1967 (7) TMI 20 - HC - Income Tax

Financial Year - Previous Year - Unless the firm has balanced its accounts in the sense of drawing up a balance-sheet and ascertaining the profits as of a particular date, the option under s. 2(11)(c) cannot be availed of by the assessee and since the assessee had merely carried forward the balances from Samvat year 2014 to Samvat year 2015, it cannot be said that as at the end of Samvat year 2014, the assessee had made up its accounts

Summary

Issues:
Determining the "previous year" for assessment year 1959-60 based on the accounts of a partnership firm kept according to the Samvat year.

Analysis:
The case involved the assessment of a partnership firm for the year 1959-60, where the firm's accounts were to be settled on Aso Vad 30 of every year according to the partnership deed. The firm, engaged in building construction, completed its work by October 31, 1959. The Income-tax Officer considered the financial year 1958-59 as the previous year for assessment, which was upheld by the Appellate Assistant Commissioner and the Appellate Tribunal. The Tribunal found that the firm did not draw up a balance sheet at the end of Samvat year 2014, and the profits were credited to partners without ascertaining profits for both Samvat years 2014 and 2015.

The Tribunal concluded that the option under section 2(11)(c) was not available to the assessee as the accounts were not made up at the end of Samvat year 2014. The definition of "previous year" under section 2(11) was crucial in determining the applicable assessment period. The assessee contended that closing the accounts of Samvat year 2014 and carrying forward balances to Samvat year 2015 constituted making up of accounts, allowing for the option under section 2(11)(c) to be exercised.

The court referred to the case of Sukhdeodas Jalan v. Commissioner of Income-tax, where the timing of closing accounts and ascertaining profits was pivotal. The court emphasized that making up of accounts involved ascertaining profits as of a specific date, which was not done by the assessee in this case. Consequently, the court upheld the decision of the income-tax authorities to consider the period from June 19, 1958, to March 31, 1959, as the previous year for assessment year 1959-60.

In conclusion, the court answered the question in the affirmative, holding that the income-tax authorities were correct in treating the period from June 19, 1958, to March 31, 1959, as the previous year for the assessment year 1959-60. The assessee was directed to pay the costs of the reference to the Commissioner.