Commissioner Of Income Tax, Madras vs K. Srinivasan

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1952 Supreme(SC) 99

SUPREME COURT OF INDIA
22nd December 1952.
MAHAJAN, S.R. DAS AND BHAGWATI, JJ.
Commissioner at Income-tax, Madras, Appellant
Versus
K. Srinivasan and another, Respondents.
Appeal No. 9 at 1952,
Advocates appeared
Shri M. C. Setalvad, Attorney-General for India Shri P. A, Mehta, Advocate, with him, instructed by Shri G. H. Rajadhyaksha, Agent, for Appellant; Shri K. S. Krishnaswami Aiyangar, Senior Advocate Shri M. Subbaraya Aiyar, Advocate, with him), instructed by Shri M. S. K. Aiyangar, Agent, for Respondents.

Advocates:
G.H.RAJADHYAKSHA, K.S.KRISHNASWAMI AIYANGAR, M.C.SETALVAD, M.S.K.AIYANGAR

Headnote:Income tax Act (1922), S. 25(1), (3) and (4)-Interpretation. Held: Sub-sections (3) and (4) of S. 25 have a different end in view and are not in pari materia with sub-section (1). They are in the nature of substantive provisions intended to give relief from tax charged in certain cases. The mere circumstance of their being grouped together with subsection (1) in S. 25 cannot lead to the conclusion that the provisions therein contained are of the same nature and character as the provisions contained in sub-section (1). These two sub-sections are not in the nature of
       1. A. I R. 1950 Mad. 647 affirmed.
       exceptions to the rule laid down in sub-section (1). It is sub-section (1) itself which is an exception to the general rule laid down in the charging section of the Act, namely S. 3. Income Tax Act (1922) S. 25(3) and (4)-Meaning of previous year"
       Held: (1) What sub-section (4) of S. 25 provides is that when the profits of the year of succession fall to be assessed, the predecessor of a business can claim exemption from liability to pay tax on the profit earned from the end of the previous year to the date of succession, the previous year here meaning the completed accounting year immediately preceding the date of succession. The expression "end of the previous year in subsections (3) and (4) of S. 25 in the context of those sub-sections means the end of an accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession.
       (2) In the present case a partnership firm, charged to income-tax under the Income-Tax Act, 1918, transferred on 1.3.1940, its business as a going concern to a private limited company and for the assessment year 1940-41 claimed that the firm was not liable to pay any income-tax on the income of its business from the end of 30. 6. 1938 to 29.2.1940 the date on which the limited company succeeded to the business of the firm (i.e. for a period of20 months) under S. 25(4). On the above interpretation, the period the profits of which were entitled to exemption from the payment of tax was a period between 1.7.39 to 29.2.1940, that is, a period of 8 months only and not a period of 20 months as claimed. Income-tax Act (1922), Ss. 25 (4) and 26(2): Power to make accelerated assessment.
       Held: On the plain reading of Ss. 25(4) and 26(2) (as amended in 1939) together, it is quite clear that the Income-tax Officer is not empowered to make an accelerated assessment in the year in which succession occurs on the profits of that year, and prematurely assess the person succeeding to a business so that he may be able to give relief to the person succeeded. The exemption provided for in S. 25(4) and the appointment mentioned in S. 26 (2) have to be made in the assessment year in which the profits of the year .of succession fall to be assessed under S. 3 of the Act. Interpretation-Use of Income-Tax Manual in interpretation of Act.
       Held: (1) The provisions of the Income-tax Act in respect to exemptions and deductions cannot be construed on the anology of the provisions contained in the charging sections of the Act eyen if the language of these provisions is similar.
       (2) The interpretation placed by the department on any provision of -the Act cannot be considered to be proper guide when the construction of the statute is involved.

Judgement

MAHAJAN J. : This is an appeal from the judgment of the High Court of Judicature at Madras in a reference made by the Income-tax Appellate Tribunal under S. 66 (1), Income-tax Act of 1922.

2. For several years prior to 1939-40 the respondents, who are brothers, had been carrying on in partnership the business of "The Hindu", a daily newspaper of Madras. The profits of this business had been charged to income-tax in the hands of the respondents under the Income-tax Act of 1918. The firm s year of account was a period of twelve months ending with 30th June each year. In respect of the profits of the year of account ending 30th June 1938, assessment was made in the year 1939-40 and the firm was charged to income-tax for that assessment year. On 1-3-1940 the respondents transferred their business as a going concern to a private limited company called "Kasturi and Co. Ltd."

3. For the assessment year 1940-4l the respondents claimed that the firm was not liable to pay any income-tax on the income of its business from the end of the accounting year ending 30-6-1938 to 29-2-1940, the date on which the limited company succeeded to the business of the firm (i. e., for a period of 20 months) under- S. 25 (4) of the Act, as it had been assessed under the Income-tax Act, 1918. The income-tax officer disallowed the claim and held that since the assessment pertained to the year 1940-41 the previous year with reference to that assessment would be the year ending -30-6-1939 and the period for which exemption could be claimed under S. 25 (4) of the Act was the interval from the end of that previous year i.e., 1-7-1939 upto the date of succession, i.e., 29-2-1940, i.e., a period of eight months. This order was confirmed on appeal by the Appellate Assistant Commissioner. On further appeal the Tribunal held that on a proper construction of S. 25 (4) of the Act, tax was not payable by the firm in respect of the profits and accounts of the business for the whole of the period from 1-7-38 to 29-2-40 (a period of 20 months). At the instance of the Commissioner of Income-tax (the appellant) the Tribunal stated a case to the High Court and referred to it the following question for its opinion:

"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 tax under S. 25 (4), Income-tax Act 1939* was the period commencing from 1-7-1938 and ending with 29-2-1940."

* That is sub-s.(4) as added to S. 25 by the Indian Income-tax (Amendment) Act 7 of 1939 -Ed.

The reference was heard by Satyanarayana Rao and Viswanatha Sastri JJ., and they delivered divergent opinions on the question referred. Satyanarayana Rao J. agreed with the conclusion of the Tribunal and answered the question in the affirmative, while Viswanatha Sastri J answered the question in the negative, with the result that under the provisions of the law the Tribunal s order was confirmed, it being in accordance with the opinion delivered by the senior Judge. Leave to appeal to this Court was granted and this appeal is before us on a certificate given by the High Court.

4. The principal question to decide in this appeal is whether on a true construction of S. 25 (4) of the Act, and on the facts stated the period the profits of which were entitled to exemption from the payment of tax is the period -between 1-7-1939 to 29-2-1940 (a period of eight months) or the period commencing from 1-7-1938 and ending with 29-2-1940 (a period of 20 months).

5. To decide this question, it is necessary to set out the relevant provisions of the Act. Section 2 (11), which defines "previous year" in so far as it is relevant for purposes of this appeal is:

"(11) (a) the twelve months ending on the 31st day of March next proceeding 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 othe

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