Discontinuance relief under income tax law extends to business-linked interest on securities even when separately assessable under another head.

On discontinuance of a business, section 25(3) of the Indian Income-tax Act, 1922 applies to the income, profits and gains of the discontinued business as a whole, not merely to amounts assessable under the business head. Although heads of income are separately classified, that classification does not narrow the discontinuance relief where the receipt formed part of the business stock-in-trade. Interest on securities received in the course of the business, though separately assessable under section 8, was held to fall within the exemption because it was part of the discontinued business income. The assessee was therefore entitled to relief under section 25(3) in respect of that interest.

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Issues: Whether, on discontinuance of a business, the exemption under section 25(3) of the Indian Income-tax Act, 1922 extends to interest on securities received in the course of that business, though such interest is separately assessable under section 8 and not under section 10.

Analysis: Section 25(3) grants relief where a business, profession or vocation on which tax had been charged under the Indian Income-tax Act, 1918 is discontinued. The provision is directed to the income, profits and gains of the discontinued business as such, and not merely to the component of income that would fall under the head 'profits and gains of business' under section 10. The scheme of the Act classifies heads of income for computation, but those heads are mutually exclusive; an item specifically chargeable under section 8 remains so even if it arises from business assets. Yet that classification does not control the scope of the exemption in section 25(3), which was enacted to relieve double taxation suffered when the basis of assessment changed from the 1918 Act to the 1922 Act. Interest on securities held as stock-in-trade was part of the business income and was within the ambit of the relief on discontinuance.

Conclusion: The assessee was entitled to the benefit of section 25(3) in respect of the interest on securities.

Final Conclusion: The appeals failed because the exemption on discontinuance covered the disputed interest income as part of the discontinued business, not merely income falling under the business head.

Ratio Decidendi: On discontinuance of a business, section 25(3) of the Indian Income-tax Act, 1922 exempts all income, profits and gains of that business from the relevant period, even if particular receipts are separately assessable under another head of income.

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