Interpretation of "previous year" under income-tax succession relief confines exemption to the broken period before succession.

Section 25(4) of the Indian Income-tax Act, 1922 was construed as granting exemption only for the broken period between the end of the completed accounting year immediately preceding succession and the date of succession. The Court held that the phrase "previous year" in Sections 25(3) and 25(4) means the completed accounting year, not the assessment year, and that the relief under Section 25(4) is separate from the accelerated assessment mechanism in Section 25(1). On that construction, the exemption did not extend back to 1 July 1938 and was confined to 1 July 1939 to 29 February 1940.

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Issues: Whether, on a true construction of Section 25(4) of the Indian Income-tax Act, 1922, the period entitled to exemption from tax on succession to a business previously assessed under the Indian Income-tax Act, 1918, was confined to the broken period from 1st July, 1939 to 29th February, 1940, or extended back to 1st July, 1938.

Analysis: Section 25(4) was enacted to relieve a predecessor business from the burden of double assessment arising from the change in the charging system introduced by the Act of 1922. The relief under sub-section (4) is distinct from the accelerated assessment contemplated by Section 25(1), which operates as a burden on a different class of assessees and cannot control the construction of the exemption provision. The expression "previous year" in sub-sections (3) and (4) was held to mean the completed accounting year immediately preceding the discontinuance or succession, and not the assessment year in which the profits of the year of succession would ordinarily be taxed. On that construction, the exempt period is only the broken period between the end of the completed accounting year immediately preceding succession and the date of succession.

Conclusion: The exemption under Section 25(4) was confined to the broken period from 1st July, 1939 to 29th February, 1940, and the broader claim for exemption from 1st July, 1938 was rejected.

Ratio Decidendi: In Section 25(3) and Section 25(4) of the Indian Income-tax Act, 1922, "previous year" means the completed accounting year immediately preceding the discontinuance or succession, and the exemption applies only to the broken period ending on the date of discontinuance or succession.

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