1969 (12) TMI 5 - SC - Income Tax

Supreme Court Clarifies 'Previous Year' for Income Tax in Landmark Ruling

Commissioner of Income-Tax, MP, Nagpur And Bhandara Versus Lady Kanchanbai And Another

The Supreme Court upheld the High Court's decision, ruling in favor of the assessee regarding the determination of the 'previous year' for income accrued ... Income derived by the assessee from the business carried on by it in territories outside the 'taxable territories' were not brought to tax under the Act - expression 'that where in respect of a particular source of income, profits and gains' in the proviso to s. 2(11)(i)(a) means the income from a particular source which has been brought to tax under the Act - Revenue's appeal is dismissed Issues:Interpretation of section 2(11)(i)(a) of the Income-tax Act, 1922 regarding the determination of the 'previous year' for assessment purposes.Detailed Analysis:The judgment delivered by the Supreme Court involved the interpretation of section 2(11)(i)(a) of the Income-tax Act, 1922, specifically focusing on the term 'previous year' relevant to the assessment year 1950-51 for an assessee with income arising outside the 'taxable territories.' The case revolved around whether the assessee was entitled to choose the year ending on March 31, 1950, as the 'previous year' for income accrued from businesses in Madhya Bharat. The High Court of Madhya Pradesh had ruled in favor of the assessee, leading to an appeal by the Commissioner of Income-tax.The key issue was to determine whether the assessee's income from businesses in Madhya Bharat had been previously assessed under the Act. The interpretation of 'source of income' under section 2(11)(i)(a) was crucial, with the court emphasizing that each separate source of income could have a different 'previous year.' The court referred to precedents to establish that the term 'source' referred to a real income-generating entity, and in this case, the businesses in Madhya Bharat constituted separate sources.Further analysis delved into the meanings of 'assessed' and 'assessee' in the context of the proviso to section 2(11)(i)(a). The court clarified that the term 'assessed' meant the income subjected to tax, not merely computed for rate determination. The inclusion of income from businesses outside the taxable territories for rate calculation did not constitute assessment for tax purposes. The proviso aimed at sources of income actually taxed under the Act, not those considered for rate computation.Ultimately, the Supreme Court upheld the High Court's decision, ruling in favor of the assessee. The court dismissed the appeal, affirming that the assessee was entitled to choose the financial year ending on March 31, 1950, as the 'previous year' for income from businesses in Madhya Bharat. The judgment provided a detailed analysis of the statutory provisions and relevant precedents to arrive at the final decision, emphasizing the distinction between income assessed for tax and income considered for rate determination.