Succession-based income tax assessment uses predecessor income, but the assessment-year company rate governs liability.

A company formed during the relevant tax year and succeeding to an existing business was assessed on the predecessor's income because the charging and machinery provisions required succession-based computation where the company did not exist in the previous year. The applicable super-tax rate, however, was determined by the law in force for the assessment year and by the taxpayer's status at that time, so the flat company rate applied under the statutory schedule. The argument that liability attached only to the previous year's income was rejected, and the assessment was upheld on the company rate.

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Issues: Whether a company formed during the relevant tax year and succeeding to an existing business was liable to super-tax at the flat company rate under the statutory schedule, and whether the assessment had to be made by reference to the predecessor's income while the rate was determined by the law in force for the year of assessment.

Analysis: Section 55 of the Indian Income Tax Act, 1922 charged super-tax on the total income of the previous year, but as the company did not exist in that year the assessment machinery in Section 26, as applied to super-tax by Section 58, required the assessment to be made on the person or business succeeded to. For fixing the rate, Section 55 referred to the rate laid down for the year by Act of the Indian Legislature. Act XIII of 1925 supplied that rate for the year beginning 1 April 1925, and the relevant schedule fixed a separate rate for every company. The contention that liability attached to the income of the previous year was rejected, because no liability arose until the later Act came into force and the applicable rate was then the company rate.

Conclusion: The company was liable to super-tax at the flat rate prescribed for companies, and the appeal failed.

Final Conclusion: The assessment was upheld on the footing that the predecessor's income was taken for computation, but the company's status governed the rate of super-tax for the assessment year.

Ratio Decidendi: Where a taxing statute refers both to the income of the previous year and to the rate fixed for the year of assessment, the assessment may follow the predecessor's income on succession, but the applicable rate is the rate prescribed by the law in force for the assessment year and by the taxpayer's legal character at that time.

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