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1945 Supreme(SC) 21
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT SIMON L.C., LORD MACMILLAN, LORD SIMONDS, LORD GODDARD AND SIR MADHAVAN NAIR.
COMMISSIONER OF INCOME-TAX, BOMBAY, SIND AND BALUCHISTAN - Appellant
Versus
POLSON - Respondents
On appeal from the High Court at Bombay.
Decided On : May. 29. 1945.
Solicitor for appellant:The Solicitor, India Office. Solicitors for respondent: Barrow, Rogers & Nevill.
The term "discontinued" in Section 25(3) of the Indian Income-tax Act, 1922, refers exclusively to the complete cessation of a business and does not include the transfer or assignment of the business to another person (succession).
Headnote:(A) Indian Income-tax Act, 1922 - Section 25(3) and Section 26 - Indian Income-tax (Amendment) Act, 1939 - Interpretation of "discontinued" - Whether the term includes the transfer or assignment of a business to another person or is limited to the complete cessation of the business - The term "discontinued" in the context of relief from double taxation refers only to a complete cessation of the business and does not encompass a mere change of ownership or succession.
(B) Indian Income-tax Act, 1922 - Section 25(4) - Relief in case of succession - Relief under this section is available only to persons carrying on business at the commencement of the Amendment Act, 1939 - If the transfer occurred prior to the commencement of the amending Act, the predecessor cannot claim relief under this specific provision.
(C) Indian Income-tax Act, 1922 - Section 26 - Apportionment of tax - This section is primarily concerned with the distribution of tax between predecessor and successor and does not alter the meaning of "discontinued" for the purpose of granting relief under Section 25.
Facts of the case:
A taxpayer carried on a business and assigned it to another entity on January 1, 1939. The taxpayer claimed relief from tax liability for the previous year under the provisions relating to discontinued businesses. The lower court held that the transfer of business constituted a "discontinuance," whereas the revenue authority contended it was a succession and not a cessation of business.
Findings of Court:
The court found that the term "discontinued" must be given its natural meaning, which is the complete cessation of the business. The introduction of specific provisions for succession in the amending Act reinforces that succession is distinct from discontinuance.
Issues: Whether the word "discontinued" in Section 25(3) of the Indian Income-tax Act, 1922, as amended, includes the case of discontinuance of business by the person formerly carrying it on as a result of the transfer or assignment of that business to another person.
Ratio Decidendi: The court ruled that "discontinued" refers only to the complete cessation of the business. The legislative intent to provide relief in cases of succession was specifically addressed in the new sub-section 4 of Section 25, but this relief is limited to those carrying on the business at the commencement of the Amendment Act. To interpret "discontinuance" to include "succession" would be to ignore the plain language of the statute and the specific distinction made by the legislature.
Result: Appeal allowed.
Legal Category Hierarchy
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taxation
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income tax
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business income
- discontinuance and succession
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business income
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income tax
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statutory interpretation
- interpretation of statutes
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 ha
