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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAMANUJAM & THE HONOURABLE MR. JUSTICE RATNAM
Commissioner of Wealth Tax - Appellant
Versus
P. R. Shanmugam - Respondent
Case No : TC No. 1161 and 1162 of 1977, Ref. No. 803 and 804 of 1977
Decided On : 21 October 1982
INCOME TAX - RESIDENCE - PREVIOUS YEAR - SHARE INCOME FROM FIRM - ASSESSEE'S STATUS AS RESIDENT FOR ONE SOURCE OF INCOME - DEEMED TO BE RESIDENT FOR ALL SOURCES OF INCOME - SECTIONS 3(1)(F), 3(3), 6(5) OF THE INCOME-TAX ACT, 1961.
Fact of the Case:
The assessee, a money-lender with income from property, share income from four firms, and other sources, was assessed as an individual and a resident for the assessment years 1964-65 to 1968-69. For the assessment year 1969-70, he filed a return showing the previous year as the Tamil year ending March 12, 1969, and was assessed as a non-resident. Upon internal audit, it was noted that the assessee had left India on April 8, 1968, and returned on April 15, 1970, and had derived income from various sources with different previous years. The ITO issued a notice under section 148 to bring in escaped income, treating the assessee as a resident. The assessee contested the reopening of the assessment and the reassessment on merits, arguing that the provisions of section 6(5) were not applicable as he had opted for the Tamil year as the previous year. The Income-tax Appellate Tribunal upheld the validity of the reopening of the assessment but cancelled the reassessment, holding that the assessee should be treated as a non-resident.
Finding of the Court:
The court held that the assessee should be deemed to be a resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income, as per section 6(5) of the Income-tax Act, 1961. The court found that the assessee was a resident in the previous year relevant to the assessment year in respect of his share income from the firms, as he had been in India for more than 30 days and had maintained a dwelling house during that period. Therefore, the court concluded that the assessee was a resident for all sources of income, including the share income from the firms.
Issues: 1. Whether the assessee's previous year, determined under section 3(1)(c) of the Income-tax Act, 1961, can be altered on the basis of section 3(1)(f) in respect of share income from a firm. 2. Whether the provisions of section 6(5) of the Income-tax Act, 1961, can be applied to deem the assessee as a resident in India for all sources of income, even though the previous year for other sources of income was determined under section 3(1)(c).
Ratio Decidendi: 1. Section 3(1)(f) of the Income-tax Act, 1961, which prescribes a previous year for a particular source of income, is not subject to section 3(1)(c), which allows the Board to determine the previous year for the assessee. Therefore, section 3(1)(f) can be applied to determine the previous year for the assessee's share income from the firms, even though the previous year for other sources of income was determined under section 3(1)(c). 2. Section 6(5) of the Income-tax Act, 1961, which deems an assessee to be a resident in India for all sources of income if they are a resident in the previous year relevant to the assessment year in respect of any source of income, can be applied to the assessee, even though the previous year for other sources of income was determined under section 3(1)(c). The determination of the previous year for the assessee under section 3(1)(c) is not material for the purpose of determining the residential status of the assessee under section 6(5).
Final Decision: The court answered the questions referred to it in both cases in the negative and against the assessee, holding that the assessee was a resident in India for all sources of income, including the share income from the firms, for the assessment year 1969-70.
RAMANUJAM J.
Since these two tax cases arise out of the common order of the Income-tax Appellate Tribunal and as they involve practically the same issue, they are dealt with together The assessee, apart from having a money-lending business, had income from property, partly residential and partly let out as also share income from four firms in India. The assessee in this case has been assessed in the status of an individual and a resident and ordinarily resident in the assessment years 1964-65 to 1968-69. These assessments proceeded on the basis that the previous year in each case is the Tamil year.
For the assessment year 1969-70, the assessee filed his return of income on September 10, 1969, showing the previous year as Tamil Year ending with March 12, 1969. The assessment was completed under the provisions of s, 143(3) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), and the previous year mentioned in the assessment order is the year ended April 12, 1969. As regards the residence, the ITO observed
"The assessee who left India on April 8, 1968, has not so far returned to India. As he was also completely absent from India during the accounting year, the residential status declared in the return, i.e., 'non-resident', will be accepted" *
. Thus, for the assessment year 1969-70, the assessee was assessed as a non-resident and, consequently, the foreign income was left out of consideration. Subsequent to the completion of the assessment for the assessment year 1969-70, the internal audit party who scrutinised the assessment files had pointed out on January 9, 1972, that the assessee had left for Singapore on April 8, 1968, and returned only on April 15, 1970, and that the assessee had derived income from various sources and the relevant accounting period ended with reference to the year 1972-73, were as underSerial No. Source Last date of the Income
accounting year:
Rs 1. Property-residence and let 12-4-1972 1, 256
2. Own business 12-4-1972 (-)50
3. Share income from firms Pattukottai 31-12-1971 16, 639 Mannargudi 31-12-1971 12, 702 Madurai 31-12-1971 14, 766 Thanjavur 12-4-1972 16, 048 Tiruchirapalli 30-6-1971 12, 047.
4. Other sources 12-4-1972 3, 562. The audit report further pointed out that according to s. 6(5), if a person was resident in India in a previous year relevant to the assessment year in respect of any one source of income, he was to be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income and, therefore, for the assessment year 1969-70, the assessee should be taken to be resident as he had been in India for more than 30 days in respect of most of the sources of income in the previous year which ended on December 31, 1968, and further he had maintained a dwelling house and that, therefore, treating the assessee as resident and ordinarily, resident for the assessment year 1969-70, his foreign income of Rs. 7, 283 plus certain interest on foreign deposits should be considered to have escaped assessment. Taking note of the said audit report, the ITO issued a notice under s. 148 to the assessee to bring in escaped income. The assessee filed a return in compliance with the said notice with a covering letter wherein he had pointed out that the provisions of s. 6(5) were not applicable as the assessee had already exercised an option for the previous year as the Tamil Year and this option by the assessee could not be altered by resort to the provisions of s. 3(1)(f) of the Act which authorised the adoption for the share income the previous year for which the firm itself was assessed and that, therefore, there was no escapement of income. The ITO did not accept the said contention and made revised assessment on March 22, 1974, holding that the provisions of s. 6(5) were clearly attracted, that the assessee was a resident and ordinarily resident since in the previous year ending on March 31, 1968, that the assessee was in India
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