Judgement

Appeal (No. 39 of 1944) from a judgment of the High Court (October 1, 1941) delivered on a reference made under s. 66, sub-s.2, of the Indian Income-tax Act, 1922, by the Commissioner of Income-tax, Bombay, Sind and Baluchistan.

The following facts are taken from the judgment of the Judicial Committee The question raised by this appeal was whether the word "discontinued" in s. 25, sub-s. 3, of the Indian Income-tax Act, 1922 (hereinafter called the 1922 Act), as amended by the Indian Income-tax (Amendment) Act, 1939 (hereinafter called "the amending Act"), meant only a complete cessation of the business or whether it also included the case of discontinuance of the business by the person formerly carrying it on as the result of the transfer or assignment of that business to another person who thereafter carried it on. In the case under appeal the High Court at Bombay (Beaumont C.J. and Kania J.) gave the wider meaning to the word in Meyyappa Chettiar v. Commissioner of Income-tax, Madras (I. L. R. [ 1944]

M. 166.), the High Court at Madras gave it the narrower meaning.

The respondent, P. E. Poison, had from some date before 1918 until January 1, 1939, carried on business in coffee, butter, flour and casein under the style of Poison Manufacturing Company. He had made profits and had been charged to tax under the Income-tax Act, 1918. On January 1, 1939, he assigned the business to Poison, Ld., which thereafter carried it on.

Part I. of the amending Act, which included the amendments of ss. 25 and 26 of the 1922 Act, came into force on April 1, 1939, by virtue of Notification No. 7 of the Central Government, dated March 18, 1939.

In May, 1939, the Income-tax Officer, Companies Circle, Bombay, issued a notice to the respondent under s. 22, sub-s. 2, of the 1922 Act for the assessment year 1939-40, and on August 4, 1939, the respondent made a return which contained an item of Rs. 1,64,726 in respect of income from his business for the previous year, that was, the year 1938. Before any assessment was made he submitted a revised return showing "Nil" under all items. As his covering letter showed, he based that return on a claim to be entitled to the benefit of the provisions of s. 25, sub-s. 3, of the 1922 Act as amended by the amending Act. That claim was rejected by the Income- Tax Officer who, on November 29, 1939, passed an order under s.23, sub-s.3, of the 1922 Act assessing the respondent to tax on a total income which included the item of Rs.1,64,726 in respect of the business. The respondent appealed to the Appellate Assistant Commissioners who, by an order passed on March 30, 1940, dismissed the appeal. The respondent thereupon applied to the Commissioners of Income-tax, Bombay, Sind and Baluchistan, to review the assessment or to refer to the High Court for its decision the following questions of law—

"(1) Whether on the facts of the case your petitioner [the respondent] is entitled to the benefit of s. 25, sub-s.3, of the Income-tax Act?

"(2) Whether in view of the provisions of the said s.25, sub-s.3, no tax is payable by your petitioner [the respondent] in respect of his income from business of Poison Manufacturing Company for the calendar year 1938 liable to assessment in respect of the financial year 1939-40?"

The Commissioner, expressing his own opinion that the respondent was not entitled to any relief under the section, on June 20, 1941, duly referred the case to the High Court at Bombay. That court, on October 1, 1941, delivered judgment answering both questions in the reference in the affirmative. From that judgment the Commissioner of Income-tax appealed, contending that the respondent was not entitled to the relief claimed and that the referred questions should be answered in the negative.

The relevant statutory provisions appear from the judgment of the Judicial Committee.

1945. Apr. 10, 11. Tucker K.C. and Khambatta for the appellant. This appeal raises a short but important point on which there has