1950 (1) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of "the period between the end of the previous year and the date of such succession" in Section 25(4) of the Indian Income-tax Act.
2. Determination of the relevant "previous year" for tax exemption under Section 25(4).
3. Applicability of the definition of "previous year" in Section 2(11) of the Act.
4. Consistency of interpretation across different sub-sections of Section 25.

Issue-wise Detailed Analysis:

1. Interpretation of "the period between the end of the previous year and the date of such succession" in Section 25(4) of the Indian Income-tax Act:
The core issue is the correct interpretation of the phrase "the period between the end of the previous year and the date of such succession" in Section 25(4) of the Indian Income-tax Act. The assessee argued that the "previous year" should be the year ending on 30th June, 1938, while the Income-tax Commissioner contended it should be the year ending on 30th June, 1939.

2. Determination of the relevant "previous year" for tax exemption under Section 25(4):
The assessee, a registered firm, was last assessed for the year 1939-40 based on the accounting year from 1st July, 1937, to 30th June, 1938. The firm transferred its business to a private limited company on 1st March, 1940. The firm claimed exemption for the period from 1st July, 1938, to 29th February, 1940, under Section 25(4). The Income-tax Officer and the Appellate Assistant Commissioner limited the exemption to the period from 1st July, 1939, to 29th February, 1940. The Appellate Tribunal, however, allowed the exemption for the entire period of 20 months.

3. Applicability of the definition of "previous year" in Section 2(11) of the Act:
The Income-tax Officer and the Appellate Assistant Commissioner applied the definition of "previous year" in Section 2(11), which generally means the 12 months ending on 31st March preceding the assessment year, unless a different terminal date is adopted by the assessee. Since the assessee's accounts were made up to 30th June each year, the "previous year" was taken as ending on 30th June, 1939, for the assessment year 1940-41.

4. Consistency of interpretation across different sub-sections of Section 25:
The court examined whether the interpretation of "previous year" should be consistent across sub-sections (1), (3), and (4) of Section 25. The court noted that sub-section (4) was intended to extend the relief under sub-section (3) to cases of succession and fill a legislative gap. The court concluded that the "previous year" in sub-section (4) should be interpreted similarly to sub-sections (1) and (3), i.e., as the previous year of the assessment year in which the succession occurred.

Conclusion:
The court held that the "previous year" in Section 25(4) should be interpreted as the year ending on 30th June, 1938, for the assessment year 1939-40. This interpretation aligns with the scheme and object of Section 25, which aims to provide relief in cases of business discontinuance or succession. The court answered the question in the affirmative, in favor of the assessee, and awarded costs of Rs. 250.

Separate Judgment:
One judge dissented, arguing that the "previous year" should be interpreted as per the statutory definition in Section 2(11), correlated to the year of assessment. This judge would have answered the question in the negative, against the assessee. However, the majority opinion prevailed.