Full Judgment Text
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PETITIONER:
ESTHURI ASWATHIAH
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, MYSORE
DATE OF JUDGMENT:
04/06/1962
BENCH:
BACHAWAT, R.S.
BENCH:
BACHAWAT, R.S.
SUBBARAO, K.
HIDAYATULLAH, M.
CITATION:
1966 AIR 1285 1966 SCR (3) 359
CITATOR INFO :
R 1976 SC 43 (6)
ACT:
Income-tax Act (11 of 1922), s. 2(11)-Length of previous
year--If should be only 12 calendar months-Previous year of
21 months-Rate of tax applicable.
HEADNOTE:
Up to the assessment year 1951-52, the appellant -adopted
the year ending on 30th June as the previous year applicable
to him. For the assessment year, 1952-53, the assessee
filed a return for 21 months commencing on 1st July 1950 and
ending on 31st March, 1952 and requested the Income-tax
Officer to accord his sanction to the change of the previous
year from an year ending on 30th June to an year ending on
31st March. The Income-tax Officer sanctioned the change on
condition that the total income in the period of 21 months
ending on 31st March 1952 would be assessed to tax at the
rate applicable to the total income in the said 21 months.
The Appellate Assistant Commissioner and the Appellate
Tribunal. on appeal, and the High Court, on a reference,
confirmed the order.
In appeal to this Court it was contended that : (i) the
scheme of Act and particularly ss. 2(11) and 3 show that
there cannot be a previous year consisting of more than 12
months; (ii) the Income-tax Officer had no power to direct
under the proviso to cl. (1) (a) of s. (2) (11) that the
previous year should consist of 21 months; (iii) the Income-
tax Officer should have granted the sanction on condition
that the ass shall have 2 previous years, one consisting of
a period of nine months from 1st July 1950 up to 31st March
1951 and the other of a period of 12 months from 1st April
1951 to 31st March 1952; and (iv) the Income-tax Officer
should have accorded sanction to the change on the basis
that the income for 21 months should be assessed at the rate
applicable to the income of the last period of 12 months.
HELD : (i) A combined reading of the several clauses of s.
2(11) shows that the length of a previous year need not
necessarily be 12, calendar months. Under s. 2(11)(i)(b),
the previous year is such period as may be determined by the
Central Board of Revenue or such, authority as the Board may
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authorise in this behalf, and the period so, determined may
be more or less than 12 months. [362 H-363 A]
(ii)The Income-tax Officer may -refuse to give his consent
to a change of the previous year, but if he gives his
consent, he has ample power to impose the condition that the
full period from the end of the "previous year" for the
preceding year’s assessment to the end of the new accounting
year should be taken as the previous year for the cur-rent
assessment year. The condition properly safeguards the
interests of the Revenue because, if he had sanctioned the
change on the footing that the previous year would only be
the period of 12 months from 1st April 1951 to 31st March
1952 the income of the preceding 9 months from 1st July 1950
to 31st March 1951 would have escaped taxation. [363 D-F]
(iii)There cannot be two previous years in respect of
the same assessment year and such a concept of two previous
years is repugnant to s. 3. Section 25(1) does not
contemplate assessments in the same assessment
CI/66-10
360
year in respect of two previous years. It only contemplates
the usual assessment in respect of the income of the
previous year and a special and separate assessment in the
same assessment year in respect of the income of the broken
period between the end of the previous year and the date of
discontinuance of the business. [363 H-364 C]
(iv)The Income-tax Officer has no power to vary the rate on
which the income of the previous year is to be assessed.
The condition imposed by the Income-tax Officer, that the
income of the Previous year of 21 months would be assessed
at the rate applicable to the income for 21 months is
redundant, because, once the length of the previous year is
found to be a period of 21 months, the income of the entire
period of 21 months, must be considered to be the income of
the previous year relevant for the assessment year. 1952-53,
and the entire income must be assessed at the rate specified
in the relevant Finance Act, and at no other rate. [364 D-G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 402 of 1965.
Appeal from the order dated June 4, 1962 of the Mysore High
Court in Income-tax Referred Case No. 7 of 1961.
K. Srinivasan and R. Gopalakrishnan, for the appellant.
R. Ganapathy Iyer and R. N. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Bachawat, J. The appeal raises a question of interpretation
,of the proviso to cl. (i)(a) of S. 2(11) of the Indian
Income-tax Act, 1922. Up to the assessment year 1951-52,
the appellant adopted the year ending on June 30 as the
"previous year" applicable to him. The assessment for the
assessment year, 1951-52 was accordingly made in respect of
the previous year ended on June 30, 1950. For the
assessment year, 1952-53, the assessee filed a return for 21
months commencing on July 1, 1950 and ending on March 31,
1952, and requested the Income-tax Officer to accord his
sanction to the change of the previous year from an year
ending on June 30 to an year ending on March 31. The
Income-tax Officer duly sanctioned the change. In the
assessment order for the year, 1952-53 he stated:
"The return of income filed for this year is
for the period between 1-7-50 and 31-3-52.
The permission to change the previous year is
granted subject to the condition that the
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total income in the period of 21 months ending
31-3-52 will be assessed to tax at the rate
applicable to the total income in the said 21
months."
The appellant was apparently happy with this order, and he
made no protest before the Income-tax Officer. The
assessment for the assessment year 1952-53 was accordingly
made in respect of the income of the previous year
consisting of 21 months commencing from July 1, 1950 and
ending on March 31, 1952. In his appeals before the
Appellate Assistant Commissioner and the Income-
361
tax Appellate Tribunal, the appellant, however, contended
that the total income of 21 months should be assessed at the
rate applicable to the proportionate income for a period of
12 months. Both the authorities concurrently rejected this
contention. On the application of the assessee, the
Tribunal referred the following two questions of law for the
decision of the High Court of Mysore:
"(1) Within the meaning of Sec. 2(11)(a) of
the Income-tax Act, whether the Income-tax
Officer is entitled to have the length of the
’previous year’ as 21 months though the
assessee itself applies for such a change?
(2)When the length of the assessee’s previous
year is allowed to be 21 months, whether it is
obligatory on the part of the Income-tax
Officer to tax the income for the said period
of 21 months at the rate applicable to the
proportionate income for a period of 12
months?"
At the hearing of the reference, the second question of law
was no pressed. The first question of law was pressed, and
it was contended that according to the scheme of the Indian
Income-tax Act, there cannot be a previous year consisting
of more than 12 months, and the Income-tax Officer was not
competent to constitute a previous year consisting of 21
months under the proviso to cl. (i)(a) to s. 2(11). The
High Court rejected this contention and answered the
questions in favour of the Revenue and against the assessee.
The assessee now appeals to this Court on a certificate
granted by the High Court under s. 66A(2) of the Indian
Income-tax Act, 1922.
Mr. Srinivasan repeated before us the contentions which he
urged before the High Court. He submitted that the scheme
of the Act and particularly ss. 2(11) and 3 show that there
cannot be a previous year consisting of more than 12 months,
and the Income-tax Officer had no power to direct under the
proviso to cl. (i)(a) of s.2(11) that the previous year
should consist of 21 months. We are unable to accept this
contention.
Section 3 is the charging section. For any assessment year,
income-tax is charged on the income of the previous year.
Section 3 does not define the length of the previous year.
The "previous year" is defined in s. 2(11). The main part
of cl. (i)(a) of s. 2(11) reads:
"(11) ’previous year’ means-
(i)in respect of any separate source of
income, profits and gains-
(a)the twelve months ending on the 31st day
of March next preceding tile year for which
the assessment is to be made, or, if the
accounts of the assessee have been made
362
up to a date within the said twelve months in
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respect of a year ending on any date 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 so made
UP
The main part of cl. (i)(a) of s. 2(11) gives the primary
meaning of the expression "previous year", and this meaning
was elucidated by Mahajan, J. in Commissioner of Income-tax,
Madras v. K Srinivasan and K. Gopalan(1) thus:
"The expression ’previous year’ substantially
means an accounting period 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."
Thus, under the main part of cl. (i)(a) of S. 2(11), the
previous year is either a period of 12 months ending on
March 31 next preceding the assessment year or at the option
of the assessee the year ending on some other date within
the aforesaid period of 12 months, if the accounts of the
assessee have been made up to such date. The proviso to
sub-cl. (i)(a) reads :
"Provided that where in respect of a
particular source of income, profits and gains
an assessee has once been assessed, or where
in respect of a business, profession or
vocation newly set up an assessee has
exercised the option under sub-clause (e), he
shall not, in respect of that source or, as
the case may be, business, profession or voca-
tion, 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 conditions as the
Income-tax Officer may think fit to impose."
Sub-clause (i)(b) of s. 2(11) empowers the Central Board of
Revenue or its nominee to determine the period of the
previous year in respect of any person, business or company
or class of person, business or company. Sub-clause (i)(c)
defines the previous year in respect of a newly set up
business, profession or vocation. Subclause (ii) defines
the previous year in respect of the share of the assessee’s
income in a firm.
A combined reading of the several clauses of s. 2(11) shows
that the length of a previous year need not necessarily be
12 Calendar
(1)[1963] S.C.R. 486, 501
363
months. Under s. 2(11)(i)(b), the previous year is such
period as may be determined by the Central Board of Revenue
or such authority as the Board may authorise in this behalf,
and the period so determined may be more or less than 12
months. Under s. 2(11)(i)(c), the period of the previous
year in respect of a newly set up business, profession or
vocation may be less than 12 months. In this background,
let us consider the meaning of s. 2(11)(i)(a). The assessee
has the option to choose his accounting year ending on any
date within the preceding financial year as his previous
year. Once he exercises this option, the meaning of the
expression "previous year" as applicable to him is
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determined, and he cannot exercise this option again "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 conditions as the Income-
tax Officer may think fit to impose." If the assessee wants
to change the meaning of the previous year as then
applicable to him, he must obtain the consent of the Income-
tax Officer, and the Income-tax Officer may accord such
consent on proper terms. The Income-tax Officer may refuse
to give his consent, but if he does give his consent, he has
ample power to impose the condition that the full period
from the end of the ’previous year’ for the preceding year’s
assessment to the end of the new accounting year should be
taken as the previous year for the current assessment year.
Thus, if the previous year at any given time applicable to
the assessee ends on June 30 and he wants to vary it so as
to make it end on March 31 next, the Income-tax Officer has
power to accord sanction to the change on the condition that
the previous year would consist of the entire period of 21
months commencing on June 30 of the year up to which his
accounts were last made up to March 31 of the year up to
which his accounts are newly made up. The condition
properly safeguards the interest of the Revenue. Had he
sanctioned the change on the footing that the previous year
of the assessee in relation to the current assessment year
would be the period of 12 months from April 1 to March 31,
the income of the preceding 9 months from July 1 to March 31
would have escaped taxation altogether.
Mr. Srinivasan submitted that the Income-tax Officer could
grant the sanction on condition that the assessee should
have two previous years, one consisting of a period of nine
months from July 1 up to March 31 and the other of a period
of 12 months from April 1 to the next succeeding March 31.
This is an impossible contention. There cannot be two
previous years in respect of the same assessment year. The
charge under s. 3 for any assessment year is in respect of
the income of the previous year. The concept of two
previous years in relation to the same assessment year is
repugnant to s. 3. In Dhandhania Kedia & Co. v. Commissioner
364
of Income-tax( ), this Court pointed out that it is a
contradiction in terms to speak of six previous years in
relation to any specified assessment year. Mr. Srinivasan
is not right in submitting that s. 25(1) contemplates two
previous years. Section 25(1) provides that in case of
discontinuance of any business, profession or vocation in
any assessment year, the Income-tax Officer may in that year
make an accelerated assessment in respect of the income of
the period between the end of the previous year and the date
of such discontinuance, in addition to the usual assessment
in respect of the income of the previous year. Section
25(1) contemplates the usual assessment in respect of the
income of the previous year and a special and separate
assessment in the same assessment year in respect of the
income of the broken period between the end of the previous
year and the date of the discontinuance; it does not
contemplate, as counsel submitted, assessments in the same
assessment year in respect of two previous years.
Mr. Srinivasan alternatively submitted that the Income-tax
Officer could accord sanction to the change on the basis
that the income for 21 months should be assessed at the rate
applicable to the income of the last period of 12 months.
This again is an impossible contention. The Income-tax
Officer has no power to vary the rate on which the income of
the previous year is to be assessed. The rate of tax is
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fixed by the Finance Act every year. By s. 3, the tax is
levied at that rate for an assessment year in respect of the
income of the previous year. Once the length of the previ-
ous year is fixed and the income of the previous year is
determined, that income must be charged at the rate
specified in the Finance Act and at no other rate. The
order of the Income-tax Officer, in substance, permitted the
change of the previous year on condition that the previous
year in relation to the assessment year, 1952-53, would
consist of the period of 21 months commencing from July 1,
1950 and ending on March 31, 1952. The Income-tax Officer
had power to impose this condition. The further condition
that the income of the previous year of 21 months would be
assessed at the rate applicable to the income for 21 months
is redundant. Once the length of the previous year is found
to be a period of 21 months, the income of the entire period
of 21 months must be considered to be the income of the
previous year relevant for the assessment year, 1952-53, and
the entire income must be assessed at the rate specified in
the relevant Finance Act.
The appeal is dismissed with costs.
Appeal dismissed.
(1) (1958) 35 I.T.R. 400,404.
365