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TMI Blog1950 (1) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... in the sub-section should be taken as the year ending on 30th June, 1938, or 30th June, 1939. The assessee contends that it is the former, while the Income-tax Commissioner maintains that it is the latter. There is no decided case on the point and the question has to be settled by an interpretation of the relevant provisions of the Act. The relevant facts are not in controversy and lie in a short compass. The assessee is the registered firm of Messrs. K. Srinivasan and K. Gopalan, Proprietors of "The Hindu" a daily newspaper at Madras. They were last assessed to tax in the year 1939-40 in respect of the profits of the "previous year", the accounting year from 1st July, 1937, to 30th June, 1938. On 1st March, 1940, i.e., during the assessment year 1939-40, the assessee made over the newspaper business as a going concern to a private limited company incorporated under the Indian Companies Act, 1913, and styled Messrs. Kasturi and Sons Ltd. The company succeeded to the business of the firm on 1st March, 1940. When required by notice under Section 22(2) of the Indian Income- tax Act to submit a return of its income for the assessment year 1940-41, the assessee cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is whether this interpretation of "previous year" is correct. This is a case in which a person carrying on business has been succeeded in such capacity by another person and, therefore, under sub-section (2) of Section 26 of the Act, the predecessor and the successor are, subject to the provisions of sub-section (4) of Section 25, liable to be assessed in respect of his actual share of the income of the "previous year." Normally speaking, income-tax is assessable on the income of a period of 12 months. Under the Indian Income-tax Act, 1918, the basis of assessment was the income of the year of assessment and since that income could not be definitely known till the expiry of the year, the assessment was made on the basis of the income of the "previous year" and after the termination of the year when the actual income was known and ascertained, a final assessment was made on the actual figures and thereafter the consequential adjustments were made in the tax collected from the assessee. This system was altered by the Act of 1922. The final assessment is made under the Act on the income of a fixed period called the "previous year", which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The definition of "previous year" in Section 2(11) applies only, if there is nothing repugnant in the subject or context. This is also an accepted canon of construction of statutes. [Vide Craies on Statute Law, p. 97 (Fourth Edition) and Beal's Cardinal Rules of Legal Interpretation (Third Edition), pp. 340 and 341]. The words "previous year" in Section 25(1) refer to the previous year of assessment in which the discontinuance occurs. This is made clear beyond dispute by the language of the clause. It states: "Where any business, profession or vocation to which sub-section (3) is not applicable is discontinued in any year, an assessment may be made in that year on the basis of the income, profits or gains of the period between the end of the previous year and the date of such discontinuance in addition to the assessment, if any, made on the basis of the income, profits or gains of the previous year." The expression "that year" clearly means the year in which the business was discontinued. Under this clause the Income-tax authorities are empowered to add to the income of the previous year the income of the period between the end of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to a business and to fill up a lacuna in the Act, which was noticed by the decisions before that year, the Legislature could not have contemplated one period under sub-clause (3) and a shorter and a different period under sub-section (4). The period contemplated, in my opinion, in the three sub-clauses, (1), (3) and (4), must be the same and the expression "previous year" in the three clauses must receive a uniform construction. The normal rule of assessing the income of one year has no application to sub-clauses (1), (3) and (4) of Section 25, as these sub-clauses are intended to make a final settlement between the assessee and the Crown in cases where the business is either discontinued, or there is a succession to a business and it is for that reason a special period is provided in the three sub-clauses. On a consideration, therefore, of the scheme underlying the section and the object of enacting sub-section (4), I am inclined to hold that the "previous year" in sub-clause (4) is the "previous year" of the assessment year in which the succession had occurred, and, in the present case, it is the year ending on 30th June, 1938. It is not disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with 29th February, 1940?" The facts relevant to this reference are these: The respondents are brothers who carried on in partnership the business of conducting and publishing "The Hindu", the well-known daily newspaper of Madras. The business had been in existence for many years and its profits had been charged to income-tax in the hands of the respondents under the Income-tax Act of 1918. The firm's "previous year", that is to say, its year of account, was a period of twelve months ending with the 30th June each year. In respect of the profits of the year of account ending with 30th June, 1938, the firm had been charged to income-tax for the assessment year 1939-40. On 1st March, 1940, a private limited company under the name and style of "Kasturi & Sons, Limited", formed by the partners, succeeded to the business as owners, the partnership having ceased to exist on that date. From 1st March, 1940, the same business has been carried on by the private limited company and its income has been assessed in the hands of the company. For the assessment year 1940-41 the Income-tax Officer charged to income- tax the profits of the firm earned durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er they ought to be construed as they would be, if read alone. Occasionally courts have cut down or expanded the language of the legislature, when, on a fair view of the Act, considering its scheme and manifest purpose, they found that tax could not have been imposed on a particular class or persons : Drummond v. Collins [1915] A.C. 1011, 1017. But this liberty will not be taken except in a case of absolute necessity: Astor v. Perry [1935] A.C. 398, 406, 416, 417. In order to arrive at a correct interpretation of Section 25 of the Act which has been amended by the legislature in view of the rulings of courts, it is legitimate to consider its history. Under the Act of 1918 income-tax was levied on the income of the current year, i.e., the year of assessment, taking the income of the previous year as a tentative measure. After the actual figures of profits were ascertained at the end of the year, adjustments were made in the next year's assessment and the excess tax was refunded or the deficiency collected as the case might be. The Act of 1922 introduced a change in this respect. Under Section 3 of that Act the income of the previous year is actually made the subject of the char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid, the assessee on giving notice under Section 25(5), could claim to have excess tax refunded, if the tax payable on the basis of the substituted profits was less than the tax already assessed and paid on the income of the previous year. There was no provision in Section 25 as originally enacted in 1922 giving any relief in cases of succession to a business, that is to say, where the business merely changed hands. It was well understood, both in England and in India, that the expression "discontinuance" meant only a total cessation or extinction of the business and did not include the case of discontinuance of the business by the person formerly carrying it on as the result of a transfer or assignment of that business to another person who thereafter carried it on. See Meyyappa Chettiar v. Commissioner of Incometax [1943] 11 I.T.R. 247; I.L.R. 1944 Mad. 166 and Commissioner of Income-tax v. Polson [1945] 13 I.T.R. 384; L.R. 72 I.A. 196 (P.C.). With reference to cases of succession to a business it was provided by Section 26(2) of the Act as originally enacted in 1922, that the successor was liable to be assessed on the income of the previous year as if he had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the period between the end of the previous year and the date of discontinuance from tax altogether and no assessment can be made of that income. Similarly, in the case of succession to a business charged under the Act of 1918, the income of the person succeeded in the business, for the period between the end of the previous year and the date of succession, is exempt from tax and no assessment can be made of such income in his hands. If, however, in either of these two cases, the assessee wants further relief by way of a substitution of the profits of the broken period of the year of discontinuance or succession in the place of the profits of the next previous year, and a consequent reduction of the tax, he has to give the revenue authority notice under Section 25(5) of this claim for further relief within the expiry of one year from the date of discontinuance or succession, as the case might be. It is significant that the notice under Section 25(5) is allowed to be given within one year of the discontinuance or succession in the case of a business whose profits had been charged under the Act of 1918, unlike the notice under Section 25(2) which is required to be given within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial year, for this expression is defined by Section 2, clause (11), sub-clause (a), of the Act as meaning the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made, or if the accounts of the assessee have been made up to a date within the said twelve months, in respect of a year ending on any date other than the 31st day of March, then, at the option of the assessee, the year ending on the day to which his accounts have been so made up. It is with reference to a year of assessment that the "previous year" has to be understood and the definition in Section 2 (11)(a) correlates the "previous year" to the year of assessment. In the present case, the assessee was duly assessed to tax for the year of assessment which is the financial year 1939-40 on the income of his previous year ending with 30th June, 1938. The next assessment year was 1940-41 for which the "previous year" of the assessee would be the year ending 30th June, 1939. The assessee firm was carrying on business and earning profits during this previous year ending 30th June, 1939, and would normally be assessable to tax in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period between the end of the previous year" and the date of discontinuance or succession must be understood and interpreted as having been used in the same sense throughout the several sub-sections; that so understood and interpreted, the expression "the period between the end of the previous year" occurring in Section 25(1), (3) and (4) means "the end of the previous year in respect of the profits of which the assessee has been charged to income-tax" or "the end of the assessee's year of account which preceded the assessment year in which the discontinuance or succession took place;" and that the statutory definition of "previous year" in Section 2(11)(a) stands displaced in the context of Section 25(1), (3) and (4). He further argued that the provisions of Section 25(3) and (4) were exemptions from the liability imposed by Section 25(1) of the Act and the scope of the exemptions must be co-extensive with the ambit of the charging provisions found in Section 25, clause (1). Having considered the argument with the respect due to the learned advocate, I am of opinion that it should not prevail. In my view, though clauses (1), (3) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment may be made immediately after the date of discontinuance without waiting for the arrival of the normal assessment year. There is no question of clubbing together the profits of the previous year or years with the profits of the broken period or of a single assessment for the entire period covered by the previous year or years before discontinuance and the period from the end of the previous year to the date of discontinuance. This is made clear by the language of Section 25(1). The reference to the word "year" in Section 25(1) in connection with discontinuance of business and an accelerated assessment might well be taken to be the "calendar year", consistently with the definition of the word "year" in Section 3(59) of the General Clauses Act. Section 25(1) makes a departure from the normal course of assessment and authorises an assessment without waiting for the advent of the normal assessment year in respect of the income of a discontinued business. The words "previous year" in Section 25(1) mean "the year of account preceding the date of discontinuance." There is no need to read the words as meaning "the year of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits of the year of discontinuance or succession substituted for the profits of the year of account preceding the date of discontinuance or succession. This is all what Section 25(3) and (4) provided by way of exemption or relief and nothing further was either contemplated or required by the necessities of the case. Sections 25(3) and (4) are not charging sections like Section 25(1) but are provisions intended to give a limited measure of exemption or relief from tax. In my opinion, when Section 25(4) refers to the "previous year", it uses that expression in the sense in which it is defined in Section 2, clause (11)(a), of the Act with reference to the date of discontinuance or succession and there is nothing either in the object with which Section 25, clauses (3) and (4), were enacted or in the context of those provisions to convey a different interpretation of the words "previous year" or to warrant my reading the words "previous year" as the "last previous year the profits of which have been assessed to tax" as the Tribunal has done. The legislature used the expression "the period from the expiry of the last previous year of which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 25(3) and (4); (3) to the definition of "previous year" in Section 2(11)(a) of the Act which is correlated to a year of assessment, which in this case, was 1940-1941 and which cannot be read as any past year for which the taxpayer had been charged; (4) to the absence of any compelling context or anything repugnant in the subject dealt with by Section 25 which would entitle the Court to read the words "previous year" in a sense other than that in which it is defined in that Act; (5) to the heavy and needless strain imposed on the language of Section 25(4) by reading the words "end of the previous year" as if they ran "end of the last year whose profits have been assessed to tax", or "the end of the year of account preceding the assessment year in which there has been a succession" and (6) to the anomalous and arbitrary consequences resulting from an acceptance of the construction contended for by the assessee in the imposition of different burdens and the grant of different standards of relief for taxpayers occupying the same position and falling within the same category, I am unable, with respect, to accept the contention of ..... 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