1945 (5) TMI 5 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to relief under Sub-Section (3) or (4) of Section 25 of the Income Tax Act, 1922.
2. Scope of relief if entitled, specifically whether it includes income from investments and profits from railway operations.

Detailed Analysis:

1. Entitlement to Relief under Sub-Section (3) or (4) of Section 25 of the Income Tax Act, 1922:

The Company was assessed under the Income-tax Act of 1918 for the years 1918-19 to 1921-22, but these assessments related only to the income from interest on investments, not from the business of running the railway, which commenced operations in February 1922. The Company claimed relief under Sub-Sections (3) or (4) of Section 25 of the Act, which provide for tax relief upon discontinuance or succession of a business previously taxed under the Income-tax Act of 1918.

The Income-tax Officer concluded that the Company was not entitled to relief under either sub-section since no tax had been charged on the business of the Company under the provisions of the Income-tax Act of 1918. This decision was upheld by the Assistant Commissioner of Income-tax, Sind and Baluchistan, and the Commissioner of Income-tax, who referred the matter to the High Court.

The High Court analyzed whether the Secretary of State had succeeded to the business of the Company or whether the business had been discontinued. The Court noted that the income from investments was assessed under different heads (Sections 8 and 12) and not as business income under Section 10 of the Act. The Court concluded that the income taxed under the Act of 1918 was not business income for the purposes of Sub-Sections (3) and (4) of Section 25. Therefore, the Company was not entitled to relief under these provisions.

2. Scope of Relief if Entitled:

The Court further analyzed whether, if the Company were entitled to relief, it would apply to both the income from investments and the profits from the railway operations. The Court noted that the investing of surplus funds was not part of the business of the Company for income-tax purposes. The income from these investments was assessed under Sections 8 and 12, not under Section 10, which deals with business income.

The Court emphasized that the various heads of income specified in Section 6 of the Act are mutually exclusive, and income appropriately falling under one head cannot be assessed under another. The Company's income from investments was not considered business income, and thus, even if relief were due, it would only apply to the income from investments and not to the profits from the railway operations.

The Court referred to several precedents, including the case of *Commr. of Income-tax, Madras v. B. J. Fletcher*, to support its conclusion that income assessed under different heads cannot be treated as business income for the purposes of Sub-Sections (3) and (4) of Section 25.

Conclusion:

The High Court concluded that the Company was not entitled to relief under Sub-Sections (3) or (4) of Section 25 of the Income Tax Act, 1922, as the income taxed under the Act of 1918 was not business income. Consequently, the question of the scope of relief did not arise. The Company was ordered to bear the costs of the reference.