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Commissioner of Income-tax Vs. Proprietors of The Hindu - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberCase Referred No. 68 of 1946
Judge
Reported inAIR1950Mad671; [1950]18ITR237(Mad)
ActsIncome Tax Act, 1918; ;Income Tax Act, 1922 - Sections 1, 2(11), 22(2), 25, 25(3) and 25(4); Companies Act, 1913
AppellantCommissioner of Income-tax
RespondentProprietors of "The Hindu"
Appellant AdvocateC.S. Rama Rao Sahib, Adv.
Respondent AdvocateAlladi Krishnaswami Aiyar ; and M. Subbaraya Aiyar, Advs.
Cases ReferredSee Meyyappa Chettiar v. Commissioner of Income
Excerpt:
direct taxation - interpretation - section 25 (4) of income tax act, 1961 - business of assessee succeeded into private company - assessee claimed exemption under section 25 (4) - dispute regarding interpretation of word 'previous year' in section 25 (4) - 'previous year' means previous year to assessment year in which company was succeeded into private company - claim of assessee justified. - - ' the expression 'that year' clearly means the year in which the business was discontinued. 'previous year' referred to in this sub-clause, therefore, clearly refers to the previous year of the year of assessment in which the discontinuance had occurred and not the year in which the income of that year is to be assessed, namely, 1940-41. 10. sub-clause (3) of section 25 contains an exception.....satyanarayana rao, j.1. this reference raises a question of the correct interpretation of the expression 'the period between the end of the previous year and the date of such succession' occurring in section 25(4), income-tax act. the question formulated by the appellate tribunal and referred to us under section 66(1) of the act is in these terms ;'whether on the facts of this case the appellate tribunal was right in holding that the period the profits of which were entitled to exemption from the payment of the tax under section 25 (4), income-tax act, 1939, was the period commencing from 1st july 1938, and coding with 29th february 1940,' in short, the dispute is whether the 'previous year' referred to in the sub-section should be taken as the year ending on 30th june 1938, or 30th june.....
Judgment:

Satyanarayana Rao, J.

1. This reference raises a question of the correct interpretation of the expression 'the period between the end of the previous year and the date of such succession' occurring in Section 25(4), Income-tax Act. The question formulated by the Appellate Tribunal and referred to us under Section 66(1) of the Act is in these terms ;

'Whether on the facts of this case the Appellate Tribunal was right in holding that the period the profits of which were entitled to exemption from the payment of the tax under Section 25 (4), Income-tax Act, 1939, was the period commencing from 1st July 1938, and coding with 29th February 1940,'

In short, the dispute is whether the 'previous year' referred to in the Sub-section should be taken as the year ending on 30th June 1938, or 30th June 1939. The assessee contends that it is the former, while the Income-tax Commissioner maintains that it is the latter. There is no decided case on the point and the question has to be settled by an interpretation of the relevant provisions of the Act.

2. The relevant facts are not in controversy and lie in a short compass The assessee is the registered firm of Messrs. K. Srinivasan and K. Gopalan, Proprietors of 'The Hindu' a daily newspaper at Madras. They were last assessed to tax in the year 1939-40 in respect of the profits of the ''previous year', the accounting year from 1st July 1937 to 30th June 1938. On 1st March 1940 i. e., during the assessment year 1939-40, the assessee made over the newspaper business as a going concern to a private limited company incorporated under the Indian Companies Act, 1913, and styled Messrs. Kasturi and Sons, Ltd. The company succeeded to the business of the Fem on 1st March 1940.

3. When required by notice under Section 22 (2), Income-tax Act, to submit a return of its income for the assessment year 1940-41 the assessee claimed that the firm was not liable to pay any tax on the income of the business of 'the Hindu' during the period between 1st July 1938 to 29th February 1940, under Section 25 (4), Income-tax Act, as the income of the raid business was charged to income-tax under the provisions of the Indian income-tax Act, 1918. The Income-tax Officer and the Appellate Assistant Commissioner were of opinion that the exemption claimed under Section 25 (4) of the Act applied only to the income of the period between 1st July 1939 to 29th February 1940, i. e., for a period of 8 months and not far 20 months, as claimed by the assessee and that the assessee was liable to pay tax on the income of 8 months for the accounting year 1938-39 under the latter part of Section 25 (4). This view, however, did not find favour with the Appellate Tribunal and the claim of the assessee was allowed in full for the entire period of 20 months. At the instance of the Income-tax Commissioner the question above set forth was referred to this Court under Section66 (1), Income-tax Act.

4. The Income-tax Officer and the Appellate Assistant Commissioner held that the words 'previous year' occurring in Section 25 (4) of the Act, have reference to the 'previous year' of the assessment year 1940-41 and the definition of the previous year in Section 2 (11) of the Act was applied. Under the said definition 'previous year' means 12 months ending on 31st March next preceding the year for which the assessment is to be made, unless any other terminal date was adopted by the assessee in which case the year ending on such date should be taken as the 'previous year'. In the present case the assessee's accounts were made up to 30th June each year and so the year ending with that date should be taken as the 'previous year', since the assessment under consideration pertains to the year 1940-41. The 'previous year' with reference to that year is the period of 12 months in the case of this assessee ending with 30th June 1939. The period, therefore, contemplated by Section 25 (4) of the Act is the interval between 1st July 1939 and the date of succession on 29th February 1940. This is the basis of the reasoning of the Income-tax Officer and the Appellate Assistant Commissioner on which their conclusion was based. The question is whether this interpretation of 'previous yeas' is correct.

5. This is a case in which a person carrying on business has been succeeded in such capacity by another person and, therefore, under Sub-Section (2) of Section 26 of the Act, the predecessor and the successor are, subject to the provisions of Sub-section (4) of Section 25, liable to be assessed in respect of his actual share of the income of the ''previous year.'

6 Normally speaking, income-tax is assessable on the income of a period of 12 months. Under the Indian Income-tax Act, 1918, the basis of assessment wag the income of the year of assessment and since that income could not be definitely known till the expiry of the year, the assessment was made on the basis of the income of the 'previous year' and after the termination of the year when the actual income was known and ascertained, a final assessment was made on the actual figures and thereafter the consequential adjustments were made in the tax collected from the assesses, This system was altered by the Act of 1922. The final assessment is made under the Act on the income of a fixed period called the 'previous year', which is normally a period of 12 months ending on 31st March The year of assessment is usually called the 'assessment year', and generally corresponds to the 'financial year'. During the transition period 1922-23 there were two assessments one under the new system based on the income of the previous year 1921-22 and another under the old Act on the adjustment system for the self-same income of the year 1921-22. To mitigate to a limited extent the hardship of this double taxation, Section 25 was enacted to give relief in cases in which a business assessed under the Act of 1918 was discontinued, or there was succession to such business after 1939 and also to accelerate assessment and levy income-tax when a business, profession or vocation is discontinued.

7. Sub-Section (1) of Section 25provides for cumulative assessment in case of discontinuance of a business, profession or vocation. It enables the Income-tax authorities to add to the income of the 'previous year' the income of the period between the end of the 'previous year' and the date of discontinuance. Sub-clause (3) of the section engrafts an exception in the case of business, profession or vocation, which was assessed to tax under the provisions of the Income-tax Act, 1918. Before 1939 Courts in India interpreted the word 'discontinued' in the section as not including 'succession'. The Amending Act of 1939 introduced Sub-section (4) of Section 25 to extend the relief under Sub-section (3) to the case of 'succession'. It is a remedial clause intended to make up the lacuna in Sub-clause (3) of Section 25. Even after the introduction of Clause (4) in Section 25 there was a difference of opinion between Bombay and Madras High Courts on the interpretation of the word 'discontinued', but the conflict was set at rest by the Privy Council in Polson's case, , which up-held the view of the Madras High Court that succession is not included in the word 'discontinued'. The provision in Section 25 (4), it may be mentioned, applies only to succession, which takes place after the Amending Act of 1939 came into force.

8. Bearing the scheme underlying Section 25 in mind, the provisions of the section may now be examined to interpret the expression 'previous year' occurring in Section 25 (4) of the Act. The definition of 'previous year' in Section 2 (11) applies only if there is nothing repugnant in the subject or context. This is also an accepted canon of construction of statutes. (Vide Craies on Statute Law, p. 97 (4th Edn.) and Beal's Cardinal Rules of Legal Interpretation (3rd Edn.), pp. 340 and 341.)

9. The words 'previous year' in Section 25 (1) refer to the previous year of assessment in which the discontinuance occurs. This is made clear beyond dispute by the language of the clause. It states; '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 assessment, if any, made on the basis of the income, profits or gains of the previous year.' The expression 'that year' clearly means the year in which the business was discontinued. Under this clause the income-tax authorities are empowered to add to the income of the previous year the income of the period between the end of the previous year and the date of such discontinuance and assess the total income. In other words, the normal rule of assessing for a period of 12 months is departed from and a cumulative assessment is authorised by the Sub-clause of this section. In order to elucidate the meaning of this Sub-clause of this an illustration may be given, taking the dates of the present case into consideration. If, instead of 'succession' to the business, there was 'discontinuance' of the business on 29th February 1940, the assessment year will be the year 1939-40 and the 'previous year' with reference to it is the year ending with 30th June 1938 The Income tax authorities would be entitled in making the assessment to add to the income of the period ending with 30th June 1938, the income from 1st July 1938, i. e., the date of the end of the previous year to 29th February 1940, the date of discontinuance and assessing on the total income. 'Previous year' referred to in this Sub-clause, therefore, clearly refers to the previous year of the year of assessment in which the discontinuance had occurred and not the year in which the income of that year is to be assessed, namely, 1940-41.

10. Sub-clause (3) of Section 25 contains an exception to the general rule in Section 25 (1). In this clause also the period is referred to as the period between the end of the previous year and the date of such discontinuance. No doubt, there is no language corresponding to the language in Section 25 (1) indicating that in this Sub-clause also the assessment year should be taken to be the year in which the discontinuance occurs. But, all the same, as this is an exception to the general rule, there is no reason to depart and to place a different interpretation on the expression 'previous year' in this Sub-clause. The period contemplated in this Sub-clause must necessarily have reference to a similar period contemplated in Sub-section (1) and the 'previous year' in this Sub-clause must also be interpreted in the same manner as in Sub-clause (1), i. e , as the previous year to the assessment year in which the discontinuance had occurred. On similar grounds the expression 'previous year' in Sub-section (4) must receive the same interpretation. As Sub-section (4) was intended merely to extend the benefit of Sub-clause (3) to the case of succession to a business and to till up a lacuna in the Act, which was noticed by the decisions before that year, the Legislature could not have contemplated one period under Sub-clause (3) and a shorter and a different period under Sub-section (4). The period contemplated, in my opinion, in the three Sub-clauses (1), (3) and (4), must be the same and the expression 'previous year' in the three clauses must receive a uniform construction. The normal rule of assessing the income of one year has no application to Sub-clauses (1), (3) and (4) of Section 25, as these Sub-clauses are intended to make a final settlement between the assessee and the Grown in cases where the business is either discontinued, or there is a succession, to a business and it is for that reason a special period is provided in the three Sub-clauses. On a consideration, therefore, of the scheme underlying the section and the object of enacting Sub-section (4), I am inclined to hold that the 'previous year' in Sub-clause (4) is the 'previous year' of the assessment year in which the succession had occurred, and, in the present case, it is the year ending on 30th June 1938.

11. It is not disputed that this was the view which obtained in the department, as is evidenced by the Income-tax Manual in force in the previous years, though the Manual was subsequently altered. I do not for a moment say that if the department wrongly interpreted the section in the first instance, it was not open to them to correct it later, but it is merely an in dicationas to how it was understood at the time the section was enacted. Reference was made by the Appellate Tribunal to the views of the Select Committee when Clause (1) of Section 25 was considered at the time of the draft Bill No. XXVI of 1921 in support of its conclusion. But, as it is not a permissible consideration in interpreting the statute, I abstain from adverting to it. The Appellate Tribunal relied also on the other provisions of the Act to establish that tb.fr definition of 'the previous year' in Section2 (11) was not adopted in those sections. The definition, in Section 2 (11) does not apply if there is anything repugnant in the subject or context, and in the sections relied on by the Appellate Tribunal, there is a clear repugnance in the context and the definition, therefore, has no application. That would not, however, justify an interpretation of Section 25 of the Act, if in the language of the section, or in the context, or in the subject-matter there is nothing to indicate a contrary intention. Indeed, it is unnecessary to refer and invoke a contrary intention in this case, as in. Sub-clause (1) of Section 25 all that is needed to be determined is the assessment year and when this is done, the previous year in respect of that assessment year has naturally to be determined by a reference to the definition.

12. For these reasons I am of opinion that the conclusion of the Appellate Tribunal in this case is correct, though not entirely for the reasons given by them and that the question referred to this Court must be answered in the affirmative and in favour of the assessee. The assessee is entitled to his costs, which I fix at Rs. 250.

13. Viswanatha Sastri J.--The question that has been referred to us is in these terms:

' Whether on the facts of this case the Appellate Tribunal was right in holding that the period the profits of which were entitled to exemption from payment of the tax under Section 25 (4), Income tax Act, 1939, was the period commencing from 1st July 1938 and ending with 29th February 1940 ?'

14. The facts relevant to this reference are these: The respondents are brothers who carried on in partnership the business of conducting, and publishing ' The Hindu ', the well known daily newspaper of Madras. The business had been in existence for many years and its profits had been charged to income-tax in the hands of the respondents under the Income-tax Act of 1918. The firm's 'previous year', that is to say, its year of account, was a period of 12 months ending with 30th June each year In respect of the profits of the year of account ending with 30th June 1938, the firm had been charged to income-tax for the assessment year 1939-40. On 1st March 1948, a private limited company under the name and style of 'Kasturi & Sons Ltd.' formed by the partners, succeeded to the business as owners the patnersnip having ceases to exist on that date. From 1st March 1940, the same business has been carried on by the private limited company and its income has been assessed in the hands of the company. For the assessment year 1940-41 the Income tax Officer charged to income-tax the profits of the firm earned during the previous year ending with 30th June 1939. He decided that the profits from 30th June 1939 to 1st March 1940, were exempt from tax and he also treated, as required by the assessee, the profits of the period from 30th June 1939 to 1st March 1940 as the profits of the previous year ending with 30th June 1939, on which, he 'held, that tax was payable. The Income-tax Officer purported to apply the provisions of Section 25 (4) of the Act to the case and levied the assessment which was confirmed on appeal by the Appellate Assistant Commissioner. The Appellate Tribunal, however, accepted the contention of the respondents and held that on a proper construction of Section 25 (4) of the Act, tax was not payable by the firm in respect of the profits and gains of the business earned during the whole of the period commencing from 1st July 1938, and ending with 29th February 1940. The correctness of the interpretation of Section 25 (4) of the Act by the Appellate Tribunal is now assailed by the revenue authority.

15. Since I am disagreeing with the rule of interpretation adopted and the conclusion reached by a Full Bench of the Appellate Tribunal and also from the opinion of my learned brother, it is necessary that I should state my reasons in extenso. In view of the wide and liberal interpretation adopted by the Tribunal and also urged before us by the learned counsel for the assessee in connection with the construction of Section 25 (4), it is necessary to state what I consider to be the proper rule of construction applicable to the case. Word's used in the sections of the Income, tax Act are presumed to have been used correctly and exactly, in the sense in which those words have been defined in the Act and it is for those, who assert that that is not the case, to show by something in the context or subject-matter that the words have not been used in the sense in which they have been defined but in a loose, inexact or popular sense. In the case of an evenly balanced uncertainty or where one has to choose between two competing constructions, the probability of an equitable, logical and rational purpose underlying the enacted words may turn the scale. It may be that, if the words of Section 25 (4) read by themselves and according to their natural meaning, lead to anomalies or absurd consequences it would be legitimate to examine their statutory context to see whether they ought to be construed as they would be, if read alone. Occasionally Courts have cut down or expanded the language of the legislature, when, on a fair view of the Act, considering its scheme and manifest purpose, they found that tax could not have been imposed on a particular class or persons: Drummond v. Collins 1915 A. C. 1011: 84 L. J. K. B. 1690. But this liberty will not be taken except in a case of absolute necessity: Astor v. Perry, 1935 A. C. 398: 104 L. J. K. B. 423.

16. In order to arrive at & correct interpretation of Section 25 of the Act which has been amended by the legislature in view of the rulings of Courts, it is legitimate to consider its history. Under the Act of 1918 income-tax was levied on the income of the current year i.e., the year of assessment, taking the income of the previous year as a tentative measure. After the actual figures of profits were ascertained at the end of year, adjustments were made in the next year's assessment and the excess tax was refunded or the deficiency collected as the case might be. The Act of 1922 introduced a change in this respect. Under Section 3 of that Act the income of the previous year is actually made the subject of the charge and the tax is levied retrospectively on the income of the previous year. Under the Act of 1922, a final assessment is made once and for all for every year on the income of a fixed period called the 'previous year.' On the passing of the Act of 1922, the previous system of assessment was kept alive for one year by Section 68 of the Act, since repealed. The result was that for the year 1922-23 there were two assessments, one under the Act of 1922 on the income of 1921-22 and another, under the old system by way of adjustment of the income of the same year 1921-22. In other words, the income of the year 1921-22 was assessed twice, once during that year under the Act of 1918 and again retrospectively under the Act of 1922. If a business whose income had been assessed under the Act of 1918 were to close down, say in 1925, and the profits of the year of discontinuance were also to be taxed, the business would have paid tax on its profits for one year more than the number of years it existed. To remove this anomaly and in order to make the number of assessments tally with the number of years during which the business existed, Section 25 (3) of the Act of 1922 was enacted exempting from tax the profits of the period between the end of the previous year and the date of discontinuance in the case of a business whose profits had been assessed to tax under the Act of 1918. The purpose and effect of this Sub-section was to give a rough and ready relief to tax payer who, but for it, would, in the aggregate, be charged with tax once in respect of every year's income and twice in respect of one year's income. To enable the assesses to get the fall benefit of this exemption if his business was discontinued in the course of a year, Section 25 (3) gives him a right to claim that the profits and gains of the previous year should be taken to be the amount of the profits and gains of the period between the end of the previous year and the date of discontinuance and that the profits of the previous year should be taxed on the basis of such substituted profits. This provision would be of benefit to the assessee only if the profits of the period between the end of the previous year and the date of discontinuance were less than the profits of the previous year. If, on the date of the discontinuance the assessment on the income of the previous year had already been paid the assessee on giving notice under Section 25 (5), could claim to have excess tax refunded, if the tax payable on the basis of the substituted profits was less than the tax already assessed and paid on the income of the previous year. There was no provision in Section 25 as originally enacted in 1922 giving any relief in cases of succession to a business, that is to say, where the business merely changed hands. It was well understood, both in England and in India, that the expression 'discontinuance' meant only a total cessation or extinction of the business and did not include the case of discontinuance of the business by the person formerly carrying it on as the result of a transfer or assignment of that business to another person who thereafter carried it on. See Meyyappa Chettiar v. Commissioner of Income tax : AIR1943Mad504 and Commissioner of Income tax v. Polson . With reference to cases of succession to a business it was provided by Section 26 (2) of the Act as originally enacted in 1922, that the successor was liable to be assessed on the income of the previous year as if he had been carrying on the business throughout the previous year. In other words, the relief given by Section 25(3) in cases of discontinuance was not extended to cases of succession. In 1939, the legislature considered it desriable to extend the relief granted in the case of discontinuance, also to cases of succession, and with this object Section 26 (2) was amended and Section 25 (4) was added by the Amending Act of 1939. The result of the amendment of Section 26(2) and the introduction of Section 25 (4) is that upon a transfer of a business, the transferor, i. e., the person succeeded in the business, would get the same relief as if the business had been discontinued by him. Section 26 (2) is directed to the apportionment of the tax while Section 25 (4) defines the extent of the relief given in oases of succession to the person succeeded where the profits of the business had been assessed under the Act of 1918.

17. Section 25(1) applies to a case of discontinuance and not to a case of succession and applies only to a case where the profits of the business had not been charged to tax under the Act of 1918, If a business whose profits had not been charged under the Act of 1918 is discontinued after the Act of 1922 came into force, it is obligatory under Section 25 (2) on the person discontinuing the business to give notice of such discontinuance within 15 days thereof. Section 25 (1) empowers the revenue authority to assess the income of the year of discontinuance in that year itself, which otherwise, would be assessable only in the next assessment year. The power given by Section 25 (1) is discretionary and could be exercised if the revenue authority apprehends or anticipates a loss of revenue by the disappearance or insolvency of the assessee. The revenue authority, however, is not bound to act under Section 25 (1) and might, if it chooses, wait till the next year and assess in the next year the income of the year of discontinuance under the normal procedure. In the case of a business which had not been charged under the Act of 1918 but in respect of which there has been a succession, not a discontinuance, Section 25 (1) would have no application and the assessment of the income of the year of succession would be made in the next year subject to the provisions of Section 26. If a business which had been charged under the Act of 1918 is discontinued, Section 25 (3) exempts the income of the period between the end of the previous year and the date of discontinuance from tax altogether and no assessment can be made of that income. Similarly, in the case of succession to a business charged under the Act of 1918. the income of the person succeeded in the business, for the period between the end of the previous year and the date of succession, is exempt from tax and no assessment can be made of such income in his hands. If, however, in either of these two cases, the assessee wants further relief by way of a substitution of the profits of the broken period of the year of discontinuance or succession in the place of the profits of the next previous year, and a consequent reduction of the tax, he has to give the revenue authority notice under Section 25 (5) of this claim for further relief within the expiry of one year from the date of discontinuance or succession, as the case might be. It is significant that the notice under Section 25 (5) is allowed to be given within one year of the discontinuance or succession in the case of a business whose profits had been charged under the Act of 1918, unlike the notice under Section 25 (2) which is required to be given within 10 days of the discontinuance. The reason obviously is that in cases coming under Section 25 (3), (4) and (5) the income of the broken period between the end of the previous year and the date of discontinuance or succession is not liable to tax at all. Both in cases coming under Section 25 (1) and Section 25 (3) and (4) the income of the previous year would be liable to tax in the normal course of assessment. In cases coming within Section 25 (1) and (2) the profits of the broken period in the year of discontinuance as well as the profits of the previous year, would each be separately liable to be assessed to tax, the profits of the previous year in the normal course in the next year, and the profits of the broken period in the year of discontinuance in that very year by way of an accelerated assessment or in the next year, in the usual course There is nothing in Section 25 of the Act which departs from the normal course of the assessment procedure except in one respect namely, that is the case of a business not charged to tax under the Act of 1918, a discretionary power is given to the revenue authority in the interests of public revenue, to accelerate the assessment of the income, profits and gains of a discontinued business by charging them immediately after the date of discontinuance without waiting for the next assessment year. No further burden is imposed on the tax payer by Section 25 (1); nor has any greater relief been granted to the tax-payer under Section 25 (3) and (4) than what has been stated above.

18. Under Section 3 of the Act, income-tax is levied for each financial year at the rate prescribed by the annual Finance Act on the total income of the previous year of every individual, firm, etc. It is the income of the 'previous year' that is charged in each year of assessment, the previous year being a separate self-contained period of time, in regard to which profits earned or losses sustained before or after, are irrelevant except in those cases, where losses are allowed to be carried forward by statute. Each previous year's income is the subject of a separate assessment in the next year and it is not permissible to consolidate the income of two previous years and assess the composite sum in one year. Though the year of assessment is the financial year, the 'previous year' of an assessee need not necessarily be the previous financial year, for this expression is defined by Section 2, Clause (11), Sub-clause (a) of the Act as meaning the twelve months ending on 31st day of March next preceding the year for which the assessment is to be made, or if the accounts of the assessee have been made up to a date within the said twelve months, in respect of a year ending on any date other than 31st March, then, at the option of the assessee, the year ending on the day to which his accounts have been so made up. It is with reference to a year of assessment that the 'previous year' has to be understood and the definition in Section 2 (11) (a) correlates the 'previous year' to the year of assessment.

19. In the present case, the assessee was duly assessed to tax for the year of assessment which is the financial year 1939-40 on the income of his previous year ending with 30th June 1938. The next assessment year was 1940 41 for which the 'previous year' of the assessee would be the year ending 30th June 1939. The assessee firm was carrying on business and earning profits during this previous year ending 30th June 1939, and would normally be assessable to tax in the assessment year 1940-41 on those profits. The tax on the profits of the previous year is nowhere exempted. The firm was in existence and carrying on business from 30th June 1939 till 1st March 1940, when it ceased to exist and its business was transferred to a limited company. The profits of the year commencing from 30th June 1939 and ending with 1st March 1940 would be assessable to tax in the normal course of things for the assessment year 1941-42 but for the exemption in Section 25 (4). There having been a succession, Section 25 (1) would not apply, but under Section 26 (2), tax in respect of the profits up to the date of succession would have to be paid by firm and the profits subsequent to the date of succession, i. e., from 1st March 1940 till the end of the previous year, i. e., 30th June 1940 would have to be paid by the limited company, the successor in the assessment year 1941-42 The firm having been assessed to tax under the Act of 1918, in order to reduce the number of years during which the firm has been assessed to the number of years during which it has been in existence, as explained earlier in this judgment, Section 25 (4) exempts the firm from tax for the assessment year 1940-41 the profits of the period from 30th June 1939 (the end of the assessee's previous year) to 1st March 1940, the date when the succession took place. The succession having taken place on 1st March 1940, Section 25 (4) gives the assessee firm the further right to have the profits of the broken period from 30th June 1939 to 1st March 1940 substituted for the profits of the next previous year, i. e., the 12 months starting from 1st July 1938, and ending with 30th June 1939 In other words, the profits of the previous year are liable to assessment in the usual course. Only the quantum of the income, profits and gains is liable to reduction. This is what has been allowed by the Income-tax Officer and the appellate Assistant Commissioner and, in my opinion, the appellate Tribunal went wrong in holding that the income for the entire period from 1st July 1938 to 1st March 1940, was exempt from tax by reason of anything in Section 25 (4) of the Act.

20. It is contended by Mr. Alladi Krishnaswami Aiyar on behalf of the assessee firm, that the several Sub-sections of Section 25 should be read as a whole and as part of a schema of taxation; that the expression 'the period between the end of the previous year' and the date of discontinuance or succession must be understood and interpreted as having been used in the same sense throughout the several Sub-sections; that so understood and interpreted, the expression 'the period between the end of the previous year' occurring in Sections 25 (1), (3) and (4) means 'the end of the previous year in respect of the profits of which the assesses has been charged to income-tax' or 'the end of the assessee's year of account which preceded the assessment year in which the discontinuance or succession took place'; and that the statutory definition of 'previous year' in Section 2(11)(a) stands displaced in the context of Section 25 (1), (3) and (4), He further argued that the provisions of Section 25 (3) and (4) were exemptions from the liability imposed by Section 25 (1) of the Act and the scope of the exemptions must be co extensive with the ambit of the charging provisions found in Section 25, Clause (1). Having considered the argument with the respect due to the learned advocate, I am of opinion that it should not prevail.

21. In my view, though clauses (1), (3) and (4) are all found as parts of Section 25, they deal with different situations and must be construed according to the plain meaning of their respective enacted words. Section 25 (1) deals only with a business whose profits had not been assessed to tax under the Act of 1918, while Sections 25 (3) and (4) dealt with a business assessed to such tax. Section 25 (1) has no application to a case of succession while Section 25 (4) deals only with sac-cession to a business. Section 25 (3) is mainly concerned with the business, profession or vocation while Section 25 (4) is concerned with the person running it. Under Section 25 (3) the discontinuance is real and factual while under Section 25 (4) it is notional. Normally speaking, the profits of a business during a year fall to be assessed in the next year under Section 3 of the Act. Section 25 (1), however, gives, as already stated, a discretionary power to the revenue authority to accelerate the assessment and levy the tax on the profits of the period between the end of the previous year and the date of discontinuance even before the next assessment year starts. But the power is optional and the language is permissive. Even if the power is exercised, there is no question of a single or consolidated assessment for the entire period from the end of the last year whose income had been charged and the date of discontinuance, if such period exceeds one accounting year. There must be separate assessments in respect of each of the previous years of account under the normal procedure and in respect of the broken period in the year of discontinuance, there may be an assessment in that year under Section 25 (1), or in the usual course in the next year at the rates appropriate to each of those years. Otherwise there will be a material increase in the tax payable by the assessee having regard to the slab system of taxation. If the assessment for the previous year or years had not been made at the time of discontinuance, then assessments have to be made separately on the profits of the previous year or each of the previous years and the profits of the broken period. The profits of the broken period between the end of the previous year, i. e., the year of account which ended before the date of discontinuance, and the date of discontinuance will have to be separately assessed as the profits of the year of discontinuance though the assessment may be made immediately after the date of discontinuance without waiting for the arrival of the normal assessment year. There is no question of clubbing together the profits of the previous year or years with the profits of the broken period or of a single assessment for the entire period covered by the previous year or years before discontinuance and the period from the end of the previous year to the date of discontinuance. This is made clear by the language of Section 25 (1). The reference to the word 'year' in Section 25 (1) in connexion with discontinuance of business and an accelerated assessment might well be taken to be the 'calendar year', consistently with the definition of the word 'year' in Section 3(59), General Clauses Act. Section 25 (1) mikes a departure from the normal course of assessment and authorises an assessment without waiting for the advent of the normal assessment year in respect of the income of a discontinued business. The words 'previous year' in Section 25 (1) mean 'the year of account preceding the date of discontinuance'. There is no need to read the words as meaning 'the year of account pro-ceding the assessment year in which there was discontinuance' or as meaning 'the previous year the profits of which have been assessed to tax'. The words 'in addition to the assessment, if any, made on the basis of the income, profits or gains of the previous year' in Section 25 (1) would be meaningless unless separate assessments for each of the previous years before the date of discontinuance and the broken period from the end of the last previous year to the date or discontinuance were contemplated. The income of the previous year or years would be assessable under Section 3 subject to the limitation found in Sections 34 and 25 (1) was enacted, not for the purpose of enabling an assessment to be made on a previous year but for enabling an assessment on the income of a period less than a year in that very year in case of a discontinuance.

22. If my interpretation of the words 'previous year' in Section 25 (1) is correct then the construction of Section 25, Sub-sections (3) and (4), does not present any difficulty even though these provisions may be considered as exceptions to Section 25 (1). The provisions of Section 25 (3) and (4) are sue generis and, in any case, they do not contain language corresponding to what is found in Section 25 (1). There is nothing in Section 25 (3) and (1) to show that the assessment year should be taken to be the year in which the discontinuance or succession occurs, even if such an assumption were implicit in Section 25 (1). In fact, Section 25 (3) and (4) exempt from tax the profits of the year of discontinuance or succession. In the present case the year of assessment was 1940-41 for which the 'previous year' would be the year ending 30th June 1939, and the profits of the previous year are not exempted from tax by Section 25 (3) and (4).

23. The object of Section 25 (3) and (4) is, as already stated, to reduce the number of assessment years to the number of years representing the life of a business, profession or vocation and to relieve, in some measure, persons who had been taxed on each year's income and twice on the income of the same years as a result of the change in the system of taxation introduced in 1922; this object is accomplished by exempting the income of the year of discontinuance or succession from liability to tax and by giving the assessee a right to have the profits of the year of discontinuance or succession substituted for the profits of the year of account preceding the date of discontinuance or succession. This is all what Section 25 (3) and (4) provided by way of exemption or relief and nothing further was either contemplated or required by the necessities of the case. Sections 25 (3) and (4) are not charging sections like Section 25 (1) but are provisions intended to give a limited measure of exemption or relief from tax. In my opinion, when Section 25 (4) refers to the 'previous year,' it uses that expression in the sense in which it is defined in Section 2 Clause (11) (a) of the Act with reference to the date of discontinuance or succession and there is nothing either in the object with which Section 25 Clauses (3) and (4) were enacted or in the context of those provisions to convey a different interpretation of the words 'previous year' or to warrant my reading the words 'previous year' as the 'last previous year the profits of which have been assessed to tax' as the Tribunal has done. The Legislature used the expression 'the period from the expiry of the last previous year of which the income has been assessed', in Section 24A and the same expression would have been used in Section 25 (1), (3) and (4) also, if the intention was to enact a provision having the same meaning and effect. The interpretation sought to be put upon Section 25 (3) and (4) by the assessee would lead to anomalous results and give a different measure of relief to persons falling within the same category according as their assessments are delayed or brought up to date. If, for instance, the business profits of a person who had been assessed to tax under the Act of 1918 bad not been assessed for two years prior to the date of discontinuance or succession, and the assessee thereafter discontinues the business or transfers it to another he would be exempt from tax for all the three assessment years including the year of discontinuance or succession if the contention of the learned counsel for the assessee were to be accepted. If, however, the assessments had been brought up to date, the assesses would be entitled to exemption from tax only in respect of the profits of the broken period between the end of the previous year and the date of discontinuance or succession. This is a consequence which unless driven to hold otherwise, one should avoid. We were reminded by learned counsel for the assessee that logic and income tax were strangers and the construction of Section 25 of the Act should not be influenced by considerations of logic or equity. It is unnecessary to enter this debatable ground as I find that Section 25(4) properly construed, admits of a logical and just interpretation in the manner above indicated.

24. I refrain from considering the proceedings of the Legislature and the report of the Select Committee when the Amending Act of 1939 was passed though reference was made to them, as, in my opinion, such reference is impermissible. Nor does the practice of the revenue authority -- even if it were uniform which, in this instance, it has not been--have a controlling effect upon Courts in interpreting the provisions of a taxing provision.

25. Having regard, therefore, (1) to the object of the Legislature in enacting Section 25 (3) and (4), namely, the exemption from taxation of business profits for one year more than the life of the business, which was the consequence of the change in the basis of taxation introduced by the Act of 1922; (2) to the plain language of Section 25 (3) and (4); (3) to the definition of ''previous year' in Section 2 (11) (a) of the Act which is correlated to a year of assessment, which in this case, was 1940-41 and which cannot be read as any past year for which the tax-payer had been charged; (4) to the absence of any compelling context or anything repugnant in the subject dealt with by Section 25 which would entitle the Court to read the words 'previous year' in a sense other than that in which it is defined in that Act; (5) to the heavy and needless strain imposed on the language of Section 25 (4) by reading the words 'end of the previous year' as if they ran 'end of the last year whose profits have been assessed to tax,' or 'the end of the year of account pre-ceding the assessment year in which there has been a succession;' and (6) to the anomalous and arbitrary consequences resulting from an acceptance of the construction contended for by the assessee in the imposition of different burdens and the grant of different standards of relief for tax-payers occupying the same position and falling within the same category I am unable, with respect, to accept the contention of the assessee's learned advocate. I would, therefore, answer the question referred to us in the negative and against the assesses.

26. As my learned brother holds a contrary opinion, his judgment which agrees with the view of the Appellate Tribunal and his direction for costs would prevail under Section 66A, Income-tax Act.


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