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Dalsukh Rai Jaidayal in Re. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberI. T. Miscellaneous Case No. 15 of 1952
Reported in[1962]44ITR417(All)
AppellantDalsukh Rai Jaidayal in Re.
Excerpt:
- - the facts as they appear from the appellate order of the income-tax appellate tribunal as well as the statement of the case make no mention of any application being made putting forward such a claim and it is, therefore, not at all necessary to consider that aspect of the case. , october 17, 1944, and as the date of succession was the very first date of the assessment year 1946-47 the relief could be claimed only in the assessment year 1946-47. the learned chief justice observed :here we are dealing with the assessment of the assessee for the assessment year 1945-46, and clearly whatever relief the assessee is entitled to by reason of the fact that there was a succession to his business, that relief cannot be granted to him for the assessment year 1945-46, but it could only be.....[the matter originally came before bhargava and upadhya 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 effect from october 8, 1943, and the question that arose was as to the relief to which the assessee family became entitled under.....
Judgment:

[The matter originally came before Bhargava and Upadhya 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 effect from October 8, 1943, and the question that arose was as to the relief to which the assessee family became entitled under section 25(4) of the Income-tax Act. This question fell for decision in the proceedings for assessment for the assessment year 1944-45. The previous year of the assessee corresponding to this assessment year was the 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. This contention of the assessee was rejected by the Tribunal and, consequently, the question mentioned above has been referred to this court by the Tribunal at the instance of the assessee.

For purposes of applying the proviso of section 25(4) of the Income-tax Act, it is necessary to determine in each case, where the question arise, as to what is the date of succession and what is the previous year for purposes of section 25(4) of the Act. In the case before us, the date of succession is admittedly October 8, 1943. The previous year, for the purpose of section 25(4) of the Income-tax Act, would be the completed accounting year of the assessee ending on any date preceding the date of succession, i.e., October 8, 1943. This is also the principle which has been laid down by the Supreme Court in Commissioner of Income-tax v. Srinivasan. The same principle was also laid down by the Bombay High Court in an earlier case of Ambaram Kalidas v. Commissioner of Income-tax. Applying that principle to the facts of present case, the previous year for the purpose of section 25(4) of the Income-tax Act would be the period beginning on October 19, 1942, and ending on October 7, 1943, because October 7, 1943, is a date preceding the date of succession which, as mentioned above, is admittedly October 8, 1943. In this case, therefore, the findings of fact recorded lead to the conclusion that the date of succession was October 8, 1943, and the previous year for purposes of section 25(4) of the Income-tax Act was the accounting 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 date of succession had been later than October 8, 1943, and any income had been earned during that period that could have been the income of the assessee which would have been exempt from the tax Even in the present case, if the assessee had earned any income in the period between October 7, 1943, and October 8, 1943, and before succession took place, that income would be the income exempt under the first part of section 25(4) of the Income-tax Act. Such a contingency could have arisen if on October 8, 1943, the date of succession itself, any income had been earned by the assessee in this Banaras Business prior to the succession taking place on that very day. The facts found by the Tribunal, however, show that no such income was earned and, consequently, under the first part of section 25(4) of the Income-tax Act, if applied with out reference to the second part, the assessee in the present case is not entitled to exemption from tax on any income. Of course, under the second part, the assessee could have made a further claim that the income of the assessee for the previous year October 19, 1942, to October 7, 1943, be deemed to be the income of this period in respect of which he could claim exemption as of right, which means that the assessee could claim that the income earned between October 19, 1942, and October 7, 1943, be treated as the income for the period October 7, 1943, to October 8, 1943, and exemption for that period be granted on that basis. The question, however, does not arise in this reference made to this court by the Tribunal because there is no mention that any application was made putting forward such a claim under the second part of section 25(4) of the Income-tax Act. The facts as they appear from the appellate order of the Income-tax Appellate Tribunal as well as the statement of the case make no mention of any application being made putting forward such a claim and it is, therefore, not at all necessary to consider that aspect of the case. The reference as sent to this court merely deals with the question whether the income in respect of which exemption is being claimed under section 25(4) of the Income-tax Act should be held to be the income earned between October 19, 1942, and October 7, 1943, and that question has to be answered against the assessee in view of the reasons given above. It may also be mentioned that this decision in the present case is exactly in line with the decision of the Bombay High Court in the case of Ambaram Kalidas 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 assessees business at Banaras was taken over by a partnership firm with effect from October 8, 1943, and the assessee claims that no tax could be levied in respect of the income of the period October 19, 1942, to October 7, 1943, because of the provisions of section 25(4) of the Income-tax Act. Section 25(4) of the Income-tax Act reads a follows :

'25. (4) 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 maintained 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 been the income, profits and gains of the said period. Where any such claim 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 amount payable on the basis of such assessment, a refund shall be given of the differece :

Provided that sub-sections (3) and (4) shall not apply -

(a) to super-tax except where the income, profits and gains of the business, profession or vocation were assessed 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 day of March, 1917.'

No tax is payable in respect of the income of the period between 'the end of the previous year' and 'the date of such succession'. In the instance case the date of such succession has been found to be October 8, 1943. The period prior to this date and 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' 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 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 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 twelves months and usually corresponding to a financial year preceding the financial year of assessment.'

In view of these weighty pronouncements as to the earning of the expression 'previous year' in section 25 (4) learned counsel for the department contends that the previous year in this case ended on October 7, 1943, and the period in respect of which exemption was granted by section 25(4) was thus nil. Learned counsel also contended that the assessee can get no relief at all in this case because no income was earned by the assessee between October 7, 1943, the date on which the previous year ended and October 8, 1943, the date of succession. Learned counsel urged that if the assessee had an income in the period between October 7 and October 8 before the actual time when the succession took place that income would be exempt under the first part of section 25(4) of the Act. This according to him could have happened if some income had been earned on October 8, but preceding the actual time of succession on that date. This argument appears to overlook the fact that the actual time of succession is not material. For ascertaining the period in respect of which exemption has been provided by the statute the date of succession has to be excluded. Thus the period must be prior to the 8th of October, 1943, and no part of that case can be taken into consideration for determining the 'period'. The argument therefore that if the assessee had earned any income on October 8, 1943, prior to the actual succession on that date that income would be exempt does not appear to be consistent with the language of the statute. The construction that must be placed on the expression 'the ends of the previous year' is of utmost importance in this case. The expression has been considered by the Supreme Court in Srinivasans case referred to above. In that case the firms year of account ended on the 30th June every year and in respect of the previous year ending June 30, 1938, an assessment was made in the year 1939-40. On March 1, 1940, the assessees transferred their business as a going concern to a private limited company and in proceedings for the assessment year 1940-41 they claimed that the firm was not liable to pay any income-tax on the income of its business from the end of the accounting year ending June 30, 1938, to February 29, 1940, the date immediately preceding the date of succession. Their Lordships took the view that subsequent to the assessment for 1939-40 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 the previous year is made the subject of the charge. On the passing of the Act of 1922, the previous system of assessment was kept alive for one year with the result that two assessments, one under the Act of 1922 on the income of 1921-22 and another under the old system by way of assessments on the income of the same year 1921-22 were made. In other words the income of the year 1921-22 was assessed twice, once under the Act of 1918 and again under the Act of 1922. It is to remove this anomaly that section 25 (3) was enacted in 1922, and in 1939 section 25 (4) was added by an amending Act. Referring to similar language used in section 25 (3) of the Act, Beaumont observed in In re Polson as follows :

'The sub-section seems to me to be very clumsily worded, and there is difficulty in this case, because in point of fact there is no period between the discontinuance of the old business and the end of the previous year. The previous year ended on December 31, 1938, and that is the date when the old business was sold to the company. So that taking the sub-section literally, and, assuming its application to this case, it provides that no tax shall be payable for this non-existing period between the end of the previous year and the date of discontinuance...'

The main argument in Polsons case related to the meaning of the word 'discontinuance' and it was therefore not necessary in that case to make any pronouncement about the correct meaning of the words 'end of the previous year' in section 25(4). This case went up to the Prior Council and the decision of the Privy Council is reported in Commissioner of Income-tax v. Polson. The entire argument before the Judicial committee related to the word 'discontinuance' and the expression 'end of the previous year' did not therefore come up for consideration. In this case the Privy council has dealt with the object with which the provision of section 25 (3) and (4) were enacted. Having regard to the object of the statute the construction which has to be placed on the expression 'end of the previous year' in sub-sections (3) and (4) should be such as not to defeat the very object of this provision. In a case where succession takes place on a date immediately after the end of the previous 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 case, for that would leaves no period at all between the end of the previous year and the date of succession. Having regard to the object of this statutory provision it appears property to construe the purse 'end of the previous year' as meaning the end of that previous year which precedes the succession and the period in respect of which exemption is claimed. I am alive to the fact that in Srinivasans case relief had been claimed for a period of 20 months. But apart from other reasons considered in that case it is evident that as soon as the first twelve months of the period ended on March 31, 1939, one entire previous year was over and it attracted the liability to tax because neither at the end of that period nor immediately following it was there a discontinuance or succession. The court was therefore justified, if I may say with respect, in holding that the claim could not have been made for the entire period of 20 months and the exemption provided by the statute was available only for the period subsequent to March 31, 1939. Discontinuance of the business or succession is the main thing which entitled the assessee to an exemption under section 25 : so the period immediately preceding the date of discontinuance or succession is the period for which the statute purports to grant relief. I am unable to accepts the contention that in spite of the fact that there is a succession there may be no period at all immediately preceding that succession in respect of which relief may be granted. To accept this would be to hold that in such cases this statutory provision would be to hold that in such cases this statutory provision would not apply at all. It appears therefore reasonable to say that for ascertaining the length of the period for which relief may be granted the starting point should be the date of the succession itself. If the period is computed, stating from the date of succession and proceeding backwards, the date when a previous year of the assessee ends should be the other end of the relevant period. In Srinivasans case discontinuance was claimed to have taken place on March 1, 1940. Computing the relevant period backwards from this date one finds that a previous year of the assessee ended on March 31, 1939. The period therefore between March 1, 1940, and March 31, 1939, was the period in respect of which relief could be granted. In the instant case similarly the relevant period should 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 Srinivasans case 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 instant case and it should be held that the end of the accounting year which fell on October 7, 1943, immediately preceded the date of succession, October 8, 1943. I fear the word 'immediate' cannot be construed in its literal sense for when using this word their Lordships were conscious of the fact that the end of the accounting year which in the case before them was held to be June 30, 1939, did not in fact precede immediately the date of discontinuance or succession which was March 1, 1940. A full period of eight months intervened between June 30, 1939, which was held to be the end of the previous year and March 1, 1940, the date of succession. It is thus clear that in that case the end of the previous year preceded not only the date of succession but also the period in respect of which the assessee was found entitled to exemption. I therefore, think that it is not fair to attribute to their Lordships a construction of section 25(4) which would leave no period at all between the end of the previous year and the date of succession.

In this connection it is necessary to refer to a decision of the Bombay High Court in Ambaram Kalidas v. Commissioner of Income-tax. In this case the assessees family had been taxed under the provisions of the Act of 1918 and on October 17, 1944, its business was taken over by a firm. The assessee climbed that the income earned by the family should be exempt under the provisions of section 25(4) of the Income-tax Act. The claim had been made in the proceedings for the assessment year 1945-46. Chagla took the view that the end of the previous year relevant to 1945-46 was Aso Vad 30th S. Y. 2000 i.e., October 17, 1944, and as the date of succession was the very first date of the assessment year 1946-47 the relief could be claimed only in the assessment year 1946-47. The learned chief Justice observed :

'Here we are dealing with the assessment of the assessee for the assessment year 1945-46, and clearly whatever relief the assessee is entitled to by reason of the fact that there was a succession to his business, that relief cannot be granted to him for the assessment year 1945-46, but it could only be granted to him for the assessment year 1946-47.'

This case does not appear to afford any 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 years 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 years 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 previous year by asking that the income of the broken period should be substituted for the income of the preceding previous year and if the assessment for that preceding previous year has already been made on a higher income, the excess paid should be refunded. This provision clearly indicates that the legislature intended to give relief in respect of one whole years income. If the succession taken place on a date prior to the close of the year the assessee gets the relief in respect of the income up to the date of succession. This period will not be a full period of 12 months but would be a broker period. For instance in the case of an assessee whose accounts are maintained according to the financial year if the succession take place on the 10th of March the period up to that date and commencing after the 31st March preceding the succession would be the period whose income would be exempt from tax. If the succession takes place on the 31st of March the income of the period ending the 30th March, the day immediately preceding the date of succession, and commencing with the 1st of April preceding the succession would be exempt from tax. If instead of succession taking place on the 31st of March it taken place immediately after the 31st March on the 1st of April following, a literal construction of this section would mean that the assessee would get no relief at all and obviously for no valid reasons. The language of these provisions indicates that it was assumed that in every case there would necessarily be a period, between the end of the previous year and the date of succession. For if there be no period at all the provisions of section 25(4) would be evidently inapplicable completely. The assessee will not get any exemption because there would be no broken period and as there would be no such period no question of his claiming any substitute as maintained in the second part of section 25(4) can possibly arise. This interpretation therefore defeats the very object of the statute.

In the light of the above observations I would answer the reference in the affirmative and I propose that the assessee should be awarded costs which may esteemed brother has assessed at Rs. 200.

BY THE COURT. - In view of the difference of opinion between us, the question of law, which has been referred to this court for opinion by the Tribunal, is referred for the opinion of a third judge.

[The matter than came before JAGDISH SAHAI 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 assessees 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 :

'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 October 19, 1942, to October 7, 1943 ?'

According to the statement of the case submitted by the Tribunal to this court the account year of the assessee corresponding to the assessment year began on October 19, 1942, and ended on October 7, 1943, and the partnership firm succeeded to the business on October 8, 1943. On behalf of the assessee it has been contended that on a correct interpretation of section 25(4) of the Act no tax should be chargeable in respect of the period beginning with October 19, 1942, and ending with October 7, 1943. The submission on behalf of the department is that the period for which the assessee could get an exemption of tax was one beginning with the end of October 7, 1943, and ending with that hour on October 8, 1943, at which the partnership succeeded to the business of the Hindu undivided family and that inasmuch as no profits accrued to the partnership firm during that short interval there cannot be any question of an exemption.

Section 25(4) of the Act reads as follows :

'25. (4) 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 persons 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 persons 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 claim 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 amount payable on the basis of such assessment, a refund shall be given of the difference :

Provided that sub-sections (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 year an adjustment used to be made on the basis of the income of the assessment year. The 1922 Act brought about a change and section 3 in it was so worded as to make the income of the previous year the subject of the charge and tax in the assessment year. Even after the passing of the Act of 1922 for one year the Previous system of assessment was kept alive with the result that for the year 1922-23 there were two assessments, one under the Act of 1922 on the income of 1921-22 and the other under the old system by way of assessment on the income of the same year 1921-22. To remover the hardship of the same income being subject to taxation twice the Act of 1922 introduced section 25 (3) in the Act but under the provisions of that clause relief could be given only in case of discontinuance of a business. There was no provision to grant relief in cases of succession to a business and it was in 1939 that sub-section (4) of section 25 was added to the statute book, and section 26 (2) of the Act was also amended.

Section 25(4) is a substantive provision under which any person whose business is succeeded to by another persons is entitled to the following two benefits, namely (1) that he would not be required to pay tax in respect of the income, profits and gains of the period between the end of the previous year and the date of succession and (2) that in respect of the assessment for the period mentioned above he can have the income of the previous year treated as the income of the period, and if tax has already been paid in respect of the previous year and the same is in excess of what is assessed for the period, the same shall be refunded to him.

It is common ground that the assessee was carrying on business at the commencement of the Indian Income-tax (Amendment) Act, 1939, and the profits of the business were at one time charged under the provisions of the Indian Income-tax Act, 1918. It is also admitted that the partnership firm had succeeded to the business of the Hindu undivided family and it was not a case of a mere change in the constitution of the partnership. It is also not disputed that the assessee (Hindu undivided family) will not be liable to pay the tax for the period between the end of the previous year and the date of such succession. Therefore the only question that remains to be decided is as to when that period began and ended. It has been 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 the 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 contemplated by the section is one of which no part projects into the date of succession, in this case the 8th of October, 1943. In the present case there is no difficulty about the date of succession, be being the admitted case of the parties as also found in the statement of the case submitted by the Tribunal that the date of succession was October 8, 1943. The difficulty is with regard to the date on which the 'previous year' began and ended.

In the case of Commissioner of Income-tax v. Srinivasan their Lordships of the Supreme Court were concerned with deciding as to what does the expression 'end of the previous year' occurring in sub-section (3) and (4) of section 25 of the Act mean. In that case what had happened was that the two brothers K. Srinivasan and K. Gopalan were carrying on in partnership the business of The Hindu, a daily news paper of Madras. The profits of this business had been charged to income-tax in the hands of these brothers under the Indian Income-tax Act of 1918. The firms year of account was a period of 12 months ending with the 30th of June each year. In respect of the profits of the year of account ending with June 30, 1938, assessment was made in the year 1939-40 and the firm was charged to income-tax for that year. On March 1, 1940, the respondents transferred their business as a going concern to a private limited company called Kasturi and Co. Ltd. The Gopalan, for exemption for the entire period beginning with July 1, 1938, and ending on February 29, 1940. The brothers took the matter up of before the Income-tax Tribunal who accepted their contention and gave an exemption to them for the entire period beginning from July 1, 1938, and ending on February 29, 1940, i.e., in all 20 months. At the instance of the Commissioner of Income-tax, the Tribunal referred a question of law to the Madras High Court which was herd by Satyanarayana Rao and Vishwanath Sastri JJ. There was a difference of opinion between the judges, but under the rules of the court the views of Satyanarayana Rao, who was the senior judge prevailed. In that case Satyanarayana Rao held that the words 'previous year' in sub-section (1) of section 25 referred to the year of account relevant to the year of assessment in which the discontinuance occurred, the section authorises the Income-tax Officer to make cumulative assessment in respect of the profits of the period between the end of the last accounting year of which the profits had been assessed 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 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 :

'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 sub-sections (3) and (4) of section 25 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, (in this case June 30, 1939).... The profits of the year of discontinuance could not, according to the scheme of the Act, be taxed till the financial year 1941-42 and the previous year co-related to that assessment year would be the accounting year ending June 30, 1940. It is obvious that the end of the accounting year falling after the date of discontinuance could not oppositely be said to be the end of the previous year preceding that date. The expression previous year substantially means an accounting year comprised of a full period of twelve months and usually corresponding to a financial year preceding the financial year of assessment. It also means an accounting year comprised of a full period of twelve months adopted by the assessee for maintaining his accounts but different from the financial year and preceding a financial year. For purposes of the charging sections of the Act unless otherwise provided for it is co-related to the year of assessment immediately following it, but it is not necessarily wedded to an assessment year in all cases and it cannot be said that the expression previous year has no meaning unless it is used in relation to a financial year. In a certain context it may well mean a completed accounting year immediately preceding the happening of contingency. The construction we have placed on this 'expression in sub-sections (3) and (4) of section 25 is in accord with the substance of the definition given in section 2 (11) of the Act. Any other construction of the section is bound to lead to a number of anomalies, the most glaring being that in case of persons whose year of account is the financial year, exemption from tax under section 25 (3) or (4) could never be given for a period of more than twelve months, while in case of persons who adopt different accounting year, exemption would become available for a period extending up to 24 months. Such would never have been the intention of the farmers of the Act.

That the previous year in the context of section 25 (3) and (4) means a completed accounting year immediately preceding the discontinuance or succession is borne out by the provisions as regards 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 would be to say that the period between 7th and 8th of October, 1943, was the period for which the assessee would be entitled to an exemption. The second way of looking at it would be that inasmuch as there was no period intervening the assessee would not be entitled to any exemption. In either case the result for the assessee would be the same because admittedly he made no income between the 7th and 8th of October, 1943, or between the end of the previous year and the date of succession. It is true that in the view that I am taking the assessee would stand to be treated worse than those whose business was succeeded to not at the very commencement of the new year but on a date some time after that. One can clearly see some anomaly in the result but it is not possible to construe the provisions of a section by perverting its meaning only in order to avoid certain anomalies which are inevitable depending upon the particular day in the year in which the succession takes place. It had been contended that the provisions of sub-section (4) of section 25 of the Act are of a remedial nature and were introduced in the Act with a view to give relief against double taxation to persons who were assessed to tax under the 1918 Act. It has been contended that the object with which the provisions of section 25(4) were introduced would be defeated in case an interpretation of that provision is made which may result in the assessee not getting any relief. Reliance was placed upon the case of Commissioner of Income-tax v. Teja Singh for this proposition. It was also contended that a provision should be so interpreted as to avoid injustice and in this connection learned counsel cited the case of Tirath Singh v. Bachittar Singh These principles are unexceptionable but are subordinate to the main and fundamental principle of interpretation of status that the plain and simple meanings of a provision must be given effect to and if the meanings are clear then external aids for interpretation of statutes cannot be sought. In my judgment there is no good ground to hold that it is the duty of the court to find out a period, even though none may be existing, in order to give relief to a taxpayer. The Bombay High Court in the case of Ambaram Kalidas v. Commissioner of Income-tax took a similar view. My brother Bhargava following that decision has taken the same view. I am unable to accept the submission that if sub-section (4) of section 25(4) 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 that period and obtained relief under the second part of section 25(4).

For the reasons mentioned above, in my opinion, the reference should be answered in the negative but it appears to be just and proper that the parties should bear their own costs. The fee of the learned counsel for the department should be fixed at Rs. 200.

[The matter again came before Bhargava and Upadhya JJ. who made the following order on April 3, 1961.]

BY THE COURT. - In this case there was a difference of opinion between us when this case was first heard by us. The question of law referred by the Tribunal to this court for opinion was therefore referred to a third Judge. Now in accordance with the opinion of the third judge who has agreed with one of us, which thus constitutes the majority opinion, we answer the question referred to us in the negative. We have also heard learned counsel for the parties further on the question as to what should be our order for costs in view of the circumstances in which this question is being answered in favour of the department.

After hearing learned counsel, we are inclined to the view that in the circumstances of this case it would be fair to let parties bear their own costs of the reference and we direct accordingly. The fee of learned counsel for the department is fixed at Rs. 300, in view of the fact that the learned counsel had to appear before a third Judge to whom the question of law had been referred in addition to the hearing which were had before us when we were of the view that the amount of fee should only be Rs. 200.

Question answered in the negative.


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