1952 (12) TMI 2 - SC - Income Tax

Whether on a true construction of Section 25(4) of the Act, and on the facts stated the period the profits of which were entitled to exemption from the payment of tax is the period between 1st July, 1939, to 29th February, 1940, (a period of eight months) or the period commencing from 1st July, 1938, and ending with 29th February, 1940, (a period of 20 months)? Held that - After a careful consideration of the different provisions of the Act relevant to this enquiry, we have reached the conclusion that the expression end of the previous year in sub-sections (3) and (4) of Section 25 in the context of those sub-sections means the end of an accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession, (in this case 30th June, 1939). We are satisfied that Viswanatha Sastri, J., was right when he held that having regard to the object of the legislature in enacting sub-sections (3) and (4) of Section 25 and having regard to the plain language of these sub-sections, the assessee's contentions could not be upheld. We are, however, unable to subscribe to the conclusion reached by the learned Judge that the expression previous year in sub-sections (3) and (4) of Section 25 was co-related to the year of assessment 1940-41. We allow the appeal and hold that the answer given by the senior Judge to the question referred was wrong and that the answer given by Viswanatha Sastri, J., was the correct one.

Summary

Issues Involved
1. Liability of the firm to pay income-tax under Section 25(4) of the Indian Income-tax Act, 1922.
2. Interpretation of "previous year" in the context of Section 25(4).
3. Applicability of relief provisions under Section 25(4) for the period from 1st July, 1938, to 29th February, 1940.

Detailed Analysis

1. Liability of the Firm to Pay Income-Tax under Section 25(4)
The respondents, who were partners in the business of "The Hindu" newspaper, transferred their business to a private limited company on 1st March, 1940. They claimed exemption from paying income-tax on the income of their business from the end of the accounting year ending 30th June, 1938, to 29th February, 1940, under Section 25(4) of the Indian Income-tax Act, 1922. The Income-tax Officer allowed exemption only for the period from 1st July, 1939, to 29th February, 1940, which was confirmed by the Appellate Assistant Commissioner. However, the Tribunal held that the firm was entitled to exemption for the entire period from 1st July, 1938, to 29th February, 1940.

2. Interpretation of "Previous Year" in the Context of Section 25(4)
The primary question was whether "previous year" in Section 25(4) referred to the year ending 30th June, 1938, or 30th June, 1939. The court had to consider the definition of "previous year" under Section 2(11) and the provisions of Section 25 and Section 26 of the Act. It was argued that the "previous year" should be the completed accounting year immediately preceding the date of succession, which in this case was the year ending 30th June, 1939. The court noted that the term "previous year" in the context of Section 25(4) means the end of an accounting year expiring immediately preceding the date of succession, and not necessarily linked to the assessment year.

3. Applicability of Relief Provisions under Section 25(4)
The court examined the history and object of Section 25, noting that it was intended to provide relief for double assessments suffered under the 1918 Act. The court concluded that the relief under Section 25(4) should be limited to the period from 1st July, 1939, to 29th February, 1940, as the "previous year" referred to the accounting year ending 30th June, 1939. The court held that the Income-tax Officer was not empowered to make an accelerated assessment for the year of succession and that the relief should be granted in the assessment year 1941-42.

Conclusion
The Supreme Court allowed the appeal, holding that the firm was entitled to exemption from tax only for the period from 1st July, 1939, to 29th February, 1940, and not for the entire period from 1st July, 1938, to 29th February, 1940. The court found that the interpretation of "previous year" by the Tribunal and Satyanarayana Rao, J., was incorrect, and upheld the view of Viswanatha Sastri, J., that the "previous year" should be the accounting year immediately preceding the date of succession. The appeal was allowed with no order as to costs.