2009 (11) TMI 54 - HC - Income Tax

Previous year option - Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had a right to exercise option to adopt its previous year from 1.1.1983 to 30.6.1984 under Section 3 (1) (e) (i) and was not required to obtain permission under Section 3 (4) of the Income-tax Act, on the ground that business had commenced with effect from 1.12.1983 held that - Learned counsel for the appellant has placed reliance on Commissioner of Income-tax vs. Ravinder Kumar wherein business not being new business, it was held that choice of previous year without permission could not be exercised. This judgment is clearly distinguishable as in the present case, the business of the assessee has been held to be new business. - In view of reasons given by the Tribunal, it stands established that the business of the assessee commenced on 1.12.1983 and in such a situation the Tribunal was justified in holding that no prior permission was required under Section 3 (1) (e) (i). The question referred, thus, has to be answered against the revenue and in favour of the assessee

Issues:
1. Interpretation of Section 3 (1) (e) (i) of the Income-tax Act regarding the right to exercise option for adopting the previous year.
2. Requirement of obtaining permission under Section 3 (4) of the Income-tax Act for changing the previous year.
3. Consideration of whether the business commenced on a specific date and its impact on the choice of the previous year.

Analysis:

Issue 1: Interpretation of Section 3 (1) (e) (i)
The case involved a question of law referred by the Income-Tax Appellate Tribunal regarding the interpretation of Section 3 (1) (e) (i) of the Income-tax Act. The Tribunal upheld the assessee's plea that they had the right to exercise the option to adopt the previous year from 1.1.1983 to 30.6.1984 without the need for permission under Section 3 (4) of the Act. The Tribunal emphasized that the key factor was whether the assessee had commenced business from 1.12.1983, which would allow for the exercise of the option under Section 3 (1) (e) (i).

Issue 2: Requirement of Permission under Section 3 (4)
The Assessing Officer had initially rejected the claim for loss for the assessment year as the assessee had changed the previous year without obtaining permission under Section 3 (4) of the Act. However, the Tribunal disagreed, stating that since the business commenced on 1.12.1983, the provision under Section 3 (4) was not applicable, and the assessee had the right of choice under Section 3 (1) (e) (i). The Tribunal also considered the plea of the assessee regarding the acceptance of the previous year in subsequent assessment years by the revenue.

Issue 3: Commencement of Business and Impact on Previous Year
The judgment highlighted the importance of determining the date of commencement of business, as it directly impacted the assessee's right to choose the previous year. The Tribunal found that the business indeed started on 1.12.1983, which justified the assessee's claim for the choice of the previous year without requiring prior permission. The judgment distinguished a previous case where the choice of previous year without permission was not allowed due to the nature of the business being different.

In conclusion, the High Court ruled in favor of the assessee, stating that the business commenced on 1.12.1983, allowing for the exercise of the option under Section 3 (1) (e) (i) without the need for permission under Section 3 (4). The judgment emphasized the factual circumstances and the interpretation of relevant provisions of the Income-tax Act in determining the validity of the assessee's claim for the choice of the previous year.

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