K.L. ROY J. - This reference, under the Wealth-tax Act, raises a short but by no means an easy point of law to be answered by this court. The assessee is a limited company and up to the assessment year 1956-57, it was assessed to income-tax in respect of his previous year ending with the 31st March of each such year. Consequent on the assessee-company becoming a subsidiary to another company of Bombay, whose financial year was different from that of the assessee, the assessee-company applied to the Income-tax Officer for permission to change the date of the closing of their accounts from 31st March, 1957, to the 30th June, 1957. By his order dated 17th April, 1964, the Income-tax Officer accepted the assessees request on condition that the assessee was assessed for the assessment year 1958-59 in respect of its income, profits and gains for the fifteen months from the 1st April, 1956, to the 30th June, 1957. As the assessee accepted the condition, the income-tax assessment for 1958-59 was made in respect of the aforesaid period of fifteen months.
In response to the notice under section 14(2) of the Wealth-tax Act for the assessment year 1957-58, the assessee contended that, as it had no previous year for the assessment year 1957-58, there was no 'valuation date' for that year and no wealth-tax assessment could be made on the assessee for that year. The Income-tax Officer while rejecting this contention observed :
'The usual previous year prior to the change sought by the company was the year ended on 31st March, 1957, so that in case Income-tax assessment for the assessment year 1957-58 were to be made, the year ending on March, 1957, would have been the previous year. It is not essential in order to make a wealth-tax assessment for any year that an income-tax assessment for the same year should actually be made or contemplated.... The crucial words used in the definition of valuation date are : If an assessment were to be made under that Act for that year. In the instant case the income-tax assessment for 1957-58 was not made solely to avoid hardship to the company resulting from double taxation, for in that the income of the previous year of twelve months assessable in this year is being included in the income of fifteen months which is being assessed in the assessment year 1958-59.'
Accordingly, the Income-tax Officer made the wealth-tax assessment on the assessee for the year 1957-58 by treating the valuation date for that year to be the 31st March, 1957.
In the assessees appeal to the Appellate Assistant Commissioner from the order of assessment, the Appellate Assistance Commissioner accepted the assessees contention and held as follows :
'In my opinion, the construction placed by the Wealth-tax Officer on the words if an assessment were to be made under the Act for that year it is untenable and incorrect. The Wealth-tax Officer seems to be of the opinion that if an Income-tax assessment for 1957-58 were to be made, there would be a previous year ending on 31st March, 1957, and that the action of the department in refraining from making such as assessment for 1957-58 does not entitle the assessee to claim the exemption from wealth-tax assessment for the same year. The fallacy in the argument of the Wealth-tax Officer lies in presuming that he could have made the Income-tax assessment for 1957-58 if he would..... The question is whether such income-tax assessment is capable of being made. After the grant in the change in the accounting year with the condition that the income or loss of the entire period 1st April, 1956 to 30th June, 1957 should be assessed in one assessment for 1958-59 there is no more power left with the Income-tax Officer to make an assessment for income-tax for 1957-58. It is, therefore, not a matter of grace that the Income-tax Officer did not make income-tax assessment for 1957-58 as it seems to be his opinion when he says in the instant case the income-tax assessment for 1957-58 was made solely to avoid hardship to the company resulting from double taxation. In the circumstances, I hold that there was no previous year for income-tax purposes for 1957-58 tax year and, therefore, there is no valuation date tax wealth-tax assessment for 1957-58.'
Being aggrieved with the aforesaid decision of the Appellate Assistance Commissioner, the department appellate to the Tribunal Before the Tribunal it was submitted on behalf of the department that the definition of valuation date as given in section 2(q) of the Wealth-tax Act permitted the assessment which has been made by the Wealth-tax Officer. As that section spoke of 'if an assessment were to be made under that Act for that year' if such an assessment was made then the previous year would have ended on the 31st March, 1957, and therefore, the Wealth-tax Officer was justified in taking that date as the valuation date. The Tribunal was unable to agree with this contention as, in its opinion, the previous year having been changed from ending in March to end in June, the valuation date would change accordingly, so that the effect would be that even for the purpose of income-tax assessment, if an assessment were to be made for the assessment year 1957-58, the previous year would end on the 30th June, 1956, and not on the 31st March, 1957. Now, since the 30th June, 1956, falls outside the period when the Wealth-tax Act came into force, no assessment could be made on the assessee in respect of the assessment year 1957-58. Accordingly, the Tribunal dismissed to this court by the departmental appeal.
At the instance of the Commissioner of Wealth-tax, the following question of law has been referred to this court by the Tribunal :
'Whether, on the facts and in circumstances of the case, and having due regards to the definition of valuation date under section 2(q) of the Wealth-tax Act, 1957, the Tribunal was right in holding that no assessment could be made under the Wealth-tax Act on the assessee for the assessment year 1957-58 ?'
The relevant provisions of the Income-tax Act, 1922 and the Wealth-tax Act, 1957, as in operation in respect of the assessment year 1957-58, may now be set out for convenience. Section 3 of the Wealth-tax Act imposes a charge of tax, subject to the other provisions of the Act, for every financial year commencing on and from the 1st day of April, 1957, in respect of the net wealth of the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule to the Act. Section 2(q) defines 'valuation date' in relation to any year for which an assessment was to be made under that Act to mean the last day of the previous year as defined in clause (11) of section 2 of the Income-tax Act if an assessment were to be made under that Act for that year.
The relevant provisions of section 2(11) of the Income-tax Act, 1922, are as follows :
'2. (11) Previous year means -
(i) in respect of any separate source of income, profits and gains -
(a) the 12 months ending on the 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 endig on any day other than the said 31st day of March, then, at the option of the assessee, the year ending on the date to which his accounts have been made up :
Provided that where in respect of a particular source of income, profits and gains, an assessee has once been assessed,... he shall not, in respect of that source.... exercise the option given by this sub-clause so as to vary the meaning of the expression previous year as then applicable to him except with the consent of the Income-tax Officer and upon such condition as the Income-tax Officer may think fit to impose;.....'
Mr. S. Mukherjee, learned counsel for the department, submitted that under section 2(q) of the Wealth-tax Act, the 'valuation date' would be the end of the previous year for the purpose of assessment to income-tax. If an assessment of income-tax could have been made for the year 1957-58 such valuation date would be either be 31st March, 1957, or the 30th June, 1956. He submitted that the Tribunal was not right in holding that no assessment to wealth-tax could be made for the assessment year 1957-58 if the corresponding valuation date was the 30th June, 1956, which was earlier than the date on which the Act came into operation. He contented that under the charging section of the Wealth-tax Act, assessment to wealth-tax is to made in respect of every financial year commencing from the 1st April, 1957. If the assessees contention is accepted then there would be no assessment to wealth-tax for the assessment year 1957-58 and that would be contrary to the provisions of the charging section.
Dr. D. Pal learned counsel for the assessee, did not make any attempt to support the decision of the Tribunal if that the valuation date was the 30th June, 1956, then no assessment to wealth-tax could be made in respect of the assessment year 1957-58. Dr. Pal submitted that the Tribunal was in error in holding that there was any previous year for 1957-58 which ended on 30th June, 1956. By the order of the Income-tax Officer accepting the assessees proposal to change the date of its closing of account from the 31st March 1957, to the 30th June, 1957, on condition that the income for the entire period of 15 months were to be assessed for the assessment year 1958-59, there could not be any previous year for the assessment year 1957-58. The assessee had already been assessed to income tax in respect of his income for the period 1st April, 1955, to 31st March, 1956, in the assessment year 1956-57, and if the income of the period 1st April, 1956, to 30th June 1957, was to be assessed in the assessment year 1958-59, there could be no assessment to the income-tax for the assessment year 1957-58. Dr. Pal, therefore, submitted that the Appellate Assistant Commissioner was right in holding that there was no previous year for income-tax purposes for 1957-58 tax year and, therefore, there could be no valuation date for the wealth-tax assessment for 1957-58.
The provisions of section 2(11) of the Income-tax Act, 1922, were considered by the Supreme Court in Esthuri Aswathaiah v. Commissioner of Income-tax, and the Supreme court held, inter alia :
'(i) that the Income-tax Officer had power to treat the period of 21 months as the previous year for the assessment year 1952-53;
(ii) that the total income of the period of 21 months had to be assessed at the rate specified in the relevant Finance Act for the total income and the Income-tax Officer could not apply the rate applicable to the income of the last period of 12 months.'
The Court further observed :
'A combined reading of the several clauses of section 2(11) of the Indian Income-tax Act, 1922, shows that the length of a previous year need not necessarily be 12 calendar months. Under section 2(11)(i)(b), the previous year is such period as may be determined by the Central Board of Revenue as such authority as the Board may authorise in this behalf and the period so determined may be more or less than 12 months.'
It would, therefore follow that when the Income-tax Officer accepted the assessees proposal to assess the income for the period 1st April, 1956, to 30th June 1957, for the assessment year 1958-59, he was in effect accepting that period as the previous year for the assessment year 1958-59, under the proviso to section 2(11)(i) of the Income-tax Act. If that be the position, then there could not be a previous year for income tax purpose for the assessment year 1957-58, and there could be a corresponding valuation date for wealth tax purpose also for the assessment year 1957-58. In our opinion, the reason given by the Appellate Assistant Commissioner in setting aside the assessment is correct and the answer to the question referred to this court must be in the affirmative and in favour of the assessee. Considering the facts of this case there would be no order as to costs.
BANERJEE J. - I agree.
Question answered in the affirmative.