1991 (5) TMI 80 - AT - Income Tax

Summary

Issues:
1. Determination of the previous year for income assessment.
2. Treatment of income earned abroad in relation to the previous year.
3. Interpretation of provisions under Section 3(1)(b) of the Income-tax Act, 1961.
4. Assessment of the assessee's status as a resident or non-resident based on the previous year.

Analysis:

Issue 1: Determination of the previous year for income assessment
The case involved the assessment year 1977-78 for an individual assessee who initially declared income from a partnership firm and later revised the return to include income earned abroad. The assessee claimed the previous year as Samvat Year 2032, ending on 23-10-1976, due to residing in Muscat during that period. The Income-tax Officer accepted the Samvat Year as the previous year for partnership income but considered the financial year ending on 31-3-1977 as the previous year for income earned abroad.

Issue 2: Treatment of income earned abroad in relation to the previous year
The AAC held that since the assessee resided outside India for a significant period during the previous year, he should be treated as a non-resident for that year. Therefore, the income earned abroad was not liable to be included in the total income. The AAC deleted the inclusion of Rs. 40,000 made by the Income-tax Officer in the assessment.

Issue 3: Interpretation of provisions under Section 3(1)(b) of the Income-tax Act, 1961
The interpretation of Section 3(1)(b) was crucial in determining the previous year for income assessment. The section allows the assessee to choose the previous year if accounts have been made up to a specific date within the financial year. The Tribunal emphasized that making up accounts means ascertaining profits or losses as of a particular date, and maintaining separate account books is not necessary as long as the accounts are made up to a specific date.

Issue 4: Assessment of the assessee's status as a resident or non-resident based on the previous year
The Tribunal confirmed that the assessee's status as a non-resident for the previous year, Samvat Year 2032, was justified due to his limited presence in India during that period. Consequently, the income earned abroad was not includible in the assessed income. The Tribunal upheld the AAC's decision to delete the inclusion of Rs. 40,000 in the assessment.

In conclusion, the appeal by the Department was dismissed, affirming the AAC's decision regarding the previous year determination and the treatment of income earned abroad for the individual assessee.