Interpretation of "previous year" under succession relief shaped the scope of exemption for the broken period claimed.

Section 25(4) of the Indian Income-tax Act was construed as a remedial succession provision extending relief available on discontinuance to cases where a business passed to a successor. The majority read "previous year" consistently with the statutory scheme to mean the accounting year immediately preceding succession, so the exempt broken period ran from the end of that year to the date of succession, allowing exemption for the longer period claimed. The dissent treated "previous year" in its ordinary statutory sense linked to the assessment year of succession and confined exemption to the shorter broken period only.

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Issues: Whether, on a succession to a business assessed under the earlier income-tax regime, the words "previous year" in Section 25(4) of the Indian Income-tax Act refer to the accounting year preceding the year of succession or to the previous accounting year whose profits had already been assessed, and consequently whether the exemption under Section 25(4) covers the longer broken period claimed by the assessee.

Analysis: The majority held that Section 25(4) was introduced as a remedial provision to extend to succession the relief already available in cases of discontinuance and that the expression "previous year" in that context must be read in a manner consistent with the scheme of Section 25 and the definition in the Act. Reading the provision as a whole, the relevant "previous year" was the accounting year immediately preceding the date of succession, so that the exempt broken period was the interval from the end of that previous year up to the date of succession. The broader construction urged by the revenue would have displaced the statutory scheme and produced an unwarranted extension of tax liability.

Conclusion: The expression "previous year" in Section 25(4) was construed in favour of the assessee, and the exemption covered the entire period from 1 July 1938 to 29 February 1940.

Dissenting Opinion: The other judge held that "previous year" in Section 25(4) retained its ordinary statutory meaning correlated to the assessment year in which succession occurred, so that only the broken period from the end of that previous year to the date of succession was exempt. On that view, the assessee was not entitled to exemption for the earlier period claimed.

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