1943 (3) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 25(3) of the Indian Income-tax Act, 1922.
2. Application of the term "discontinued" in Section 25(3).
3. Limitation period under Section 25(5) for claiming relief.

Detailed Analysis:

1. Interpretation of Section 25(3) of the Indian Income-tax Act, 1922:
The primary issue revolves around the interpretation of Section 25(3) of the Indian Income-tax Act, 1922. The petitioner, who was part of an undivided Hindu family, claimed that the income earned between 13th April 1938 and 2nd June 1938 should not be taxed due to the provisions of Section 25(3) and (4). The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim. The Court had to decide whether the petitioner's income during this period was exempt from tax under Section 25(3).

2. Application of the term "discontinued" in Section 25(3):
The Court examined whether the term "discontinued" in Section 25(3) should be interpreted as "cessation" of business. The petitioner argued that the term should not be read as "cessation" and relied on the Bombay High Court's decision in Commissioner of Income-tax, Bombay v. P.E. Polson. However, the Court disagreed with this interpretation, emphasizing that the term "discontinued" should be consistent with its use in Section 44, which clearly deals with the cessation of business. The Court found that the business continued by the same persons as partners, not as members of a joint family, and thus did not qualify as "discontinued" under Section 25(3). The Court supported its interpretation by referencing the judgment in Bartlett v. Inland Revenue Commissioners, where it was held that selling a business to a company did not constitute discontinuance.

3. Limitation period under Section 25(5) for claiming relief:
The Commissioner suggested that the petitioner's application for relief made on 22nd December 1939 was out of time, as it was more than a year after the family ceased doing business as a family. The petitioner contended that the term "relief" in Section 25(5) only referred to the claim for adjustment and refund of tax, not the exemption from tax during the period of discontinuance. The Court agreed with the petitioner, stating that the legislature did not intend to provide relief against an illegal order by the Income-tax Officer, and the provisions for appeal and reference were meant for that purpose. The Court concluded that the term "relief" in Section 25(5) only applied to the claim for adjustment and refund, not the exemption from tax.

Conclusion:
The Court held that the income of the family from 13th April 1938 to 2nd June 1938 was liable to be taxed under Section 25(3) and answered the reference accordingly. The Court also concluded that the petitioner's application for relief was not barred by limitation, as the term "relief" in Section 25(5) did not apply to the exemption from tax. The Commissioner was entitled to costs fixed at Rs. 250.

Separate Judgment by Patanjali Sastri, J.:
Patanjali Sastri, J., concurred with the judgment but added observations due to the differing opinion of the Bombay High Court in P.E. Polson. He emphasized that the terms "discontinuance" and "succession" have well-recognized meanings in income-tax usage and the amendments introduced in 1939 did not obliterate this distinction. He argued that interpreting "discontinuance" to include succession would lead to confusion and an incoherent scheme of assessment. He also agreed that the limitation period in Section 25(5) did not apply to the exemption from tax but only to the claim for adjustment and refund.