Previous year rule for firm profits: later ascertainment could not justify escaped-income treatment or super tax inclusion.

Income is chargeable by reference to the assessee's own previous year, and a share of firm profits that could be quantified only after that year ended could not be brought into that assessment. The Bombay HC held that the later ascertainment of the assessee's share did not justify treating it as escaped income under Section 34, because the return had to be based on the relevant previous year and not on income arising afterwards. The super tax provisions similarly operated only with reference to that previous year and did not extend to profits accruing after its close. The proposed addition therefore failed.

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Issues: Whether the assessee's share of profits in a firm, which was ascertained after the close of the assessee's own previous year, could be included in his assessment for that year or treated as income escaped assessment and subjected to super tax.

Analysis: The scheme of the Income Tax Act treated tax as chargeable on the income of the previous year. The assessee's return had to be made on the basis of his own previous year ending on 9 November 1931, while the firm's accounting period ended later. Since the assessee could not include in his return a share of profits that could only be quantified after the close of his previous year, the later ascertainment of that share did not justify treating it as income escaped assessment under Section 34. The provisions relating to inclusion of firm profits for super tax also operated only with reference to the previous year and did not extend to income arising after that year ended.

Conclusion: The question was answered in the negative. The assessee was not liable to have the firm profits included in the assessment for the earlier year, and the addition sought under Section 34 and Section 55 failed.

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