1950 (10) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. What income is exempt under Section 25(4) and whether any application is required to be made in respect of this exemption and if so, whether that application is governed by the period of limitation referred to in Section 25(5) of the Act?
2. Whether an application is required to be made in respect of the second part of Section 25(4) and if so whether that application is governed by the period of limitation referred to in Section 25(5) of the Act?

Issue-wise Detailed Analysis:

Issue 1: Income Exempt under Section 25(4) and Application Requirement

The assessee, a Hindu undivided family dealing in cloth, was taxed under the Indian Income-tax Act, 1918. The family business was disrupted on 17th October 1944, and succeeded by a firm of the erstwhile coparceners on 18th October 1944. The claim was made under Section 25(4) for exemption of income for Samvat year 2000. The Tribunal rejected this claim, necessitating a review of Section 25(4).

Section 25(4) provides relief from double taxation for businesses that paid tax under the 1918 Act and were succeeded by another entity. The first relief is that no tax shall be payable for the period between the end of the previous year and the date of succession. The second relief allows the income of the previous year to be deemed as the income of the said period.

The court clarified that the relief must be claimed in the assessment year in which the succession took place. In this case, the succession date was 18th October 1944, falling in the assessment year 1946-47. Therefore, the relief should have been claimed for the assessment year 1946-47, not 1945-46. The relief period was from 17th October 1944 to 18th October 1944, during which no income was earned, making the relief effectively nil.

The court concluded that the first relief under Section 25(4) does not require an application and is not subject to the limitation period in Section 25(5). Therefore, the assessee is entitled to this relief irrespective of the limitation period.

Issue 2: Application Requirement for Second Part of Section 25(4) and Limitation Period

The second part of Section 25(4) allows the assessee to claim that the income of the previous year be deemed as the income of the period between the end of the previous year and the date of succession. Section 25(5) mandates that any claim for relief under Section 25(4) must be made within one year from the date of succession.

In this case, the assessee did not file an application within the one-year period stipulated by Section 25(5). Therefore, the court held that the assessee is not entitled to the second relief due to the lapse of the limitation period.

The court affirmed that while no application is needed for the first relief under Section 25(4), the second relief requires a timely application as per Section 25(5). The Tribunal's interpretation that the second relief is time-barred was upheld.

Conclusion:
1. The income exempt under Section 25(4) for the period 17th October 1944 to 18th October 1944 is not subject to the limitation period in Section 25(5).
2. An application is required for the second part of Section 25(4), and it must be filed within the one-year limitation period as stipulated in Section 25(5).

The assessee is to bear the costs, and the reference was answered accordingly.