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Issues Involved:
1. Determination of the appropriate "previous year" for salary income. 2. Applicability of Section 3(1)(b) of the Income-tax Act, 1961. 3. Validity of reopening assessments under Section 147(a) of the Income-tax Act, 1961. Detailed Analysis: 1. Determination of the Appropriate "Previous Year" for Salary Income The core issue in these appeals is whether the "previous year" for salary income should align with the financial year or can be different, based on the company's accounting year. The assessee, being the managing director of Sphinax Chemical Industries (P.) Ltd., argued that since the company follows an accounting year ending on 31st July, his salary income should also be assessed based on this period. The revenue contended that in the absence of accounts maintained by the assessee for salary, the "previous year" should be the financial year. 2. Applicability of Section 3(1)(b) of the Income-tax Act, 1961 The assessee's representative argued that under Section 3(3) of the Act, the assessee has the option to choose the previous year for his salary income. He cited the Andhra Pradesh High Court decision in Addl. CIT v. K. Ramachandra Rao, where a different previous year for salary income was accepted. The revenue, however, maintained that without the assessee maintaining accounts for salary, the financial year should be the default "previous year." The Tribunal examined the provisions of Section 3(1)(a) and 3(1)(b). Section 3(1)(a) defines the "previous year" as the financial year immediately preceding the assessment year. However, Section 3(1)(b) allows an assessee to opt for a twelve-month period ending on a date within the financial year if accounts are made up to that date. Section 3(3) further allows different previous years for separate sources of income, provided accounts are maintained. The Tribunal concluded that salary income is a "separate and distinct" source of income. However, since the assessee did not maintain any books of account or similar records for salary income, the case falls under Section 3(1)(a), making the financial year the applicable "previous year." 3. Validity of Reopening Assessments under Section 147(a) of the Income-tax Act, 1961 The revenue reopened the assessments for the years 1976-77 and 1977-78 under Section 147(a) to reassess the salary income based on the financial year. The assessee did not challenge the validity of this action. The Tribunal noted that the initial assessments for these years were incorrect in law, as they accepted the assessee's previous year for salary income without the assessee maintaining any accounts. The Tribunal upheld the revenue's action, noting that the absence of accounts meant the financial year should be the previous year for salary income. Consequently, the reassessed income for the years 1976-77 and 1977-78 was found to be correct. Separate Judgments: Judicial Member's Opinion: The Judicial Member emphasized that the assessee's statement filed with the return, showing income computed based on the company's accounting year, satisfies the requirement of "accounts being made up." He argued that the term "accounts" should not be narrowly interpreted to mean only regular books of accounts. The statement filed with the return and the certificate of tax deduction should suffice to demonstrate that the assessee made up his accounts within the financial year. Third Member's Opinion: The Third Member agreed with the Judicial Member, stating that the term "accounts" should be interpreted broadly. The statement filed along with the return and the salary certificate issued by the company constitute "accounts" for the purpose of Section 3(1)(b). Therefore, the assessee's choice of the previous year based on the company's accounting year should be accepted. Conclusion: The appeals were dismissed by the Accountant Member, but the Judicial Member and the Third Member allowed the appeals, holding that the statement filed with the return and the salary certificate constitute "accounts." The original assessments for the years 1976-77 and 1977-78 were restored, and the assessment for 1978-79 was directed to be recomputed based on the company's accounting year. The final decision was to allow the assessee's appeals, recognizing the company's accounting year as the previous year for salary income.
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