Extended previous year on change of accounting year can be taxed in full under the statutory rate.

On a change of accounting year with the Income-tax Officer's consent, the "previous year" under the Indian Income-tax Act, 1922 may validly extend beyond twelve months to cover the full intervening period between the old and new accounting dates. The consent can be given on conditions ensuring that the entire income of that extended period is brought to charge under the charging provision, but it cannot create two previous years for the same assessment year or split the period by applying different tax rates. The court upheld assessment of the whole extended period at the statutory rate.

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Issues: Whether, on a change of the assessee's accounting year with the Income-tax Officer's consent, the previous year could lawfully be taken as a period exceeding twelve months and the whole of that period assessed to tax at the applicable rate.

Analysis: The expression "previous year" under section 2(11)(i)(a) of the Indian Income-tax Act, 1922 ordinarily refers to a twelve-month period, but the proviso permits a variation of the meaning of the previous year with the Income-tax Officer's consent on such conditions as he thinks fit. Reading that provision with the charging provision in section 3, the Court held that there is no legal bar to the previous year, for the changed accounting year, covering the full intervening period between the old and new accounting dates. The Officer may impose a condition ensuring that the entire income of that extended period is brought to charge, and neither two previous years for the same assessment year nor a different tax rate for part of the period can be created by such consent.

Conclusion: The Income-tax Officer was entitled to sanction the change on the footing that the previous year for the relevant assessment year consisted of twenty-one months, and the income of that entire period was assessable at the statutory rate; the contention of the assessee failed.

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