1964 (9) TMI 63 - HC - Income Tax

Summary

Issues:
1. Taxation of income for a period of 18 months vs. proportionate income for 12 months.
2. Assessment of income from property for 18 months vs. proportionate period of 12 months.

Analysis:
The case involves a reference under section 66(1) of the Indian Income-tax Act, 1922, where the primary issues revolve around the taxation of income for a period of 18 months and the assessment of income from property for the same extended period. The assessee, an individual deriving income from property, dividends, bank interest, and as a partner in a firm, sought to switch his previous year from the Fasli year to the financial year for convenience. The Income-tax Officer permitted this change with the condition that the entire 18 months' income would be taxed in one assessment for the assessment year 1955-56. The dispute arose regarding whether the income from property should be assessed for the full 18 months or only for the proportionate period of 12 months.

The court analyzed the relevant statutory provisions, emphasizing that the liability to tax arises from section 3 of the Income-tax Act, which charges tax on the total income of the assessee for the previous year at the rates fixed by the Finance Act. Section 4 defines the total income to include all income, profits, and gains from any source. Section 9 specifically addresses income from property, stating that tax shall be payable on the annual value of the property. The court highlighted that the annual value is deemed to be the sum expected from letting the property from year to year.

Furthermore, the court delved into the definition of the previous year under section 2(11), clarifying that it signifies the twelve months ending on March 31 preceding the assessment year. The court underscored that the tax is charged for a financial year based on the total income of the previous year, which is subject to separate assessment. Despite the extension of the previous year to 18 months, the court ruled that the entire income for that period must be subject to taxation, including income from property based on the expected letting value for the extended period.

In conclusion, the court answered the questions posed by affirming that the income for the extended 18-month period should be taxed at the applicable rates without proportionate adjustments and that the income from property should be assessed for the full 18 months, aligning with the extended previous year. The court emphasized that the change in the previous year, permitted subject to conditions, must be complied with, and the tax levied should consider the extended period for accurate assessment.