TaxTMI 
TaxTMI 
1961 (3) TMI 94
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....ion (and not October 7, 1943 as stated in the order of the Appellate Assistant Commissioner). This fact is also admitted in the statement of the case filed by the assessee along with the application. Before the department as well as before the Tribunal, the assessee claimed that he is not liable to be taxed for the whole of the period beginning from October 19, 1942, to October 7, 1943. Reliance was placed by the assessee for this relief on the provisions of section 25(4) of the Income-tax Act which reads as follows: Where the person who was at the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a, partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person may further claim that the income, profits and gains of the previous year shall be deemed to have bee....
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....ober 7, 1943? 4. The draft statement of the case was placed before the parties concerned and suggestions incorporated. There is no dispute as to the facts stated. (The draft statement of the case was drawn by Shri A.R. Aggarwal and Shri B.N. Mukherjee and later on was finalised by B.N. Mukherjee and Shri N.D. Karthanis). B. L. Gupta, for the assessee Gopal Behari and U. N. Chatterji, for the Commissioner JUDGMENT [The matter originally came before Bhargava and Upadhya JJ. who on May 20, 1960, delivered the following judgments.] BHARGAVA J.--The question referred by the Income-tax Appellate Tribunal for opinion of this court is: "Whether on the facts of the case, the assessee family is entitled, in respect of its Benaras business, to exemption from tax under section 25(4) of the Income-tax Act for the period from October 19, 1942, to October 7, 1943?" The assessee is a Hindu undivided family which was carrying on business at Banners in the name of Dalsukh Rai Jai Dayal. This Hindu undivided family was succeeded by a partnership firm in carrying on that Banaras business with e....
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....ting period beginning on October 19, 1942, and ending on October 7, 1943. Under the first part of section 25(4) of the Income-tax Act, the assessee is entitled as of right to be exempted from tax on the income earned during the period between the end of the previous year and the date of succession. In this case, therefore, the income, that would be exempted from tax under this part of section 25(4) of the Income-tax Act, would be the income earned between October 7, 1943, which was the date on which the previous year ended, and October 8, 1943, which was the date on which the succession took place. Consequently, the contention of the assessee that under the first part of section 25(4) of the Income-tax Act the income earned during the period October 19, 1942, to October 7, 1943, is exempted is incorrect and cannot be accepted. It may be unfortunate that the succession took place on October 8, 1943, which was the very first day of the next accounting period following the previous year October 19, 1942, to October 7, 1943, with the result that the assessee in effect gets no relief at all because no income was earned by the assessee between October 7, 1943, and October 8, 1943. If the....
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....ent case is exactly in line with the decision of the Bombay High Court in the case of Ambaram Kalidas [1951] 19 I.T.R. 22 (Bom.) cited earlier. In these circumstances, the answer to the question referred is in the negative. The reference maybe returned to the Tribunal with this answer. The department will be entitled to the costs of this reference which is fixed at Rs. 200. UPADHYA J.- I have had the advantage of reading the order proposed by my learned brother but with great respect I regret I am unable to agree. The question referred by the Income-tax Appellate Tribunal for the opinion of this court is as to whether on the facts of the case the assessee is entitled in respect of its Banaras business to exemption from tax under section 25(4) of the Income-tax Act for the period from October 19, 1942, to October 7, 1943. The relevant faces as set out in paragraph 2 of the statement of the case are that after the period October 19, 1942, to October 7, 1943, which is the accounting period of the previous year for the assessment year 1944-45, the assessee's business at Banaras was taken over by a partnership firm with effect from October 8, 1943, and the assessee claim....
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....d subsequence to the end of the previous year is the period in respect of which the exemption has been provided for. On behalf of the department it is contended that the words "previous year" mean the previous year immediately preceding the assessment year. In In re Pt. Lachhman Pandey [1953] 23 I.T.R. 250 (All.) a Bench of this court of which my learned brother was a member held that the previous year means "the account year preceding the date of succession." In Commissioner of Income-tax v. Srinivasan [1953] 23 I.T.R. 87, 99 (S.C.) the Super Court laid down: "....the expression 'end of the previous year' in sub-section (3) and (4) of section 25 of the Indian Income-tax Act, 1922, in the context of those sub-sections means the end of an accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession." "The expression 'previous year' substantially means an accounting year comprised of a full period of twelve months and usually corresponding to a financial yea....
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....Lordships took the view that subsequent to the assessment for 1936-40 the previous year of the assessee had ended once again on June 30, 1939, and it is only in respect of the period between June 30, 1939, and March 1, 1940, that relief could be claimed under section 25(4). The assessee claimed relief for the entire period of 20 months and as there was a period between the end of a previous year of the assessee and the date of succession, their Lordships held that this period alone could be the subject-matter of relief. It is in this connection that the phase came up for considerate before the Supreme Court and on the facts of that case their Lordships found that the year ending on June 30, 1939, was the previous year means for determining the period in respect of which a relief could be granted. In the same case the Supreme Court has set out the history and object of the statutory provisions and has observed how under the Income-tax Act of 1918 tax was levied on the income of the year of assessment and later an adjustment was made when the year was over and how this basis of assessment was altered by the Act of 1922. They have observed that under section 3 of the Act the income of....
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....ious year there can be no period at all which might be considered for the purposes of section 25(4). Having regard to the fact that the two points of time for determining the period of exemption are two dates--the date on which the previous year ends on the one side and the date of succession on the other side--it is obvious that if these two dates follow each other immediately there can be no period for which relief might be granted. I can see no reason why the legislature should have discriminated between assessees whose business is succeeded to towards the closes to the previous year and those whose business is succeeded to immediately after the close of the previous year. The expression "end of the previous year" in section 25(4) should be construed, any opinion, is such a way that there shall always be some period of time between "the end of the previous year" and "the date of succession." I am therefore of the view that a construction should be placed on the expression "end of the previous year" in section 25(4) which should be consistent with the object of this provision. This "end of the previous year" therefore could not be taken to be October 7, 1943, in the present ca....
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.... be computed backwards from October 8, 1943. Having to start the computation with effect from the midnight of October 7, 1943, I cannot persuade myself to accept the argument that the computation should meat an abortive end at the very start. Starting from the date of succession and therefore excluding it, the relevant period would terminate on a date on which the previous year of the assessee ended. This date appears to be October 18, 1942. The period therefore from October 19, 1942, to October 7, 1943, is the relevant period for which the assesses entitled to an exemption. In Srinivasan's case [1953] 23 I.T.R. 87 (S.C) at page 99 of the Income-tax Reports the Supreme court laid down: "...the expression 'end of the previous year' in sub-section (3) and (4) of section 25 in the context of those sub-sections means the end of and accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession..." Learned counsel for the department urged that this meaning of the expression "end of the previous year" should be applied to the inst....
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....ny guidance for designed the question which arises in the instant case. Assessees who paid income-tax under the Act of 1918 and subsequently under the Act of 1922 paid the tax twice in respect of one year's income--that of 1921-22 as mentioned above. The statute has provided that if that business whose income was thus subjected to double taxation is discontinued or is succeeded to by another persons, the person who paid the tax twice on the income of the period 1921-22 should be granted relief in respect of one year's tax. If however this discontinuance or succession took place nor at the end of a year but on any date before the expiry of a full year the law casts a duty on the Income-tax Officer not to tax the income for that part of the previous year or accounting period which ends with the date of the discontinuance or succession and commences with the end of the preceding accounting period. This "end of the preceding accounting period" has been expressed as "the end of the previous years in these provisions. In addition to this it is further provided that if an assessee makes a claim to that effect he may get full relief in respect of the income of one entire previou....
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....third judge. [The matter than came before JAGDISH SAHAI J. who delivered the following judgment on March 29, 1961.] JAGDISH SAHAI J.- As my brothers, Bhargava and Upadhya, have differed with regard to the answer to be given to the question of law referred to this court by the Income-tax Appellate Tribunal the case has come to me for opinion. The question involved in the case relates to the interpretation of section 25(4) of the Income-tax Act (hereinafter referred to as the Act). The assessee is a Hindu undivided family carrying on business at Benaras in the name of Dalsukh Rai Jaidayal. The case of the assessee was that till October 7, 1943, it was carrying on the business but on October 8, 1943, the same was succeeded to by a partnership firm. For the accounting period October 19, 1942, to October 7, 1943 (the assessment year being 1944-45), the assessee was assessed to income-tax. The assessee's objection was that it was not liable to pay any tax for this period by virtue of the provisions of section 25(4) of the Act. The Income-tax Appellate Tribunal has referred to this court the following question for its opinion: &nbs....
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.... (3) and (4) shall not apply-- (a) to super-tax except where the income, profits and gains of the business, profession or vocation were assessee to super-tax for the first time either for the year beginning on the 1st day of April, 1920, or for the year beginning on the 1st day of April, 1921; (b) to a business, profession or vocation on which income-tax was at any time charged in the hands of a company under the Indian Income- tax Act, 1886 (11 of 1886), or on which income-tax would have been charged in the hands of a company for the assessment year ending on the 31st day of March, 1918, if the company having been in existence in that year, had also been in existence in the year ending on the 31st days of March, 1917." It is well known that the provisions of section 25(3) and (4) were introduced into the Act in order to give relief to assessees against double taxation. Under the Act of 1918 income-tax was levied on the income of the current year, i.e., the year of assessment, but as the correct income for the year could not be known till the expiry of the year assessment used to be made on the basis of the income of the previous year but after the close of the assessment ....
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....strenuously contended on behalf of the assessee that inasmuch a the partnership firm succeeded to the business on October 8, 1943, the end of the previous year should be the year ending with October 18, 1942, and that the income for the entire period commencing with October 19, 1942, and ending with October 7, 1943, would be exempt from taxation. It is further submitted that the succession to the business by he partnership firm and it is discontinuance by the Hindu undivided family could not be separated even by a split of second and simultaneously with the discontinuance the succession took place with the result that there was no intervening period between the 7th and 8th October, 1943, and inasmuch as the law required a period to be found out the previous year in this case would be deemed to be the year ending with October 18, 1942. It is also contended that the words in the section are "between the end of the previous year and the date of succession" which means that in determining the period, the date of succession has got to be excluded and the period contemplated by the section is one of which no part projects into the date of succession, in this case the 8th of October, 1943....
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....essed before the date of discontinuance and that date, that sub-section (3) of section 25 is an exception to the general rule contained in sub-section (1) of that section and that though the language employed in sub-section (3) does not correspond to the language employed in sub-section (1) indicating that under this sub- section also the assessment year should be taken to be the year in which the discontinuance occurs, all the same there is no reason to depart and to place different interpretation on the expression "previous year" in this sub-section from the one placed on sub-section (1). Having said so the learned judge held that the brothers' firm was entitled to exemption from tax for profits earned between July 1, 1938, and February 29, 1940, a period of 20 months. The Lordships of the Supreme Court after considering the provisions of section 25 observed as follows in the case mentioned above [1953] 23 I.T.R. 87 99-100 (S.C): "After a careful consideration of the different provisions of the Act relevant to this enquiry, we have reached the conclusion that the expression 'end of the previous year' in s....
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....egards non-liability for tax for the broken period and the claim to be made by the assessee that the income, profits and gains of the previous year shall be deemed to have been the income, profits or gains of the broken period." It appears to me that in view of the decision of their Lordships mentioned above the previous year in the present case is the complete account year immediately preceding October 8, 1943, i.e., the year ending with October 7, 1943. If it were held that the succession of the business by the partnership firm was immediately the clock struck 12 on the night between 7th and 8th of October 1943, there may in fact be no period at all. If on the other hand the partnership succeeded to the business some time after midnight and at some hour on the 8th there may be a very short period between the end of the previous year and the exact hour on October 8, 1943, on which the succession by the partnership took place. There are no facts in the statement of the case to indicate at what time on October 8, 1943, the succession took place. It is not possible to presume anything in this connection and there are only two ways of looking at the matter. One way of looking at it....
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....er Bhargava following that decision has taken the same view. I am unable to accept the submission that if sub-section (4) of section 25 is interpreted in the manner in which I am interpreting it there is likely to be a discrimination between assessees who choose for succession of business immediately the next date on which the accounting year ends and those who choose a later date. However, if there are some anomalies and if the section as it stands does not serve the purpose which it was intended to serve, it is a matter for the legislature to intervene but the courts cannot twist it in order to bring it in harmony with what they consider to be equitable or just in the circumstances of the particular case or with the aims and objects of the Act. The assessee in order to gain the benefit of section 25(4) should have allowed the succession to take place on October 9, 1943, or some subsequent date. In that case it could not only have got an exemption in respect of the payment of tax on any income that may have accrued to it but would also have been entitled, on an application being made, to get the income for the year October 19, 1942, to October 7, 1943, treated as the income for th....