1960 (10) TMI 92 - HC - Income Tax

Court allows assessee to choose financial year ending Mar 31, 1950, as 'previous year' for assessment.

The court ruled in favor of the assessee, allowing them to adopt the financial year ending on March 31, 1950, as the 'previous year' for the assessment ... - Issues Involved:1. Interpretation of 'previous year' under section 2(11)(i)(a) of the Income-tax Act.2. The applicability of the proviso to section 2(11)(i)(a) concerning the assessee's ability to change the 'previous year.'3. Assessment of income from non-taxable territories prior to the amendment of the definition of 'taxable territories' in 1950.Detailed Analysis:1. Interpretation of 'Previous Year' Under Section 2(11)(i)(a) of the Income-tax Act:The court examined the definition of 'previous year' as provided in section 2(11) of the Income-tax Act. According to this section, the 'previous year' typically means the twelve months ending on the 31st day of March preceding the assessment year. However, if the assessee's accounts are made up to a different date within those twelve months, the assessee has the option to adopt the year ending on that date as the 'previous year.'The court emphasized that an assessee could have separate 'previous years' for different sources of income, profits, and gains. This interpretation aligns with the practical understanding that each branch of a business is a separate source of income.2. Applicability of the Proviso to Section 2(11)(i)(a):The proviso to section 2(11)(i)(a) restricts an assessee from changing the 'previous year' for a particular source of income if the assessee has once been assessed in respect of that source, except with the consent of the Income-tax Officer. The court had to determine the meaning of 'has once been assessed' within this context.The court clarified that 'assessment' in the proviso refers to the computation of income for its inclusion in the total income. The term 'assessment' does not merely mean the determination of the amount of tax payable but includes the entire procedure laid down in the Act for imposing liability upon the taxpayer.3. Assessment of Income from Non-taxable Territories:Before the amendment of the definition of 'taxable territories' in 1950, income from non-taxable territories was included in the assessee's total world income only for determining the rate applicable to the taxable income. This income was not subject to tax under the Income-tax Act. The court had to decide whether such inclusion constituted an 'assessment' under the proviso to section 2(11)(i)(a).The court held that the inclusion of income from non-taxable territories in the total world income for rate determination purposes did not amount to an 'assessment' of that income. The assessment, as referred to in the proviso, requires the income to be computed and included in the total income, which was not the case here.Conclusion:The court concluded that the assessee family had not been 'assessed' within the meaning of the proviso to section 2(11)(i)(a) concerning the income from non-taxable territories included in the earlier Diwali account years. Therefore, the assessee was entitled to adopt the financial year ending on March 31, 1950, as the 'previous year' for the assessment year 1950-51 for the specified source of income.Judgment:The court answered the referred question in the affirmative, allowing the assessee to take the year ending on March 31, 1950, as the 'previous year' for the assessment year 1950-51. The assessee was awarded the costs of the reference, with counsel's fee fixed at Rs. 250.