1961 (3) TMI 94 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 25(4) of the Indian Income-tax Act, 1922.
2. Determination of the "previous year" for tax exemption purposes under Section 25(4).
3. Applicability of tax exemption for the period from October 19, 1942, to October 7, 1943.

Issue-Wise Detailed Analysis:

1. Interpretation of Section 25(4) of the Indian Income-tax Act, 1922:

The primary issue revolves around the interpretation of Section 25(4) of the Indian Income-tax Act, 1922, which provides tax relief for businesses succeeded by another entity. The section states that no tax shall be payable by the original business owner for the income, profits, and gains of the period between the end of the previous year and the date of succession. The assessee argued that this section should exempt them from tax for the entire period from October 19, 1942, to October 7, 1943, as their business was succeeded by a partnership firm on October 8, 1943.

2. Determination of the "previous year" for tax exemption purposes under Section 25(4):

The court needed to determine what constitutes the "previous year" under Section 25(4). The assessee contended that the "previous year" should be the accounting year relevant to the assessment year 1944-45, which would be from October 19, 1942, to October 7, 1943. The Tribunal, however, held that the "previous year" should be the accounting year immediately preceding the date of succession, which in this case would be from October 19, 1942, to October 7, 1943. This interpretation was supported by the Supreme Court's ruling in Commissioner of Income-tax v. Srinivasan, which stated that the "previous year" means the completed accounting year immediately preceding the date of succession.

3. Applicability of tax exemption for the period from October 19, 1942, to October 7, 1943:

The court examined whether the assessee was entitled to tax exemption for the period from October 19, 1942, to October 7, 1943, under Section 25(4). The Tribunal's decision, which was upheld by the High Court, concluded that the assessee was only entitled to exemption for the income earned between the end of the previous year (October 7, 1943) and the date of succession (October 8, 1943). Since no income was earned during this one-day period, the assessee was not entitled to any tax exemption for the period from October 19, 1942, to October 7, 1943.

Separate Judgments:

Bhargava J.:

Bhargava J. concluded that the "previous year" for the purpose of Section 25(4) was the accounting period from October 19, 1942, to October 7, 1943. The assessee was only entitled to exemption for the income earned between October 7, 1943, and October 8, 1943, which was nil. Therefore, the assessee's contention for exemption for the period from October 19, 1942, to October 7, 1943, was rejected.

Upadhya J.:

Upadhya J. disagreed with Bhargava J. and argued that the expression "end of the previous year" should be interpreted to ensure that there is always a period between the end of the previous year and the date of succession. He contended that the relevant period for exemption should be from October 19, 1942, to October 7, 1943, and that the assessee should be granted relief for this period.

Jagdish Sahai J.:

Jagdish Sahai J., the third judge, agreed with Bhargava J. He held that the "previous year" means the completed accounting year immediately preceding the date of succession, which in this case was from October 19, 1942, to October 7, 1943. Since no income was earned between October 7, 1943, and October 8, 1943, the assessee was not entitled to any tax exemption for the period from October 19, 1942, to October 7, 1943.

Final Order:

The majority opinion, supported by Bhargava J. and Jagdish Sahai J., concluded that the assessee was not entitled to tax exemption for the period from October 19, 1942, to October 7, 1943. The reference was answered in the negative, and the parties were directed to bear their own costs. The fee for the department's counsel was fixed at Rs. 300.