2009 (11) TMI 530 - HC - Income Tax

Right to exercise option to adopt its previous year under section 3(1) (e) (i) - business had commenced with effect from December 1, 1983 - Assessee filed return for the assessment year in question by treating the previous year to be from December 1, 1983 to June 30, 1984 - Assessing Officer stated that this amounted to change of previous year without permission under section 3(4) of the Act and on that ground the claim for loss for that year was rejected - Held that - There was no other source of income prior to December 1, 1983 - company had a right to exercise the option to adopt a previous year under section 3(1)(e)(i) of the Act - claim of loss shown up to June 30, 1984, has to be allowed, treating the previous year as ending on June 30, 1984 - no prior permission was required under section 3(1)(e)(i) - question, answered against the Revenue and in favour of the assessee

Issues: Determination of previous year for assessment, requirement of permission for changing previous year, commencement of new business, interpretation of Income-tax Act provisions.

Analysis:
1. Determination of Previous Year: The primary issue in this case was the determination of the previous year for assessment purposes. The assessee, engaged in manufacturing cylinders, filed a return treating the previous year as December 1, 1983, to June 30, 1984. The Assessing Officer rejected the claim for loss, stating it was a change of previous year without permission under section 3(4) of the Income-tax Act.

2. Permission Requirement: The crux of the matter was whether the assessee needed permission under section 3(4) to change the previous year. The assessee argued that since the new business commenced on December 1, 1983, the provision under section 3(4) was not applicable, and it had the right to choose the previous year under section 3(1)(e)(i). The Tribunal upheld this argument, emphasizing that the assessee had the right to exercise the option based on the commencement of business.

3. Commencement of New Business: The Tribunal examined whether the business had indeed commenced on December 1, 1983. It was established that there was no other source of income prior to this date, and the assessee's claim of loss up to June 30, 1984, was justifiable. The Tribunal highlighted that the business had genuinely started on the specified date, allowing the assessee to choose the previous year accordingly.

4. Interpretation of Income-tax Act: The interpretation of relevant provisions of the Income-tax Act was crucial in this judgment. The Tribunal's decision was based on a thorough analysis of the Act's sections, particularly section 3(1)(e)(i) and section 3(4). By considering the facts and circumstances of the case, the Tribunal concluded that the assessee had the right to select the previous year without the need for prior permission under section 3(4).

5. Precedent and Decision: The appellant cited a precedent where permission was required for choosing the previous year without a new business. However, the Tribunal distinguished this case, emphasizing that the present situation involved a new business. Ultimately, the Tribunal ruled in favor of the assessee, stating that no prior permission was necessary under section 3(1)(e)(i) due to the commencement of the new business on December 1, 1983.

6. Conclusion: After considering the arguments and records, the High Court disposed of the reference by answering the question against the Revenue and in favor of the assessee. The judgment clarified the application of relevant provisions of the Income-tax Act concerning the selection of the previous year for assessment purposes based on the commencement of a new business.

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