COMMISSIONER OF INCOME-TAX, MADHYA PRADESH versus LADY KANCHANBAI

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COMMISSIONER OF INCOME-TAX, MADHYA PRADESH

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LADY KANCHANBAI December 16, 1969 [J. C. SHAH AND K. S. HEGDE, JJ.j

Income-tax Act, 1922-S. 2(1l)(i)(a) and proviso-Previous year relevant to assess111ent year 1950-51 in respect o/ sources of income out side "taxable" territory-'Assessee', 'assesse~·, meaning of.

for

Prior to the assessment year 1950-51 the assessee was assessed under the Indian Income-tax Act, 1922 in the status of a non-resident Hindu Undivided Family. The income received by the assessee in the former Indian State of Madhya Bharat was not subject to tax under the Act but was taken into consideration in computing its "world incorile" the purpose of determining the rate. After the Constitution calne into force the present definition of "taxable territories" was incorpo,.ted into the Income-tax Act by the Finance Act, 1950 and the areas' in which the assessee was carrying on business with which this appeal is concerned were included therein with the result that for the assessment year 1950- 51 the assessee who was a resident of Madhya Bharat was deemed to be a resident in the "taxable territories" during the "previous year" and . hence liable to be taxed in respect of its income received in Madhya Bharat. Prior to the assessment year 1950·51 the assessee had proceeded on the basis that its account year ended on Diwali day, but fdr the respect of its income from business in assessment year 1950-51, Madhya Bharat it chose the financial year ending on March 31, 1950 as the "previous year". The Income Tax Officer as well as the Appelate Assistant Commissioner rejected the claim of the assessee that it could make such a choice. The Tribunal reversed the finding of the Income Tax Officer and the High Court on reference agreed with the tribunal. On the ques· regard to tion whether under the circumstances of the case, having s. 2( ll)(i)(a) of the Income Tax Act, 1922, the assessee is entitled to take the year ended on 31-3-1950 as the "previous year" relevant to the assessment year 1950-51 in respect of his sources of income arising outside tl•e '1axable territory",

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HELD : The High Court was right in answering in favour of the

assessee.

(I) le is clear from the provisions of s. 2(11) (i)(a) that in respect of any separate source of income, profits or gains unless the asses,,ee ·has made a choice in accordance with the second part of s. 2(1l)(i)(a) the 12 months ending on 31st day of March next the preceding year for which the assessment is made is the "previous year''. The section does not refer to the income of the assessee generally but to his "separate ~ources of income, profits and gains". H.;-nce it is possible for an assessec to have a different "previous year" for each "separate source of income, profits and gains" : and the business of the assessee in Madhya Bharat constituted a separate source of income. [326 C-0]

Commissio11er of Income Tax v. Sarumamuratlty. [1946] I.T.R. 185; RA<Hhsia Metals Lrd. v. Commissioner of Tt4es, (1941) J.T.R. Supp. 45, referred to.

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324

SUPREME COURT REPORTS

(1970) 3 S.C.R.

(2) Fdr the purpose of finding out the total "world income" of the assessee, the income derived by the assessee from its businesses outside the "taxable territories" had been taken into consideration in the past;· but that was done only for the purpose of determining the rate at which the assessee's income should be assessed. No tax was imposed on the in that "where in respect of come from those business. The expression a particular source of income, profits and gains" in to s. the proviso 2(11)(i)(a) means the income from a particular source which has been brought to tax under the Act and not which has been taken into considera tion for computing the total world income of the assessee. In the con text the word "assessee" in the proviso to s. 2(11)(i)(a) refers to the person whose income, profits or gains in respect of a particular source ,. had been once assessed to tax. The word "assessed" means subject to levy or imposition of tax not compu.ted. [327 C-F]

that provh~o

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Conimissioner of Income Tax, Bombay v. Kemchand Ramdas, (1938) VI, I.T.R. 414 and Seth Badridas Daga and Anr. v. Commissioner of Income Tax Central and United Provinces ( 1949) XVII l.T.R. 209, re ferred to.

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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 19 of

1969.

Appeal from the judgment and order dated October 28, 1960 D

of the Madhya Pradesh High Court in Misc. Civil Case No. 291 of 1958.

S. T. Desai, S. K. Aiyar and B. D. Sharma, for the appe'lant.

M. C. Chagla, Rameshwar Nath, Mahinder Narain

· Swaranjit Sodhi, for the respondents.

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The Judgment of the Court was delivered by

fledge, J.

fa this appeal by certificate the question that arises for decision is whether under the circumstances of the case having regard to Section 2(11) (i)(a) of the Income Tax Act, 1922 (to be hereinafter referred to as the Act) , the assessee is entitled to take the year ended on 31-3-1950 as the "previous year" relevant to the assessment year 1950-51 in respect of his sources of income arising outside the "taxable territories". This question nnder s. 66 (l) of the Act was answered in favour of the assessee by the High Coun of Madhya Pradesh. Aggrieved by that decision, the Commissioner of Income Tax, Madhya Pra- G desh has brought this appeal.

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The assessee (the respondent) is a Hindu Undivided Family with its Head-office at Indore and branches ,at several places. It derives income from property, business in cotton and oil seeds, speculation, dividends, managing agency commissions, etc. Prior ·to the assessment year 1950-51, the assessee was assessed under H the Indian Income Tax Act, 1922 in the status of a non-resident lfmdu Undivided Family. The income which accrued to or was

C.l.T. \', KANCHAN BAI ( Hegde, J.)

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received by the assessec in the former Indian States was not sub ject to tax under the Act but was taken into consideration in computing its '.'world income" for the purpose of determining the rate. After the Constitution came into force, the present defini tion of "taxable territories" was incorporated in the Income Tax Act by the Finance Act, 1950 and the areas in which the assessee was carrying on the businesses with which we are concerned in 1his appeal were included therein. The result of the amendmi;nt was that for the assessment year 1950-51, the assessee who was a resident of Madhya Bharat, was deemed to be a resident in· the "taxable territories" during the "previous year" and_hence liable to be taxed in respect of its income that accrued or received ia Madhya Bharat. For the purpose of its accounts the assessee was In the returns sub adopting the year ending on Diwali day. mitted by the assessee, prior to the assessment year 1950-5.1, it had proceeded on the basis that its account year ended on Diwall day; but for the assessment year 1950-51, in respect of its income accrued from its businesses in Madhya Bharat, it chose the finan cial year ending on March 31, 1950 as the "previous year". The Income Tax Officer as well as the Appellate Assistant Commis sioner rejected the claim of the. assessce that it could make such a choice. The Income Tax Oflker assessed the assessee on the b11sis that the "previous year" in respect of the concerned sources ended on Diwali of 1949. That decision was aflirmed by the . Appellate Assistant Commissioner; but the Income Tax Appellate Income Tax Officer Tribunal finding of and the Appellate Assistant Commissioner and agreed with the stand taken by the assessee. Thereafter a reference was made to the High Court of Madhya Pradesh under s. 66( I) of the Act at the instance of the Commissioner of Income Tax but the High Court agreed with the view taken by the tribunal. Hence thb appeal.

reversed

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The question for our consideration is whether the view takrn by the High Court is correct 1 In orJer to decide that question. it is necessary to find out the true scope of s. 2( 11 J(i) (a) of the Act, which provision dennes the term "previous year" thus :

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" "Previous year'' 1l1eans-

(ii) in respect of any SC/hlrale .\ottrce of ;ncome.

profits and gains-

(a) the twelve months ending on 3 lst day o(

March next preceding the year for which the assess ment 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 other than the said 3 bt day of March. then. at the option of

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L7Sup.CL1NP117fl-·6

326

SUPREME COURT REPORTS

( 1970]3 S.C.R.

the assessee, the yea_r ~nding on the date to which his accounts have been so made up :

Provided that where in respect of a particular source of income, profits anp gains, an assessee has once been assessed ........ he shall not, respect of that source or as the case may be, business, profession or vocation, exercise the OJ?tion given by this Sub-Clause so as to vary the meanmg of \he expression "previous year" as then applicable to him except with the consent of the Income-Tax Officer and upon such conditions as the Income Tax Officer may think fit to impose.'·

(emphasis is ours).

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From the above provision, it is clear that in respect of any ·,;cparate source of income, profits or gains, unless the assesscc had made a choice in accordance with 2nd part of s. 2 ( 1 I) ( i) (a). the twelve months ending on 31st day of March next the preced- ing year for which the :1ssessment is made is the ''.previous year".

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Therefore all that we have ·to see is whether the asscssee's ·income. profits or gains in respect of the businesses in Madhya Bharat had been assessed previously. If they had not been pre viously assessed then the assessec's case comes within the first part ·of s. 2 ( 11) ( i) (a). In that event his return was in accordance with law. Therefore we have first to see what is meant by "sourc~ E of income" in s. 2(11 )(i)(a) of the Act and then proceed to consider whether those sources of income had "once been assessed".

It is necessary to note that s. 2( 11 )(i)(a) does not refer to the income of the asscssee generally but to his "separate ,ourcc:; of income, profits and gains". Hence it is possible for an assessee to have a different "previous year" for each "separate source of income, profits and gains·· as held by the Madras High Court in Commissioner of /llcome Tax v. Savumamurathy('). In Rhodesia Metals Lttl. v. Commissioner of Taxes(') the Judicial Committee observed that "source" means not a legal concept but which a practical man would regard as a real source of income. There G is hardly any room for douht, nor was it contended otherwise- that the business of the asscssee in Madhya Bharat constituted a separate source or sources. Hence all that we have to see is whether the income accruing from those businesses had "once been assessed'' under the Act.

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This takes us to the question what exactly is the meaning of H

the expressions "assessed" and "assessee"

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the proviso

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(!) (1946) I.T.R. t85.

(2) (1941) I.T.R. Sup. 45.

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C.I.T. v. KANCHAN BAI (Hegde, J.)

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·•assessed",

s. 2(11 )(i) (a). The words "assessment" and "assessee" have different meaning in different contexts. As observed by Judicial Committee in Commissioner of Income Tax, Bombay v. Kemchand Ramdas(') the word "assessment" is used in the Act as meaning sometimes the computation of income, some times the determination of the amount of tax payab~ and some times the procedure laid down in the Act for imposing liability upon the tax payer. Simi.lady the word "assessee" connotes differ ent meaning in different contexts--see Seth Badridas Daga and anr. v. Commissioner of Income Tax Central and United Pro rinces(').

It is true that for the purpose of finding out the total "world income" of the assessee, the income derived by the assessee. from its businesses outside the taxable territories had ·been taken into consideration in the past. That was done only for the purpose of determining the ra\e ·at which the assessee's income s.hould be Jssessed. No tax was imposed on the income from those busi nesses. In other words, the income derived by the assessee from the businesses carried on by it in territories outside the "taxabl~ territories" were not brought to tax under the Act. The. expres sion that "where in 1'1',spect of a particular source of income, pfll fits and gains" in the proviso lo s. 2(11 )(i) (a) means the. income from a particular source which has been brought to tax under the Act and not which has been taken into consideration for com In the context th~ puting the total world income of the assessee. word "assessee" in the provi'o to s. 2 ( 11 )( i )(a) refers to the person whose income, profits or gains, in· respect of a particular source had been once assessed to tax. The word "assessed" in that proviso means subject to levy or imposition of tax not com pute .

For the reasons mentioned above. we agree with the view taken by the High Court. Jn the result this appeal fails and tl1e smne is dismissed with costs.

R.K.P.S.

Appeal dismissed.

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i 11(19J~i·VI,1.T.R. 414. 11) 1 19~9! xvn 1.T.R. 209.