1995 (1) TMI 19 - HC - Income Tax

Summary

Issues:
1. Whether the salary income of the assessee from a foreign employer can be included for assessment.
2. Whether the assessee is entitled to claim a separate previous year for salary income from a foreign employer.

Analysis:
The judgment by the Andhra Pradesh High Court involved a reference made by the Revenue under the Income-tax Act, 1961 regarding the inclusion of the assessee's salary income from a foreign employer for assessment and the entitlement to claim a separate previous year for such income. The assessee had worked in National Gas Company, Bahrain, for a specific period and received income under the head "Salaries" in India for the assessment year 1980-81. The Income-tax Officer assessed this foreign income for the same year, which the assessee disputed. The matter went through various levels of appeal until reaching the Income-tax Appellate Tribunal, which allowed the assessee to have a different previous year for the foreign income, leading to the reference to the High Court.

The main contention raised by the Revenue was that salary income, whether earned in India or abroad, falls under the same head and source, thus cannot be treated separately. However, the court examined the provisions of the Income-tax Act, specifically section 3(3), which allows an assessee to have different previous years for separate sources of income. The court emphasized that the concept of "source" is practical and not merely a legal concept, citing relevant precedents. It was established that foreign income can be considered a different source, allowing the assessee to opt for a separate previous year for such income, as long as it falls under different sources, even if it belongs to the same head of income.

The court referred to a Supreme Court case and a previous judgment of the High Court to support the principle that income from different sources can have different previous years for assessment. In a similar case involving a High Court judge, it was held that income from different sources, even if falling under the same head, can be assessed with different previous years. Applying this reasoning to the present case, where the assessee had foreign income, the court concluded that the assessee's choice of a different previous year for the foreign income was valid under the provisions of the Income-tax Act. Therefore, the High Court answered both questions in favor of the assessee, allowing the separate assessment of the foreign income and rejecting the Revenue's arguments.

In summary, the judgment reaffirmed the assessee's right to claim a separate previous year for salary income earned from a foreign employer, emphasizing the practical interpretation of income sources and the provisions allowing for such differentiation under the Income-tax Act.