Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, MADHYA PRADESH
Vs.
RESPONDENT:
LADY KANCHANBAI
DATE OF JUDGMENT:
16/12/1969
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
SHAH, J.C.
CITATION:
1970 AIR 691 1970 SCR (3) 323
1970 SCC (1) 140
ACT:
Income-tax Act, 1922-S. 2(11)(i)(a) and proviso-Previous
year relevant to assessment year 1950-51 in respect of
sources of income outside "taxable" territory-Assessee’,
’assessed’, meaning of.
HEADNOTE:
Prior to the assessment year 1950-51 the assessee was
assessed under the Indian Income-tax Act, 1922 in the status
of a non-resident Hindu Undivided Family. The income
received by the assessee in the former Indian State of
Madhya Bharat was not subject to tax under the Act but was
taken into consideration in computing its "world income" for
the purpose of determining the ’rate. After the
Constitution came into force the present definition of
"taxable territories" was incorporated into the Income-tax
Act by the Finance Act, 1950 and the areas in which the
assessee was carrying on business with which this appeal is
concerned were included therein with the result that for the
assessment year 195051 the assessee who was a resident of
Madhya Bharat was deemed to be a resident in the "taxable
territories" during the "previous year" and hence liable to
be taxed in respect of its income received in Madhya Bharat.
Prior to the assessment year 1950-51 the assessee had
proceeded on the basis that its account year ended on Diwali
day, but for the assessment year 1950-51, in respect of its
income from business in Madhya Bharat it chose the financial
year ending on March 31, 1950 as the "previous year". The
Income Tax Officer as well as the Appellate Assistant
Commissioner rejected the claim of the assessee that it
could make such a choice. The Tribunal reversed the finding
of the Income Tax Officer and the High Court on reference
agreed with the tribunal. On the question whether under the
circumstances of the case, having regard to s. 2(11)(i)(a)
of the Income Tax Act, 1922, the assessee is entitled to
take the year ended on 31-3-1950 as the "previous year"
relevant to the assessment year 1950-51 in respect of his
sources of income arising outside the "taxable territory",
HELD : The High Court was right in answering in favour of
the asseme.
(1)It is clear from the provisions of s. 2(11)(i) (a) that
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in respect of any separate source of income, profits or
gains unless the assessee has made a choice in accordance
with the second part of s. 2(11)(i)(a) the 12 months ending
on 31st day of March next the preceding year for which the
assessment is made is the "previous year". The section does
not refer to the income of the assessee generally but to his
"separate sources of income, profits and gains". Hence it
is possible for an assessee to have a different "previous
year" for each "separate source of income, profits and
gains" : and the business of the as-sessee in Madhya Bharat
constituted a separate source of income. [326 C-G]
Commissioner of Income Tax v. Savumamurathy, [1946] I.T.R.
185; Rhodesia Metals Ltd. v. Commissioner of Taxes, (1941)
I.T.R. Supp. 45, refeffed to.
324
(2)For the purpose of finding out the total "world income"
of the assessee, the income derived by the assessee from its
businesses outside the "taxable territories" had been taken
into consideration in the past; but that was done only for
the purpose of determining the rate at which the assessee’s
income should be assessed. No tax was imposed on the income
from those business. The expression that "where in respect
of a particular source of income, profits and gains" in the
proviso to S. 2(11)(i)(a) means the income from a particular
source which has been brought to tax under the Act and not
which has been taken into consideration for computing the
total world income of the assessee. In the context the word
"assessee" in the proviso to s. 2(11)(i)(a) refers to the
person whose income, profits or gains in respect of a
particular source had been once assessed to tax. The word
"assessed" in that proviso means subject to levy or
imposition of tax not computed. [327 C-F]
Commissioner of Income Tax, Bombay v. Kemchand Ramdas,
(1938) VI, I.T.R. 414 and Seth Badridas Daga and Anr. v.
Commissioner of Income Tax Central and United Provinces
(1.949)XVII I.T.R. 209, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 19 of 1969.
Appeal from the judgment and order dated October 28, 1960 of
the Madhya Pradesh High Court in Misc. Civil Case No. 291
of 1958.
S. T. Desai, S. K. Aiyar and B. D. Sharma, for the
appellant.
M.C. Chagla, Rameshwar Nath, Mahinder Narain and Swaranjit
Sodhi, for the respondents.
The Judgment of the Court was delivered by
Hedge, J. In this appeal by certificate the question that
arises for decision is whether under the circumstances of
the case having regard to Section 2 (I I) (i) (a) of the
Income Tax Act, 1922 (to be hereinafter referred to as the
Act), the assessee is entitled to take the year ended on 31-
3-1950 as the "previous year" relevant to the assessment
year 1950-51 in respect of his sources of income arising
outside the "taxable territories". This question under S.
66(1) of the Act was answered in favour of the assessee by
the High Court of Madhya-Pradesh. Aggrieved by that
decision, the Commissioner of Income Tax, Madhya Pradesh has
brought this appeal.
The assessee (the respondent) is a Hindu Undivided Family
with its Head-office at Indore and branches at several
places. It derives income from property, business in cotton
and oil seeds, speculation, dividends, managing agency
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commissions, etc. Prior to the assessment year 1950-51, the
assessed’was assessed under the Indian Income Tax Act, 1922
in the status of a nonresident Hindu Undivided Family. The
income which accrued to or was
325
received by the assessee in the former Indian States was not
subject to tax under the Act but was taken into
consideration in computing its "world income" for the
purpose of determining the rate. After the Constitution
came into force, the present definition of "taxable
territories" was incorporated in the Income Tax Act by the
Finance Act, 1950 and the areas in which the assessee was
carrying on the businesses with which we are concerned in
this appeal were included therein. The result of the
amendment was that for the assessment year 1950-51, the
assessee who was a resident of Madhya Bharat, was deemed to
be a resident in the "taxable territories" during the
"previous year" and hence liable to be taxed in respect of
its income. that accrued or received in Madhya Bharat. For
the purpose of its accounts the assessee was. adopting the
year ending on Diwali day. In the returns submitted by the
assessee, prior to the assessment year 1950-51, it had
proceeded on the basis that its account year ended on Diwali
day; but for the assessment year 1950-51, in respect of its
income accrued from its businesses in Madhya Bharat, it
chose the financial year ending on March 31, 1950 as the
"previous year". The Income Tax Officer as well as the
Appellate Assistant Commissioner rejected the claim of the
assessee that it could make: such a choice. The Income Tax
Officer assessed the assessee on the. basis that the
"previous year" in respect of the concerned source,,, ended
on Diwali of 1949. That decision was affirmed by the
Appellate Assistant Commissioner; but the Income Tax
Appellate. Tribunal reversed the finding of. the Income Tax
Officer and the Appellate Assistant Commissioner and agreed
with the stand taken by the assessee. Thereafter a
reference was made to the High Court of Madhya Pradesh under
s. 66(1) of the Act at the instance of the Commissioner of
Income Tax but the- High Court agreed with the view taken by
the tribunal. Hence this, appeal.
The question for our consideration is whether the, view
taken by the High Court is correct ? In order to decide that
question, it is necessary to find out the true scope of s.
2(11)(i)(a) or
the Act,which provision defines the term "previous year"
thus
" "Previous year" means-
(ii) in respect of any separate source of income,
profits and gains-
(a)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 the said 31st day of March,
then, at the option of Sup.Ct.(INP)/70-6
326
the assessee, the year ending on the date to which his
accounts have-been so 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, respect of that source or as
the case may be, business, profession or vocation, 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
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Officer and upon such conditions as the Income Tax Officer
may think fit to impose."
(emphasis is ours).
From the above provision, it is- clear that in respect of
any -separate source of income, profits or gains, unless the
assessee had made a choice in accordance with 2nd part of s.
2 (1 1 ) (i) (a), the twelve months ending on 31st day of
March next the preceding year for which the assessment is
made is the "previous year".
Therefore all that we have to see is whether the assessee’s
income, profits or gains in respect of the businesses in
Madhya Bharat had been assessed previously. If they had not
been previously assessed then the assessee’s case comes
within. the first Part -of S. 2 (II) (i) (a). In that event
his return was in accordance with law. Therefore we have
first to see what is meant by "source of income" in s.
2(11)(i) (a) of the Act and then proceed to, consider
whether those sources of income had "once been assessed".
It is necessary to note that s. 2 ( 1 1 ) (i) (a) does not
refer to the income of the assessee Generally but to his
"separate sources of income, profits and gains". Hence it
is possible for an assessee to have a different "previous
year" for each "separate source of income, profits and
gains" as held by the Madras High Court in Commissioner of
Income Tax v. Savumamurathy(1). In Rhodesia Metals Ltd. v.
Commissioner of Taxes (2) the Judicial Committee -observed
that "source" means not a legal concept but which a
practical man would regard as a real source of income.
There is hardly any room for doubt, nor was it contended
otherwise that the business of the assessee in Madhya Bharat
constituted a separate source or sources. Hence all that we
have to see is whether the income accruing from those
businesses had "once been assessed" under the Act.
This takes us to the question what exactly is the meaning of
-the expressions "assessed" and "assessee" in the proviso to
(1) (1946) I.T.R. 185.
(2) (1941) I.T.R. Sup. 45.
327
2(11)(i)(a). The words "assessed", "assessment" and
’assessee" have different meaning in different contexts. As
observed by Judicial Committee in Commissioner of Income
Tax, Bombay v. Kemchand Ramdas(l) the word "assessment" is
used in the Act as meaning sometimes the computation of
income, sometimes the determination of the amount of tax
payable and sometimes the procedur laid down in the Act for
imposing liability upon the tax payer. Similarly the word
"assessee" connotes different meaning in different contexts-
see Seth Badridas Daga and anr. v. Commissioner of Income
Tax Central and United Provinces(’).
It is true that for the purpose of finding out the total
"world income" of the assessee, the income derived by the
assessee from its businesses outside the taxable territories
had been taken into consideration in the past. That was
done only for the purpose of determining the rate at which
the assessees income should be assessed. No tax was imposed
on the income from those businesses. In other words, the
income derived by the assessee from the businesses carried
on by it in territories outside the "taxable territories"
were not brought to tax under the Act. The expression that
"where in respect of a particular source of income, profits
and gains" in the proviso lo s. 2 (I 1 ) (i) (a) means the
income from a particular source which has been brought to
tax under the Act and not which has been taken into
consideration for computing the total world income of the
assessee. In the context the word "assessee" in the proviso
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to s. 2(11)(i)(a) refers to- the person whose income,
profits or gains, in respect of a particular source had been
once assessed to tax. The word "assessed’ in that proviso
means subject to levy or imposition of tax not compute.
For the reasons mentioned above, we agree with the view
taken by the High Court. In the result this appeal fails
and the same is dismissed with costs.
R.K.P.S. Appeal
dismissed.
(1) (1938) VI, I.T.R. 414.
(2) (1949) XVII I.T.R. 209.
328