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Commissioner of Income-tax, Bombay City-ii Vs. Mckenzies Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 180 of 1970
Judge
Reported in[1980]121ITR458(Bom); [1979]2TAXMAN147(Bom)
ActsIncome Tax Act, 1961 - Sections 2(11), 3, 3(1), 4 and 4(1)
AppellantCommissioner of Income-tax, Bombay City-ii
RespondentMckenzies Ltd.
Appellant AdvocateV.J. Pandit, Adv.
Respondent AdvocateM.B. Bhojraj, Adv.
Excerpt:
.....previous year for which commenced on 01.08.1961 and ended on 31.07.1961 - assessee was partner of firm previous year for which commenced on 01.09.1960 and ended on 31.08.1961 - assessee contended that income from firm had accrued after closing of relevant accounting year so the same cannot be included in previous year 1962-63 - contention rejected - undisputed that assessment year in respect of both incomes was 1962-63 - under section 4 it is permissible for income tax officer (ito ) to bring to tax income of different years in same assessment year - incomes could be taxed in assessment year 1962-63 if in respect of both incomes assessment years was 1962-63. - - if in respect of both the incomes the assessment year was 1962-63, those incomes could properly be brought to tax in the..........of the firm be brought to tax in a later assessment year if the previous year in respect f the firm income ends after the previous year in respect of his other sources 8. it is necessary to refer to s. 4, which is the charging section, and the main part of s. 4(1) reads as follows : 'where any central act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this act in respect of the total income of the previous year or previous years, as the case may be, of every person.' 9. section 4(1) refers to the total income of the previous year or previous years. it is, therefore, made permissible by s. 4 to bring to tax income from.....
Judgment:

Chandurkar J.

1. The assessee derived income from various sources in the previous year which commenced from 1st of August, 1960, and ended on 31st July, 1961. The relevant assessment year for this previous year was 1962-63. The assessee was also a partner in the firm of 'M/s. McKenzies Ltd. & Oriental Timber Trading Corporation P. Ltd'. The previous year of the partnership firm was 1st September, 1960, to 31st August, 1961, and in the relevant assessment year 1962-63, after the income of the firm was assessed to tax, the assessee's share income from the firm for the said previous year, that is, 1st September, 1960, to 31st August, 1961, worked out to Rs. 1,47,378. In the assessment proceedings before the ITO, the assessee had contended that the share income from the firm accrued on 31st August, 1961, that is, after the close of the relevant accounting year of the assessee, on 31st July, 1961. Therefore, according to the assessee, the share income should be included in the assessment for the assessment year 1963-64 and not 1962-63. This contention was rejected by the ITO.

2. In appeal, the AAC taking the view that the facts in the case of the assessee being similar to the facts in the decision in CIT v. M. S. Sheik Rowther : [1962]46ITR259(Ker) , held that the share income had to be assessed in the assessment year 1963-64 and not in 1962-63.

3. The ITO challenged this order of the AAC by an appeal before the Income-tax Appellate Tribunal. The Tribunal seems to have taken the view that the previous year in respect of other sources of income of the assessee ended on 31st July, 1961, and since the previous year in respect of the share income from the firm was 1st September, 1960, to 31st August, 1961, the share income cannot be said to have accrued or arisen to the assessee within the previous year adopted by it for the purposes of assessment. The Tribunal also took the view that the decision in Rowther's case : [1962]46ITR259(Ker) would govern the case of the assessee and, therefore, the share income of the assessee from the firm was assessable in the hands of the assessee in the assessment year 1963-64.

4. Arising out of this order of the Tribunal, the following question has now been referred to this court under s. 256(1) of the I.T. Act, 1961, at the instance of the revenue :

'Whether, on the facts and in the circumstances of the case, the share of profit received by the assessee-company from the firm of 'Messrs. McKenzies Ltd. & Oriental Timber Trading Corporation', for the year September 1, 1960, to August 31, 1961, was assessable in the assessment year 1962-63 or in the assessment year 1963-64 ?'

5. Mr. Pandit appearing on behalf of the revenue has argued that both the AAC and the Appellate Tribunal have overlooked the fact that the share income of the firm and the income of the assessee-company from other sources both accrued in the relevant assessment year 1962-63 and, according to Mr. Pandit, merely because the previous year of the firm ended on 31st August, 1961, that is, after the end of the previous year of the assessee-company, the share income need not necessarily be included in the assessment year subsequent to the assessment year 1962-63.

6. On a perusal of the relevant provisions of law it appears to us that the Tribunal has overlooked the important fact that the assessment year in respect of both the previous years, that is, the previous year of the firm and the previous year of the assessee-company was 1962-63. The relevant clause in s. 3 which defines 'previous year' is clause (b) of s. 3(1), which reads as follows :

'For the purposes of this Act, 'previous year' means - ...

(b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date'.

7. So far as the assessee-company was concerned, the previous year, as already pointed out, would be 1st August, 1960, to 31st July, 1961, and the relevant assessment year in respect of this previous year, it is not disputed, would be the assessment year 1962-63. Clause (f) of s. 3(1) deals with the previous year in the case of an assessee who is a partner in a firm and clause (f) states that 'previous year' means, where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee's share in the income of the firm, the period determined as the previous year for the assessment of the income of the firm. The effect of clause (f) is that whatever is the previous year for the assessment of the income of the firm, is statutorily made the previous year of the partner in respect of his share in the income of the firm. Thus, if an assessee has income from other sources, he may have a different previous year. But if he is a partner in a firm whose income has been determined, then so far as the share income is concerned, the assessment year in respect of such income will be the same as the assessment year of the firm. The question is, where such is the position, that is, where an assessee has a different previous year in respect of his other income and the previous year in respect of his share income from the firm is the same as the previous year of the firm, must the income of the assessee by way of his share in the income of the firm be brought to tax in a later assessment year if the previous year in respect f the firm income ends after the previous year in respect of his other sources

8. It is necessary to refer to s. 4, which is the charging section, and the main part of s. 4(1) reads as follows :

'Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person.'

9. Section 4(1) refers to the total income of the previous year or previous years. It is, therefore, made permissible by s. 4 to bring to tax income from different previous years in the same assessment year. In the instant case, as already pointed out, the assessment year in respect of both the previous years is 1962-63. The fact that the previous year of the firm ended on 31st August, 1961, after the previous year in respect of the other income of the assessee ended on 31st July, 1961, did not make any difference so far as the assessment year is concerned. In respect of both the incomes though the previous years were different, the assessment year would be 1962-63. As pointed out, it was permissible under s. 4 to bring to tax income of different previous years in the same assessment year. If in respect of both the incomes the assessment year was 1962-63, those incomes could properly be brought to tax in the assessment year 1962-63.

10. The AAC and the Tribunal seemed to have relied on the decision in Rowther's case : [1962]46ITR259(Ker) . The facts of that decision clearly showed that the relevant assessment years in respect of the share income and income from other sources were different. The accounting year of the firm of which the assessee was a partner closed on 30th April, 1958, and the assessee's share income was, therefore, determined for the year ending 30th April, 1958. The relevant assessment year of the firm was, therefore, 1959-60. The accounting year of the assessee for income from other sources was 1957-58 ending on 31st March, 1958. The relevant assessment year for this income was 1958-59. The question was whether the share income of the assessee in the firm was assessable in the assessment year 1958-59 or in the following year 1959-60. Referring to the definition of 'previous year' in s. 2(11)(ii) of the Indian I.T. Act, 1922, which is similar to the definition in s. 3(1)(f) of the I.T. Act, 1961, the Kerala High Court took the view that there was nothing in s. 2(11)(ii) which required that the assessment should be in the year 1958-59, and so the share income was not assessable in the hands of the assessee in the assessment year 1958-59. The High Court took the view that the assessment for the year 1958-59 must be in relation to the income during a period of twelve months which ended on or before 31st March, 1958, and if the period ended at any time after 31st March, 1958, the assessment can be made only in the following year.

11. The Tribunal seems to have overlooked an important distinguishing feature in Rowther's case : [1962]46ITR259(Ker) which distinguished it from the facts of the present case. It is no doubt true that both in Rowther's case and in the case before us, the previous year in respect of the firm ended one month later than the previous year in respect of other sources of income of the assessee. But what is important to be noticed is that the previous year in respect of the share income from the firm ended in the financial year 1958-59 in Rowther's case : [1962]46ITR259(Ker) , while in the case of income from other sources, the previous year was 1957-58. Thus, assessment year in respect of income from other sources was 1958-59, while the assessment year for the income of the firm and share, income was 1959-60. Such was not the position in the case before us. Both the previous years, that is, the previous year of the firm and the previous year in respect of other sources of income of the assessee, fell in the financial year 1961-62 and the relevant assessment year in respect of both the previous years would be 1962-63. The ratio of Rowther's case : [1962]46ITR259(Ker) was, therefore, clearly not applicable to the case before us.

12. It is apparent, therefore, that both the AAC and the Tribunal had erred in holding that the share income of the assessee could not be brought to tax in the assessment year 1962-63. Consequently, the question referred to us must be answered by holding that the share of profit received by the assessee company from the firm of 'M/s. McKenzies Ltd. & Oriental Timber Trading Corporation Pvt. Ltd.' from 1st September, 1960, to 31st August, 1961, was assessable in the assessment year 1962-63. The reference is answered accordingly. The assessee to pay the costs of this reference.


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