1. In pursuance of the direction of this Court under Section 66 (2) of the Income-tax Act, the Income-tax Appellate Tribunal referred the following question of law to this Court : "Whether when a Hindu undivided family on a partition is succeeded to by one or more of its members in respect of the family's share in the business of a foreign firm and the family was assessed in respect of that share under the Act of 1918, the firm not having been assessed, is the family entitled to relief under Section 25 (4) of the Income-tax Act as amended by the Amendment Act of 1939".
The facts are not in dispute. The assesses was an undivided Hindu family and as a partner carried on a money lending business at Muar in the Federated Malay States. The profits of the money lending business received by the joint family in British India were assessed to income-tax under the Act of 1918 and subsequently. There was a partition in the family and at that partition, the share of the family in the said business at Muar was allotted to two of the. members of the family. It was claimed that as a result of the partition and the allotment of the share of the business to two of the members of the family there was a succession within the meaning of Section 25 (4) of the Income-tax Act to the share of the profits and that therefore the Hindu undivided family was entitled to relief under Section 25 (4). The Tribunal accepted, the contention of the asses-see and granted relief under Section 25 (4). The short question is whether the Tribunal was right in applying Section 25 (4) to the facts of the case.
2. That the partition brought about succession to the business within the meaning of Sub-clause (4) of S- 25 is now common ground and it is not open to us to canvass the soundness of that view, as that question is not. before us. One of the requirements, therefore, of Section 25 (4) is undoubtedly satisfied on the facts of the case. The only point on which there is controversy is whether the assessee is a person who, at the commencement of the Indian Income-tax (Amendment) Act, VII of, 1939, carried on any. business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918. The question referred to us makes it clear that the foreign firm at Muar which carried on money lending business and in which the joint family was a partner was not assessed to income-tax, The share in the profits of the joint family which were received in British India were alone subject to the charge and not the business. The Income-tax Act of 1918 applied as provided by Section 3 to the income of an assessee from whatever source it is derived if it accrued or arose or was received in British India. The definition of assessee in Section 2 (2) of that Act included a firm and the firm as such was treated as a unit for assessment of its business pro- vided its income accrued or arose in British India. A foreign firm could not be assessed in respect of its business to any extent under that Act. Section 5 of the Act of 1918 which defined the classes of income chargeable to income-tax an-alogous to the present section 6 included among the classes income derived from the business and also income derived from other sources. Section 9 of the same Act enumerated the permissible allowances in computing the profits of the business under the head "income derived from business". These deductions could not apply to a foreign business and the income of such foreign business could not be brought and could no.t be charged to income-tax to any extent under the Act of 1918. The only extent to which the profits or gains of such business could be assessed to tax was only if the profits were received in British India. Section 4 of the present Act, of course, altered the position to a large extent. Even under the Act of 1918 it was held that there could be no second receipt of the profits in British India when once the profits were received jn the foreign territory from the foreign business and the assessment to tax of such profits received in British India was not justified under the provisions of the Act. See 'Sundardas v. Collector of Gujarat', 1 I T C 189 (Lah); and 'Secretary, Board of Revenue (Income-tax) Madras v. Ripon Press Sugar Mills Co., Ltd:', 1 I T C 202 (Mad).
3. The relief under Sub-clause 4 is permissible only if the tax on the business was charged under the provisions of the Indian Income-tax Act, 1918. If the foreign business at Muar was not atid could not have been charged under the Act and the share in the profits of the family from that foreign business was charged under Section 3 only on the receipt in British India, can it be said that the charge so made was a charge of a tax on the foreign business. The income received by the joint family could not have been charged under the head "income derived from business" but only as a receipt under Section 3. The argument, however, on behalf of the assessee by his learned advocate, Mr. Rajah lyer was that the words "on which tax was at any time charged" should be construed as meaning "with reference to which" tax was at any time charged. In other words, the contention is that the income derived by the asses-see was in relation to a business and therefore the assessment of the income must be treated as an assessment of the business. No doubt, under the provisions of the Income-tax Act, the tax is payable by an assessee but the assessment of the tax is on the basis of various heads of income derived by the assessee one of which is business. It cannot, therefore, be said that because tax was payable by the assessee on the profits received from a business in a foreign territory such assessment is an assessment of the business. The meaning of the words "on which" is clear and it will be impossible to interpret those words as meaning "with reference to which". The tax clearly should be charged on the business as such under the Act of 1918 to claim and. avail the benefit under Sub-section 4 to Section 25.
4. The Appellate Tribunal which accepted the contention of the assessee proceeded on the basis that the assessment of the appellant's share of the income from the foreign business tantamounts to. assessment of the business itself. The Tribunal observed as follows : "This position would be quite dear if it is only remembered that what the appellant was assessed was his share of income of the foreign firm, as if it is a business carried on by him. The firm itself being a foreign one, was not assessable as being 'non-resident' and what was determined as liable to income-tax was the appellant's share in the income of the foreign firm and which share was always ascertainable definitely in this foreign business and which was transferred to another and therefore succeeded to by that other person. It should be obvious that the appellant has been assessed in the past in respect of the business carried on by him and that the ownership of that business has passed to another by succession within the meaning of the Income-tax Act and as such he is entitled to claim by virtue of Section 25 (4) that the business carried on by him of which he was the owner on the 1st April 1939 has been discontinued by him because of the disruption and in the ownership of the business another person has succeeded to the family. The requirements of Section 25 (4) are fully met and he is entitled to this relief". This argument in my opinion proceeds on an erroneous assumption that the profits when received by the assessee in British India were assessed as if it was a business carried on by him. This is obviously wrong as under the Act of 1918, the business as such, which is carried on in a foreign territory could not be assessed to income-tax and the profits could be assessed under Section 3 only as a receipt of income in British India. Of course, if the assessee succeeded in establishing that in fact, though wrongly such profits were taxed on the basis of a business carried on by the assessee though in foreign territory, the fact of such assessment might possibly enable the assessee to claim the benefit of Section 25 (4). But of this there is no proof. It is possible to interpret Section 25 (4) as meaning that if in fact there was an assessment of the business carried on in a foreign territory, though legally, such assessment was not permissible, the requirement of the section is satisfied and it would not be now open to us to question the legality of such assessment made under the provisions of the Act of 1918. It is unnecessary, however, to express any final opinion on this aspect though the language of Section 25 (4) "on which tax was at any time charg-ed", seems to indicate that such argument is possible. I am therefore of opinion that the view taken by the Appellate Tribunal is wrong and the question referred to us must be answered in favour of the Commissioner of Income-tax and against the assessee. The Commissioner is entitled to his costs which we fix at Rs.
Raghava Rao, J.
5. I agree.
6. Mr. Rajah Iyer is in my-opinion perfectly right in his contention that this joint family must be taken to have carried on a business, none the less because it carried it on in copartnership with strangers. On the bare language of the relevant enactment let it be assumed too that it is immaterial that the business is a foreign business in which this family had only a right to a share of the profits. The trouble in the way of learned counsel, however, is that in order to succeed he has still to show- and that he has failed to do-that on the business ss such tax was at one time or another charged under the provisions of the Indian Income-tax Act, 1918. It may be a question whether the word under here means only "in purported accordance with" or something more, viz., 'in actual accordance with". It may therefore be a question whether the assessment of the foreign business in British India, if a fact, however wrongful, brings into operation Section 25 (iv) of the Act. That question however does not arise here. What arises is this: Where all that we know is that rightly or 'wrongly it is only the share of the profits of the foreign business received by this Joint family in British India that was actually taxed, although under the head of "income derived from business" within Section 5 of the Act of 1918 and as if business within that section included foreign business, can it be said that on the business as such tax was charged under that Act as required by Section 25 (iv)? The answer must on first thought be No.
7. Mr. Rajah Iyer submits in order to get over this difficulty that "on which" in Section 25 (iv) must be read as meaning "with reference to which". I have carefully considered the submission but must repel it. It involves a rewriting of the statute, however trivial the re-writing may seem. True, the rule of literal construction should not be adhered to, where the context of the word or phrase to be interpreted renders it plain that such a construction is inappropriate (Vide Halsbury's Laws of England II Edn. Vol 31 page 481, Article 597). But is that the position here? I can only say that it has not been shown how it is. All that can be urged is that otherwise the joint family asses- see would stand denied the benefit of relief against double taxation for one year which the replacement of the Act of 1918 with its basis of taxation as the income of the current year, by the Act of 1922 with its basis if taxation for the assessment year as the income of the immediately preceding year, the accounting year, necessarily involved. A beneficial enactment must no doubt as is sometimes said be liberally interpreted; but as I had occasion to remark in my judgment in A. S. No. 138 of 1948 this rule of liberal interpretation of such an enactment, does not sanction a construction founded upon the equity of the statute, as it is Sometimes called, in disregard of the actual language employed therein. The "golden" rule : of literal construction-as Lord Wesleydal described it in the House of Lords in an early English case, 'Grey v. Pearson', (1857) 6 HLC 61 at p. 106 affords in my judgment the safest 'course to adopt, on the whole, in this rather difficult case; and applying that rule I would concur with my learned brother in answering the . reference against the assessee.