2020 (11) TMI 707 - HC - Income Tax

Assessment of income - inclusion of the share income of the minor from the firm which had closed its accounting year on 10.8.75 in the assessment of the assessee for the assessment year 1976-77 - Whether the amended provision which had come into effect from 1.10.75 will apply to an income which had accrued on 10.8.75 for the assessment to be made for the assessment year 1976-77? - HELD THAT - As relying on SRI LOKNATH GOENKA, SMT. NARMADA DEVI 2019 (8) TMI 458 - PATNA HIGH COURT Appellate Tribunal was not correct, in law, in upholding the inclusion of the share income of the minor from the firm M/s. Om Prakash Co. for it accrued on 10.08.1975, in the assessment year 1976-77, and the amendment which came into effect only on 1.10.1975 was to apply only prospectively and not retrospectively.

Summary

Issues:
1. Inclusion of share income of a minor from a firm in the assessment of the assessee.
2. Applicability of an amended provision to income accrued before its effective date.

Issue 1: Inclusion of share income of a minor:
The Income Tax Appellate Tribunal referred two substantial questions of law related to the inclusion of the share income of a minor from a firm in the assessment of the assessee for the year 1976-77. The Tribunal upheld the inclusion, leading to a legal challenge. The Tribunal's decision was based on the provision of Section 64(1)(iii) as amended by the Taxation Laws Amendment Act, 1975. The assessee argued against the inclusion, claiming that the amendment effective from 1.10.1975 could not impact the share income accrued on 10.8.1975. The Tribunal's findings were supported by the Appellate Commissioner and affirmed in an appeal, emphasizing that the law applicable for assessment is that in force in the assessment year, regardless of the date of income accrual within the accounting year.

Issue 2: Applicability of the amended provision:
The second question raised was whether the amended provision effective from 1.10.1975 could apply to income accrued on 10.8.1975 for the assessment year 1976-77. The Court referred to precedents to analyze the jurisdiction of the High Court in setting aside the Tribunal's order in a reference jurisdiction. Citing cases like Keshav Mills Co. Ltd. v. CIT and Premier Breweries Ltd. v. CIT, the Court highlighted that the High Court's role in a reference is advisory, not appellate. The Court emphasized that the law applicable is that in force in the assessment year, and amendments effective at the beginning of the relevant assessment year govern, irrespective of the income accrual date within the accounting year.

In a detailed analysis, the Court referred to relevant legal precedents and constitutional bench judgments to conclude that the amendment effective from 1.10.1975 could not be applied retrospectively to income accrued on 10.8.1975 for the assessment year 1976-77. The Court emphasized that the law applicable for assessment is that in force in the assessment year, and amendments effective at the beginning of the relevant assessment year must govern, irrespective of the income accrual date within the accounting year. Consequently, the Court answered the reference in the negative, indicating that the inclusion of the share income of the minor from the firm in the assessment was not correct in law.