1970 (1) TMI 9 - HC - Income Tax

Summary

Issues:
Interpretation of the definition of "previous year" for income tax assessment.

Analysis:
The case involved a question regarding the inclusion of dividend income in the assessee's total income for the assessment year 1953-54. The Income-tax Officer initially excluded the income accrued from dividend on the grounds that it should have been considered for the previous year ending August 31, 1952. However, the Appellate Assistant Commissioner and the Tribunal found that the income was accounted for in the books of account for the assessment year 1954-55, and therefore, the assessment for 1953-54 was not justified.

The key legal provision in question was sub-clause (a) of clause (i) of sub-section (11) of section 2 of the Indian Income-tax Act, which defines "previous year" for income tax purposes. The argument put forth by the revenue was that the assessee was not entitled to exercise the option provided in the provision as separate books of account were not maintained for the dividend income. However, the Tribunal rejected this argument, emphasizing that the income was accounted for separately in the assessee's books for the relevant period.

The judgment discussed various legal precedents cited by the revenue's counsel, highlighting that the requirement for exercising the option under the provision was not the maintenance of separate books of account but the proper accounting and maintenance of records for the separate source of income. The court also clarified that the option to choose a different previous year for a separate source of income did not necessitate separate books but required proper maintenance of accounts specific to that income source.

Additionally, the argument that the assessee had not exercised the option was dismissed as a factual matter that was not raised during the proceedings before the income-tax authorities. The court emphasized that the option was for the assessee to exercise, and once exercised, the department was bound to assess the income accordingly.

Ultimately, the court answered the question in favor of the assessee, concluding that the income from dividend should be included in the assessment for the year 1954-55. The costs were awarded to the assessee.

In summary, the judgment clarified the interpretation of the "previous year" definition under the Income-tax Act, emphasizing the importance of proper accounting for separate sources of income rather than the maintenance of separate books. It upheld the assessee's right to exercise the option provided by the law and highlighted the department's obligation to assess income based on the assessee's choice.