Broad relief on discontinuance of foreign business income under the Income-tax Act, including rental receipts from firm properties.

Section 25(3) of the Income-tax Act, 1922 was applied broadly where a discontinued foreign business had earlier been taxed under the Indian Income-tax Act, 1918. The SC held that relief was available because the entire profits of the foreign business had been received in British India and assessed under the 1918 Act, so exemption could not be refused merely because the assessment arose through remittances. The same principle extended to rental income from house properties owned by the discontinued firm, since the heads of income are only modes of computation and do not limit the source of the income. Relief was accordingly available on both questions.

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Issues: (i) Whether the assessee was entitled to relief under section 25(3) of the Income-tax Act, 1922 in respect of the foreign business at Penang, Ipoh and Kambar. (ii) Whether the assessee was entitled to relief under section 25(3) of the Income-tax Act, 1922 in respect of rental income from house properties owned by the discontinued foreign firm.

Issue (i): Whether the assessee was entitled to relief under section 25(3) of the Income-tax Act, 1922 in respect of the foreign business at Penang, Ipoh and Kambar.

Analysis: Section 25(3) grants exemption when a business on which tax was at any time charged under the Indian Income-tax Act, 1918 is discontinued. The Court held that, on the facts found, the entire profits of the foreign business had been received in British India and assessed under the 1918 Act. In that setting, the tax was charged in relation to the business activity itself for the purpose of section 25(3), and the exemption could not be denied merely because the assessment was made on remittances received from the foreign business.

Conclusion: The issue was decided in favour of the assessee, who was held entitled to both parts of the relief under section 25(3) in respect of the foreign businesses.

Issue (ii): Whether the assessee was entitled to relief under section 25(3) of the Income-tax Act, 1922 in respect of rental income from house properties owned by the discontinued foreign firm.

Analysis: The Court applied the same principle that the exemption under section 25(3) is not confined to income computed under the head of business alone. The heads of income under the Act are only modes of computation and do not exhaust the source of the income. Since the rental income formed part of the income of the discontinued foreign business in the relevant sense, the benefit of section 25(3) was available.

Conclusion: The issue was decided in favour of the assessee, and relief under section 25(3) was held admissible in respect of the rental income as well.

Final Conclusion: The High Court's view was set aside, and the assessee succeeded on both questions relating to the scope of relief available on discontinuance of the foreign business.

Ratio Decidendi: Where tax was charged under the earlier Income-tax Act on income derived from a business and that business is later discontinued, section 25(3) applies broadly to the business income, irrespective of the head under which particular receipts were computed.

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