Definition of previous year for new business under the Income-tax Act was applied to tax the initial accounting period.

A newly started business could not rely on the latter part of the definition of "previous year" under section 2(11)(c) of the Income-tax Act, 1922 where its accounts were not made up on a yearly basis from commencement. The pre-amendment scheme governed the relevant years, and the later 1953 amendment was treated as clarificatory rather than changing the accounting period for those years. The assessee therefore could not contend that there was no previous year for assessment year 1948-49; the period from commencement of business to 31 March 1948 was the accounting period, and section 2(11)(a) applied for assessment year 1949-50. The reference was answered against the assessee and the Revenue's assessment was upheld.

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Issues: Whether, for the assessment years in question, the assessee could claim that there was no previous year under section 2(11)(c) of the Income-tax Act, 1922, or whether the accounting period had to be taken as running from the commencement of business to 31 March 1948, with section 2(11)(a) applying for the later year.

Analysis: The assessee commenced a new business during the relevant financial year and closed accounts for a period of 13 months. The pre-amendment text of section 2(11)(c) governed the position, and the later 1953 amendment was treated as clarifying the scheme by linking the option under clause (c) with the general structure of assessment, not as altering the accounting period for the years already in question. The Court held that the assessee could not invoke the latter part of section 2(11)(c) because the accounts were not made up for a year after commencement of business. On that footing, the assessee could not claim that there was no previous year at all for assessment year 1948-49. Instead, the statutory scheme required the period from commencement of business to 31 March 1948 to be treated as the accounting period for that year, and section 2(11)(a) applied for assessment year 1949-50.

Conclusion: The question was answered in the affirmative, against the assessee, and the assessment adopted by the revenue authorities was upheld.

Final Conclusion: The reference was decided in favour of the Revenue on the construction of the definition of "previous year" for a newly started business under the Income-tax Act, 1922.

Ratio Decidendi: Where a new business is not accounted for on a yearly basis from the date of commencement, the assessee cannot invoke the latter part of the definition of "previous year" to exclude assessment for the initial period; the statutory scheme must be applied so that no assessable period escapes taxation.

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