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Commissioner of Income-tax, Bombay City Vs. Chugandas and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 27/X of 1954
Judge
Reported in(1959)61BOMLR847
ActsIncome-tax Act, 1922 - Sections 25(3)
AppellantCommissioner of Income-tax, Bombay City
RespondentChugandas and Co.
Appellant AdvocateG.N. Joshi and ;R.J. Joshi, Advs.
Respondent AdvocateN.A. Palkhivala, ;Jamshetji Kanga and ;B.A. Palkhiwala, Advs.
Excerpt:
indian income-tax act (xi of 1922), sections 25(3), 26, 6, 9, 7 - securities constituting stock-in-trade of business of assesses firm which had paid tax on its business under indian income-tax act, 1918 -- dissolution of assessee firm -- assessee firm claiming benefit under section 25(3) in respect of interest on securities -- whether assesaee firm entitled to such benefit.;the words 'income, profits and gains' appearing in section 25(3) of the indian income-tax act, 1922, refer to the income, profits and gains made in connection with a discontinued business under whatever head the same may have to be shown and they do not refer to any particular head of income, profits and gains with its varying nomenclature and varying content.;the expression business in section 25(3) of the act refers.....order(1) messrs. chugandas and co. (securities) bombay, a registered firm, hereafter referred to as 'the assessee', was a dealer in securities. securities constituted the stock-in-trade of its business. it received a sum of rs. 4,13,992/- as and by way of interest on securities during the accounting year 1946, the assessment year being 1947-48. the assessee firm was dissolved on 30th june 1947. it received a sum of rs. 1,01,229/- during the accounting period 1st january 1947 to 30th june 1947, the assessment year being 1948-49, as interest on securities. the business carried on by the assessee was an old business. it had paid tax in connection with that business under the provisions of the indian income tax act,1918. that business having been dicontinued, the assessee became entitled to.....
Judgment:
ORDER

(1) Messrs. Chugandas and Co. (Securities) Bombay, a registered firm, hereafter referred to as 'the assessee', was a dealer in securities. Securities constituted the stock-in-trade of its business. It received a sum of Rs. 4,13,992/- as and by way of interest on securities during the accounting year 1946, the assessment year being 1947-48. The assessee firm was dissolved on 30th June 1947. It received a sum of Rs. 1,01,229/- during the accounting period 1st January 1947 to 30th June 1947, the assessment year being 1948-49, as interest on securities. The business carried on by the assessee was an old business. It had paid tax in connection with that business under the provisions of the Indian Income Tax Act,1918. That business having been dicontinued, the assessee became entitled to the benefit of the provisions contained in section 25(3) of the Indian Income Tax Act, 1922. A question has arisen whether the benefit conferred by section 25(3) extended to interest on securities received by the assessee as aforesaid. At the instance of the Commissioner of Income-tax Bombay City I the following question was referred to this Court under section 66(1) of the Indian Income-tax Act:

'Whether on the facts and circumstances of the case interest received on securities held by the assesese formed part of the assessee's business income for the purpose of claming relief under section 25(3) of the Indian Income Tax Act?'.

(2) After the reference was made the Supreme Court gave its jugment in the case of United commercial Bank Limited v. commr. of Income Tax, West Bengal, reported in : [1958]1SCR79 In that case the supreme court held that where securities are held by a banker as part of his trading assets in the course of his business, income from interest on securities was required to be shown under the head interest on securities falling under section 8 of the Income Tax Act, 1922 and not under the head Profits and gains of business, profession or vacation falling under section 10 thereof. Having regard to the decision of the Supreme Court, when the matter came up for hearig before Mr. Justice Tendolkar and Mr. Justice S.T. Desai, the question was re framed in order to bring out the real point in controversery between the parties. The re framed question is as follows.

Whether the assessee is entitled to the benefit of section 25(3) in respect of the interest on securities?

There was a difference of opinion between Mr. Justice Tendolkar and Mr. Justice S. T.Desai as regards the answer to be given to the aforesaid question. Mr. Justice Tendolkar was of the opinon that assessee was no entitled to the benefit of section 25(3) in respect of the interst of securities while Mr. Justice S. T. Desai was of the opinion that the assessee was entitled to such benefit. The matter has now come up for hearing on that question before me under the provisions contained in section 66(A) of the Indian Income Tax Act, 1922.

(3) The provisions of section 25(3) which have given rise to the controversy run as follows:

'Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income Tax Act, 1918 VII of 1918 is discontinued, of which the provisions of sub section by virture of which the provisions of sub section(4) have been redered applicable no tax shall be payable in respect of the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such calim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if respect and amount of tas has already been paid in respect of the income, profits and gains to the previous year exceeding the amoung payable on the basis of such assessment, a refund shall be given on the difference.''

The applicant contends that when the legislature used the words any business, profession or vocation on which tax was at any time charged under the provisions of the Indian income Tax Act,. 1918 It refered only to tax on income under the head Income derived from business falling under section 9 of the Indian Income Tax Act, 1918 and on income under the head Profession earnings, falling under section10 of the said Act. It is further conteuded that when the legislature in the year 1922 used the words no tax shall be payable in respect of the income profits and gains liable to be shown under the head Business under section10 of the Indian Income Tax Act 1922 as orginally enacted and under the head Professional earnings under the repealed section 11 of the said Aact and that those words now refer to the income profits and gains liable to be shown under the head Profits and gains of business profession or vocation under the present section 10 of the Said Act. It is further urged that when the legislature used the words and he assessee may further that the income profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. the legislature was only referring to what was liable to be shown under the heads Business and Professional earnings refered to in sections 10 and 11 of the said Act as first enacted and that those words now refer to what is liable to be shown under the head Proftis and gains of business, profession and or vocation, under the present such claim is made, an assessment shall be any such made on the basis of the income profits and gains of the said period and if an amoutn of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amoung payable on the basis f such assessment a refund shall be given on the difference. the legislature shall referring only to the income profits, and gains liable to be shown under section 10 and 11 of the said Act as first enacted in the year 1922 and that those words now refer to what is liable to be shown under the present section 10.

(4) Having regard to the decision of Supreme court in the case reported in : [1958]1SCR79 the resent position in law is that where an assessee derives income profits and gains froma business carried on by him, such income profits and a business interest received in connection the stock in trade arious heads. If secutiries constitute in connection with those securities covered by section of 8 of the Act of 1922. If the business consisted to purchase and sale of houses, income tax derived from such houses would have to beshown separately under the head Income of the property consisted of purchase and sale of houses, would have be shown separately under the head Income Tax, of property under section 9 of the Act Income From property under section 9 of the Act of 1922. If shares on joint sotck comanies constitute the stock in trade of such business, the dividend income derived therefrom would have to be shown separately under the head Income from other sources u der swection 12 as it now stands after the admendment made in the year 1955 and it is only the residue which may remain thereafter which would have to be shown under the head Proftis and gains of business, profession or vocation covered by section 10 even under the Indian Income Tax Act of 1918, if an assessee derived from Income, Profits and gains from a business carried on by him, he was under an obligation to show the interest received by him from securities which constituted the stock in trade on his business under the head Interest on securites covered by Section 7 of the Act of 1918. If purchase and sael of house property constituted the business of such assessee, then the income derived from house property was liable to be shown seperately under the head Income dervied from house property under section 8 of the Act of 1918. Only the balance of income profits and gains of such business remainig thereafter was liable to be shown under the head Income Tax derived fro business under section 9 of the Act of 1918 It ois contended on behalf of the assessee that when the legislature used the words 'Where any business X X X X X on whhich tax was at any time charged under the provisions of the Indian Income Tax Act, 1918, in section 25(3) it referred to the tax which might at any of time have been charged under the act of 1918 under any of the three heads referred to by me above in respect of the income, profits and gains of the business carried on by the assessee. It us further contended on behalf of the assessee that where such business is discontinued, no tax is payable in respect of the income, profits and gains of such business for the period between the end of the previous year and the date of such discontinuance which may have to be shown under each of the four heads referred to by me above under the Indian Income Tax Act, 1922. It is further contended by the assessee may further claim that the income profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period also refer to the income profits and gains of which are required to be shown under each of the aroesaid four heads under the Act of 1922. It is also contended that when the legislature used the words where any such calim is made, an assessment shall be made on the basis of the income, profits and gains of the said period and if an amount of tax has already been paid in respect of the income profits and gains of the previous year exceeding the amoung payable on the basis of such assessment a refund shall be given on the difference. the legislature was referring to the income profits and gains of such business liable to be shown under each one of the aforesaid four heads under the Act of 1922.

(5) In order to adjudge which of these rival contentiones is correct, it is necessary to look fairly at the language used by the legislature in section 25(3) itself. That section speaks of any business XXX on which tax was at any time charged under the provisions of the Indian Income Tax Act, 1918. It is common ground that a business was not a unit of assessment under the Indian Income Tax act of 1918. What the legislature intended to convey was any business, on the income profits and gains whereof tax was at any income profits and gains whereof tax was at any time charged under the Indian Income Tax Act of 1918. Section 2(4) of the Indian Income Tax act of 1922 lays down that unless there is anything repugnant in the subject or context the expression business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The expression business in section 25(3) can only refer to the acitivity which is styled business. What has to be discontinued is that activity before the section can apply. If what is to be discontinued is that activity business, the tax which is referred to in connection with that activity business must of necessity refer to the tax payable in connection with the income profits and gains derived from that activity business irrespective of the head or heads under which such income, profits and gains are required to be shown under the provisions contained in the Indian Income Tax Act, 1918. The expression business X X on which tax was at any time charged on a plain reading of the section must refer to the tax charged under any of the heads under which the income profits and gains made as a result of such activity may have been entered. If such income profits and gains included interest on securities which constituted the stock in trade of that business, the tax paid under the head interest on secutiries would be covered. There is no warrant for confining the tax to only on head. When the Legislature thereafter uses the words no tax shall be payable in respect of the income profits and gains the legislature is referring to the tax otherwise payable in respect of the income, profits and gains derived from the activity business referred to earlier. The income profits and gains of business here referred to do not refer exclusively to income profits and gains liable to be shown under th head referred to in section 10 of the Act of 1922. The intention of the legislature is to completely exempt the income profits and gains resulting from the activity styled business for the period referred to in the section. When legislature uses the words and the assessee may further claim that the income, proftis and gains of the previous year shall be deemed to have been the income, profits and gains of the said period, the legislature is referring to the totality of income, profits and gains in connection with the activity styled business under that subsection and not merely to the income, profits and gains liable to be shown under section 10 . When the legislature uses the further words where any such claim is made, an assessment shall be made on the basis of the income. Profts and gains of the said period, it refers to all the income profits and gains made in connection with the acitivty styled business in that section. When the legislature uses the further words if an amount of tax has already been paid in respect of the income, profits and gains of theactivity termed business in that section. It seems to be a far fetched construction of that section to say that what the legislature intended was not the totality of the income, profits and gains of the activity termed business but was inteding what was liable onle to be entered under the provisions contained in S. 10 The term business, for the purpose of discontinuance cannot have for one meaning and the same term business for the purpose of tax cannot have another meaning.

(6) Sub section (3) of S. 25 was enacted in order to mitigate the effect of double taxation levied in respect of the income profits and gai s of one accounting year having regard to the changes made in the Income Tax law by the Act of 1922. Section 14(2) of the Act 1918, provided as follows:

Subject to the conditions hereinbefore set out, there shall be levied in respect of the year beginning with the first day of April 1918, and in respect of each subsequent year, by collection, in that year and subsequent adjustment as herein after provided income tax upon every assessee in respect of his taxable income in that year at the rate specified in Schedule. 1'.

Under the aforesaid provisions the income profits and gains of the accounting year 1921-22 were liable to be charged to tax in the assessement year 1921-22 under the Act of 1918.

(7) There was a material alteration in the aforesaid scheme of taxation may by the consolidating and Indian Income Tax Act XI of 1922. Under the Act of 1922 the tax had to be paid in the currect assessment year in respect of the income profits and gains of the previous yuear, with the result that during the assessment year 1922-23 tax was liable to be paid once again under the Indian Income Tax Act 1922 in respect of the income, profits and gains for the accounting year 1921-22.

(8) The question that I have to consider relates to the extend of the relief granted by the legislature. There appears to me to be no warrant for giving a very truncated and artificial meaning to the expression income profits and gains used in that section in connection with business. When the legislature says that no tax shall be payabvle in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, the legislature intended to exempt from tax all income profits and gains derived from the activity beusiness. When giving the exemption the legislature, in my view, did not contemplate or intend that the assessees would nevertheless have to pay tax in connection with that part of the income profits and gains made in connection with the acitivity business which may consist of income from securities iin a case where securities constituted the stock in trade of that business. It could not possibly be the intention of the legislature in giving the exemption that tax was intended to be charged by the legislature under three out of the four different head under which the income profits and gains derived from business is liable to be shown under the provisions of the Indian Income Tax Act, 1922. when the legislature enacted that the assessee may further claim that the income profits and gains of the previous year shall be deemed to have been the income profits and gain of the said period, the legislature did not intend that the income. Profits and gains of that business for the previous year should remain unaltereo to the extend that the income. Profits and gains of that business for the previous year should remain unaltereo to the extent that the same are shown under the head Interest on securities Income from properties and Income from other sources and that only the residue thereof shown under the head referred to in section 10 alone should be sustituted. When the legislature provided for an assessment in connection with such business to be made on the baisis of the income profits and gains of the period referred to in that sub section, the legislature did not contemplate the assessment to be made only under the head referred to in section 10. What is provided is that the assessment shall be made on the basis of the income profits and gains of the said period. There is no warrant for adding thereto the words liable to be shown only under section. 10''

(9) Section 25(3) being part of section 25, it would not be out of place to consider the sense in which the legislature has used similar words in other parts of the same section. As the marginal not to that section shows, it deals with assessment in case of discontinued business. Section 25(1) of the Act of 1922 runs as follows:

25(1) Where any business, profession or vocation to which sub section (3) is not applicable is discontinued in any year, an assessment may be made in that year on the basis of the income profits or gains of the period between the end of the previous year and the date of such discontinuance in addition to the assesment if any made on the basis of the income profits or gains of the previous year.

When the Indian Income Tax Act, 1922 was first passed in 1922 the words were Where any business profession or vocation commenced after 31st day of Maqrch 1922, is discontinued etc., By Act XI of 1924 for the words the words on which income tax was not a any tie charged under the provisions of the Indian Income Tax Act, 1918 were subsituted. By Act XI of the 1944 these newly added words were substituted by the words to which sub section (3) is not applicable which now appear. This sub section provides for assessment being made in the year of discontinuance itself on the basis of the income profits or gains of the period between the end of the previous year and the date of such discontinuance. Mr. Joshi the learned Counsel for the applicant at first argued that it seemed as if the expression assessment in this sub section referred to the assessment being made in respect of the totality of the income profits and gains made in connection with the discontinued business during the period referred to therein. He, however, stated that the language of section (25(3) was different and that in the context of the language used in subsection (3) of section 25 the expression income profits or gains bore a different meaning. He stated that such difference arose by reason of the use by the legislature of the words assessment may be made contained in section 25(1) In answer to that argument it was pointed out that the legislature in sub section (3) also refer to the making of an assessment when the option given thereby exercised by the assessee and that a difference in result is not warranted. Mr. Joshi then in the alternative argued that even so far as section 25(1) is concerned, it refers when dealing with discontinued business to the assessment being made ohnly under the head referred to in section 10 of the of 1922. In my view, it would not be proper to give a truncated meaning to the expression assessment when the legislature says that assessment may be made on the basis of the income profits and gains of the period referred to in that section. When assessment has to be made in connection with the income, profits and gains of a business you have to assess the totality of the income profits and gains made in connection with that business under whatever head the same may be liable to be entered having regard to the provisions contained in the Income Tax Act, 1922.

(10) Section 25(1) of the Indian Income Tax Act, 1922 merely authorises an accelerated assessment in the year of assessment itself. The Supreme court in the case of Commissioner of Income tax madras v. K. Shrinivasan, reported in : [1953]32ITR87(SC) has observed at page 97 that all that the section authorises the Income Tax officer to do is that it gives him an option to make a premature assessment on the profits earned up to the date of discontinuance in the year of discountinuance itself instead of in her usual financial year. This section does not authorise the splitting up of the assessment In two different years. It was never intended to provide that in the case of a discontinued business, the income, profits and gains in to the extent that the income profits and gains to in liable to be shown under the head referred to in section 10 of the Act in the year of discontinuance itself, and that if there is any interest on securities earned in connection with that business in a case where securities constituted the stock in trade of that business that interest on securities is to be assessed separately in a susbequent assessment year. In my view, such splitting up was never intended or contemplated by the framers of the Act, and it is not possible to say that when the Legislature was considering the question of assessment under Section 25(1) a part of the income of the discontinued business was to be assessed in one year and another part in another year. In my view, the alternative argument advanced by Mr. Joshi in connection with section 25(1) viz., that it refers only to an assessment in connection with the head referred to in section 10 is without any merit and without any foundation.

(11) I shall now turn to section 25(2) That section provides.

25(2) Any person discontinuing any such business profession or vocation shall give to the income Tax Officer notice of such discontinuance within fifteen days thereof, and where any person fails to give the notice required by this sub section the Income tax offier may direct that a sum shall be recovered from him by way of penalty not exceeding the amount of tax subsequently assessed on him in respect of any income, profits or gains of the business, profession or vocation up to the date of its discontinuance.

This sub section deals with the question of the imposition of the penalty, and the words not exceeding the amoung of tax subsequently assessed on him in respect of any income, profits or gains of the business, profession or vocation up to the date of its discontinuance refer to the assessment made in respect of the totality of the income profits or gains made in connection with the discontinued business, and not to that part of it which is liable to be entered under the head referred to in section. 10

(12) I will now turn to section 25(4) as it was enacted originally by the Act of 1922. That subsection provided as under.

25(4). Where an assessment is to be made under sub section (1) or sub section (3) the Income Tax Officer may serve on the perso whose income profits and gains are to be assessed, or, in the case of afirm on any person who was a member of such firm at the time of its discontinuance, or , in the case of a company, on the principal officer thereof, a notice containing of all or any of the requirements which may be included in a notice under sub section (2) of section 22, and the provisions of this Act shall so far as may be, apply accordingly as if the notice were a notice issued under that sub section. The assessment referred to in sub section (4) is the assessment which is required to be made under sub section (3) is the assessment in respect of the totality of the income profits, or gains made in connection with the activity business. The original sub section (4) of section 25 has been renumbered as sub section (6) of section 25 and the words usb section (1) or sub section (3) therein have been susbtituted by the words sub section (4) I may also refer to section 26 of the Act of 1922. Section 26 is forms an integral part of the scheme of the Act. The Privy Council recognised this fact in the case of Commr. of Income Tax, Bombay v. P. E. Polson, reported in the Privy Council there observed as follows.

'Section 25 and 26 no doubt form part of a single seheme and their interaction must not be ingored.

Section 26 as enacted in the year 1922 ran as follows: Where any change occurs in the constitution of a firm or where any person has succeeded to any be made on the firm as constituted, or on the person engaged in the business, profession or vocation, as the case may be, at the time of the making of the assessment.

The part material for the purpose of the present case is as follows:

'X X X Where any person has succeeded to any business X X X the assessment shall be made X X X on the person engaged in the business, X X at the time of the making of tha ssessment.''

Now, the word ' assessment'' here clearly refers to the assessment made in connectioin with the totality of the income, profits and gains made in connection with such business. It does not refer merel.y to the with such business. It does not refer merely to the head referred to in section 10 Mr. Joshi submitted that the expression assessment even here in connection with business referred only to the assessment that may be made under the head referred to in section 10. In my view, it was never the intention of the legislature in enacting section 26 that where there is a case of succession, the person who succeeds should be made liable only in respect of that part of the income profits and gains of the business which is liable to be included under the head referred to in section 10 and that as regards the rest, the person who has been sducceeded would be assessed. In my view, this theory of assessment in compartments sought to be imported in the provisions of Ss. 25 and 26 is without any basis of foundation. As regards section 26 it has been observed by the Privy council in the case of the Indian Iron and Steel Co. Ltd., v. Coimmr. of Income tax, Bengal, reported in that S. 26 is not concerned with the person upon whom the liablity is imposed. In my view, reading section 25 as a whole the words income profits and gains. appearing in sub section (3) refer to the income profits and gains made in connection with business under whatever head the same may have to be shown.

(13) There is another aspect of the matter to which I will now advert. Under the Act of the 1918 as well as under the Act of 1922, various heads of income, profits and gains are mentioned. Section 5 of the Act of 1918 provided was follows.

Save as otherwise provided by this at the following classes of income shall be chargeable to income tax in the manner hereinafter appearing namely,

(I) Salaries

(II) Interest on securities

(III) Income derived from house property

(IV) Income derived from business

(V) Professional earnings

(VI) Income derived from other sources.

Section 6 of the Act of 1922 when first enacted provided as follows:

Save as otherwise provided by this act, the following heads of income, profits and gains, shall be charageable to income tax in the manner hereinafter appearing, namely,

(I) Salaries

(II) Interest on securities

(III) Property

(IV) Business

(V) Professional earnings

(VI) Other sources.

Section 6 of the Indian Income Tax Act, 1922, as it now stands provides as under:

Save as otherwise provided by this Act, the following heads of income, profits, and gains shall be chargeable to income tax in the manner hereinafter appearing, namely

(I) Salaries

(II) Interest on securities

(III) Income from property

(IV) Profits and gains of business profession or vocation

(V) Income from other sources

(IV) Capital gains.

It is clear from the above that the nomenclature of some of the heads has changed time to time and that the legislature by legislation has amalgamated two heads into one. A scrutiny of some of the sections of the Act as they existed from time to time will show that what was included in some of the heads has changed. By an amendment made by section 9 of the Finance Aft, 1955, with effect from Ist April 1955 the head Income from other sources covered by section 12 is to include dividends. The result is that in the case of a business where shares of joint stopck companies constituted the stock in trade of the business, dividends received in respect of thse shares which were at one time liable to be shown under the head Profits and gains of business profession or vocation referred to in section 10 would now, after the amendment, have to be shown under the head Icome from other sources referred to in section12. In this connection, I may refer to a decision of a Division Bench of this court reported in : [1955]27ITR63(Bom) , Commr. of Income Tax Bombay City v. Ahmuty & Co. Ltd., In that case, Chagla C. J. and Tendolkar J. Held that in the case of an assessee company which was a dealer in shares which constituted the stock in trade of the business of the company, the dividend income received by the company was income from business chargeable under section 10. This decision was given before the amendment of 1955 In view of the amendment made in the 1955, this dividend income would now have to be shown under the head other sources covered by section 12. Section 8 of the Act of 1918 provided that under the head Income derived from house property. the bonafide annual value of any house property of which the assessee was the owner was required to be shown subject to certain allowances.

(14) When we come to the Act of 1922 as first enacted section 9(1) provided as follows:

9(1) The tax shall be payable by an assessee under the head Property in respect of the bonafide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner other than such portions of such property as he may occupy for the purposes of his business. X X X .

The present section 9 provides as follolws: 9(1) The tax shall be payable by an assessee under the head income from property in respect of the boa fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business profession or vocation carried on by him the profits of which are are assesable to tax..............'' These different provisions in connection with property also indidcate that what was liable to be included under a head has varied. Some of the heads do not include all that would ordinarily be covered by a servant of a foreign Government is not liable to be included under a head has varied. Some of the heads do not include all that would ordinarily be coverd by the words used in describing the head. For instance, under the head Salaries referred to in the present section 7 of the Act of 1922, the salary received by a servant of a foreign Government is not liable to be shown under this head. similarly as regards the head Interest on securities, the interest on securities issued by a foreign Government is not liable to be shown under that head In my view, when the legislature enacted S. 25 and legislated in connection with the discontinuance of a business and provided for certain reliefs in connection with the income, profits and gains of such business, the leigslature was not contemplating any one particular head of income profits and gains with its varying nomernclature and varying content. In this connection it would be pertinent to note that where the legislature intended to refer to a particular head of income, it has been careful enought to refer to the same by describing it as the head by using the specific words by which the head is known with the first letter thereof in capital and by putting those words into inverted commas so that no fonfusion may arise as regards the intention of the legislature.

(15) I will refer in this connection to the provisions contained in the Act of 1922 of first enacted. Section 18 as first enacted provided as follows:

18(1) Income tax shall, unless otherwise prescriibed in the case of any security of the government of India be leviable in advance by deduction at the time of payment in respect of income chargeable under the following heads.

(I) Salaries and

(II) Interest on securities

(2) Any person responsible fr paying any income chargeable under the head Salaries shall, at the time of payment deduct income tax on the amoung payable at the rate applicable to the estimated income of the assessee under this head.....................section 21(a) provides as follows:

21(a) the name and, so far as it is known, the address of every person who was receiving on the said 31st day of March, or has received during the year ending on that date from the authority, company, body association or private employer, as the case may be, any income chargeable under the head salaries of such amoung as may be prescribed.... subsection (5) of section 46 provided as follows: 46(5). If any assessee is in receipt of any income chargeable under the head salaries the Income Tax Officer may require any person paying the same etc.''

A reference may also be made in this connection to sections 7 to 12 of the Act of 1922. Numerous such instances can be cited from the Act as it now stands. If we examine the provisions contained in section 25(3) we have the wors business profession or vacation, Under the Act of 1918 the word business by itsel fdid not describe any head. The head under section 9 of the Act of 1918 the word business by itself did not describe any head. The head under section 9 of the Act of 1918 was Income derived from business The words profession of vocation appearing in sub section (3) did not constitute the language of the head under section 10 of the Act of 1918. The head under section was professional earnings though iit included profits of any vocation. When we come to the act of 1922 as first enacted the word Business represented the exact nomenclature of the head covered by section 10. As regards the words profession or vocation they did not represent any head under the Act of 1922 as first enacted. The head under Section 11 as originally enacted was Professional earnings. As a result of the legislative amendments the head Professional earnings has now been completely abolished. By the amending Act VII of 1939 the head under section 10 has been altered to Prfits and gains of business, profession or vocation. There is a temptation to equate the words business, profession or vocation, with the head Profits and gains of business profession or vocation now appearing in section 10 of the Indian Income Tax Act, 1922, after the amendment made in 1939 because the words business profession or vocation appear in juxtaposition. But when these words were used in the act of 1922 at the time when that section was first enacted, thgere was no such head like Proftis and gains of business, profession or vocation. In my view when the legislature intended in section 25(3) to refer to any particular head or heads, it would have done so and used apt languaged for the purpose as it has done in various other provisions of the Act.

(16) In order to visualise the effect of what Mr. Joshi contends for I will take up for the case of a company whose sole business was to deal in securities which consitituted its stock in trade. If whilst the Act of 1918 was in operation that company's assessable income for any year was computed at Rs. 15 lacs and tax had been paid thereon and if the said sum of Rs. 16 lacks had been computed by showing Rs. 24 Laks under the head Interest on securities and by showing Rs. 9 lacs as loss under the head Income derived from business would it be possible to say that in respect of the business of the company no tax has been charged under the Act of 1918 within the meaning of Section 25(3) of the Act of 1922? It would be an unrealistic and the far fetched construction to say that the company carried on business onwhich not tax was charged. In my view, it could not have been the intention of the legislature not to give relief to such an assessee merely because its profits have been entered under a head other than that covered by section 9 of the Act of 1918. To take another illustration: If the business of assessee complany consisted of sale and purchase of shares of Joick Stock Companies which constituted its stock in trade, under the presented section 12 the income from the dividends would have to be shown under the head Income from other sources. That income prior to the amendment was liable to be shown under the head Profits and gains of business profession or vocation referred to in section 10. If the assessee had paid tax in connection with such business under the Act of 1918 and discontinues the said business, could it be said that the assesse is not entitled to relief under section 25(3) in respect of income from dividdends merely because it is now required to be shown under section 12 instead of under section 10? In my view, the legislature when it referred to income, profits and gains in section 25(3) connection with business which has been discontinued, did not refer to any particular head of income with its varying content.

(17) I shall now deal with the two cases referred to by Mr. Joshi-one reported in : [1947]15ITR220(All) , Gopi Mohan and Sons v. Commr. of Income Tax. U. P. and C. P. and other reported in : [1951]20ITR280(Bom) , Ambalal Himatlal v. Commr. of Income Tax and Excess Profits Tax, Bombay North. The first is a judgment of a Division Bench of the Allahabad High Court and the second is a judgment of a Division Bench of this Court. In none of these cases the points which have been canvassed before me were canvassed or were even present to the minds of the learned Judges who delivered those judgments. The facts in the case reported in : [1947]15ITR220(All) were that a Hindu undivided family which had been assessed in respect of its income from property became divided in the previous year relevant to the assessment year 1941-42. That partition was recognised by the Income-Tax Officer. An application ws made by one of the separated members of the family claiming relief under section 25(3). From the facts it is clear that there was no business, profession or vocation that had at any time been carried on by the Hindu undivided family. It is stated in the course of the judgment that it was not disputed that the Hindu unidived family was assessed under the Indian Income Tax Act, 1918, but the assessment was made only in respect of income from property. On the facts of that case section 25(3) could not possibly apply. In that caes an argument was advanced that a landlord who lives merely on retal income should be deemed to be exercising a vocation. In dealing with that argument the learned Judges observed that the method of computation of income from property had been laid down in section 9, while that for the computation of income from business, profession or vocation had been described in section 10. They further observed as follows:

'From that it is lcear that the expression 'Business, profession or vocation' used in section 25(3) relates to that head of income, which has been dealt with in section 10, and is quite distinct from the head of 'income from property' which has been mentioned in section 9.

To the extent that the judgment contains observations which are contrary to the view I have taken with respect, I do not agree with the same.

(18) The facts in respect of the case reported in : [1951]20ITR280(Bom) were the following: The assessee, a Hindu undivided family, carried on three separate businesses, viz., (1) money-lending, (2) running a ginning factory and (3) a share business. That family was disrupted in 1943 & the businesses were divided amongst its members. It was found that only in respect of the money-lending business the Hindu undivided family had paid tax under the Act of 1918. The assessee claimed the benefit of S. 25 (4) in respect of all the businesses carried on by up to the date of partition. The learned judges held that the benefit accrued only in respect of the business in conection wherewith tax had been paid viz, the money leading business. In the course of his judgment Chagla, C. J. observes as follows:

'Therefore, the whole emphasis in sub-section (4) is not upon the assessee so much as upon the particular business, profession or vocation which was carried on and which was subjected to tax under the Act of 1918. One might almost say that the relief contemplated to be given was not to the assessee so much as to the particular business.'

There are observations in that case whch go to show that the learned Judges considered that the legislature in S. 25(4) contemplated profits and gains of business, profession or vocation contemplated by section. 10. Mr. Joshi very strongly relied upon the words in that judgment which appear at page 285 where Chalga C. J. observes:

'What the legislature intended by using the expression 'income, profits and gains' was the profits and gains of the business or profession contemplated by Section 10 and not the total incoem of the assessee because when we come to the proviso to section 25, sub-sections (3) and (4) it provides as follows x x x'

Mr. Joshi further relied upon the following passage from that judgment:

'Therefore, here we have the expression 'income, profits and gains' used in juxtaposition with 'business, profession or vocation' and there can be no dou bt as far as this provision is concerned that what the legislature was providing for was the profits and gains of the buisness profession or vocation contemplated by section 10.'

At the time when the aforesaid decision was given, the provision relating to the inclusion of income from dividends under the head 'Income from other sources' in section 12 had not been enacted. Ordinarily speaking, in connection with a large majority of businesses the profits and gains of such business, would be liable to be included under the head 'Profits and gains of business, profession or vocation' covered by section 10. It is only in those cases where securities constitute the stock-in-trade of a business that the question arises of including the interest on securities which forms part of the profits of such business under the head 'Interest on securities' referred to in section 8, and it is only in cases where the business consists of purchases and sale of houses that the question would arises of including the income from such houses which forms part of the profits of such business under the head 'Income from property' referred to in section 9 of the Act. The learned Judges without any argument might well haev thought that all profits and gains of business were liable to be shown under section 10. In the absence of any argument as to the heads under which profits and gains of a business may have to be shown, this judgment cannot be regaded as an authority for the proposition for which Mr. Joshi is contending. I cannot regard that judgment as a considered expression of an opinion on the matter with which I have to deal and I cannot regard it as having any binding authority on me, on the point which I have to decide.

(19) In the course of the arguments advanced before me, there was a controversy between counsel as regards the section or sections under the Act of 1918 and under the Act of 1922 as first enacted. There is no necessity for me to give any decision on that question in the present reference. Mr. Joshi had argued that in section 25(3) the use of the words 'on which tax was at any time charged' when read along with the provisions contained in the Indian Income Tax Act, 1918, indicatd that what the legislature was referred to was the class of income specified in section 9 of the Indian Income Tax Act of 1918. He urged that section 5 of the Act of 1918 provided for various classes of incoem therein set out which were chargeable to income tax and that the words 'tax. . . . . . charged under the provisons of the Indian Income Tax Act, 1918' referred to the class of income that was chargeable to income taxx under the provisions contained in the aforesaid section 5. Mr. Joshi therefrom sought to deduce that the tax charged that is referred to in S. 25(3) is the one charged in respect of the classes of income falling only under the heads 'Income derived from business' and 'Professional earnings.' There is no reason why the tax charged should not refer to other classes of income referred to in the aforesaid S. 5 if such income was derived from the activity `business.'

(20) In the result, I answer the question as reframed in the affirnative.

(21) Out of the three judges including myself, who have dealt with this referrence, Mr. Justice S. T. Desai and myself have answered the question in the affirnative whilst Mr. Justice Tendolkar has answered the question in the negative. The decision of the Court, having regard to the provisions of S. 66A of the Indian Income Tax Act, 1922 is that the question is answered in the affirnative.

(22) The applicant to pay the costs. Costs to include the costs of the hearing before Mr. Justice Tendolkar and Mr. Justice S. T. Desai.

(23) Question answered in affirnative.


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