The main legal principle established is that the term 'discontinued' in tax law should be interpreted in line with its purpose, and in this case, it was held to mean the cessation of business, not just a change of ownership.

Leach, C.J.

1. This reference has been made by the Commissioner of Income Tax, Madras, in accordance with a direction given to him by this Court under Section 66 (3), Income Tax Act, 1922. The reference involves the interpretation of Section 25 (3) of the Act. The petitioner and his brothers were members of an undivided Hindu family, and when joint the family carried on a money-lending business in India and in the Federated Malay States. The business was of long standing and had been assessed to Income Tax under the Act of 1918. On 2nd June 1938 the joint status was severed. Thereafter, the members of the family continued the business in the same places as partners. The financial year with which this reference is concerned commenced on 13th April 1938. On 22nd December 1939, the petitioner claimed that the income of the family from 13th April 1938 to 2nd June 1938 was not liable to be taxed by reason of the provisions of Sub-sections (3) and (4) of Section 25. The Income Tax Officer accepted the petitioners statement that there had been a partition, but he rejected the contention that the family was not liable to pay the tax on the profits earned between 13th April and 2nd June 1938. The petitioner appealed to the appellate Assistant Commissioner who agreed with the Income Tax Officer. The petitioner then asked the Commissioner to make a reference to the Court under Section 66 (2) and as the Commissioner refused to do so, the petitioner moved the Court for an order under Sub-section (3) of that section directing the Commissioner to make a reference. The Court directed the Commissioner to refer for decision the following question:

Whether the income of the family from 13th April 1938 to 2nd June 1938 is not liable to be taxed by Virtue of Section 25 (3), Income Tax Act?

2. In his statement of the case, the Commissioner has suggested that the application of the petitioner made to the Income tax Officer on 22nd December 1939 was out of time, and it is necessary to decide this question as well, because naturally the Court is not prepared to embark upon an academic discussion of the question referred if the petitioner has delayed beyond the period allowed by law in raising his objection. To decide the question of limitation regard must be had to the provisions of Sub-section (5) as well as the provisions of Sub-section (3) of Section 25, Sub-section (3) reads as follows:

Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income Tax Act, 1918, is discontinued, then, unless there has been a succession by virtue of which the provisions of Sub-section (4) have been rendered applicable, no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference.

3. Sub-section (5) stated:

No claim to the relief afforded under Sub-section (3) or Sub-section (4) shall be entertained unless it is made before the expiry of one year from the date on which the business, profession or vocation was discontinued or the succession took place, as the case may be.

4. The Commissioner says that by his application of 22nd December 1939, the petitioner was claiming "relief" under Sub-section (3) and as the application was made more than one year from the date on which the family ceased doing business as a family the sands had run out. On the other hand, the petitioner says that the word "relief" in Sub-section