the assessee that the income, profits and gains of the previous year shall be deemed to have been the income, profits or gains of the broken period. The intention of the legislature being to give relief against double assessment for the year 1922-23, the assessee in the case of discontinuance or succession would be entitled to claim exemption from payment of tax for the broken period and also claim that the income, profits or gains of the previous year, i. e., the year preceding the broken period, should be treated as the income, profits or gains of the broken period. Reference was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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