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TMI Blog1960 (12) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... ried on money-lending business in India and in the former Federated Malay States and it was assessed under the Indian Income-tax Act, 1918. There was a disruption of the joint family status on June 2, 1938, and thereafter, the members of the family continued the business in the same places as partners. In the course of the assessment for the year 1939-40, it was claimed by Meyyappa Chettiar, one of the members of the family, that having regard to the severance of joint family status, the income of the family from April 13, 1938, to June 2, 1938, was not liable to be taxed by reason of the provisions of sub-sections (3) and (4) of section 25. The Income-tax Officer accepted the fact of partition amongst the members of the family, but he, however, rejected the contention that the family was not liable to pay tax on the profits for the said period. Meyyappa Chettiar appealed to the Appellate Assistant Commissioner without success. This court directed the Commissioner to refer the following question: Whether the income of the family from April 13, 1938, to June 2, 1938, is not liable to be taxed by virtue of section 25(3) of the Indian Income-tax Act ? One of the contentions raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 35 ITR 339 and held that there should be deletion of 32,097 dollars from the assessment. This sum was arrived at as follows : Full recoveries assessed Interest recoveries Principal recoveries to be excluded $ $ $ Penang 12,545 2,805 9,740 Ipoh 13,064 3,303 9,761 Kambar 16,788 4,192 12,596 42,397 10,300 32,097 On the question whether section 25(3) was applicable as claimed by the assessee the Tribunal held, that except for the income received from house properties in Malaya, which is separately assessable under section 9 of the Act, the assessee was entitled to its benefit. Both the assessee and the department applied to the Tribunal for reference of questions of law to this court and the Tribunal granted the prayer. Questions Nos. 1 and 3 set out above have been referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is taxed under the Act, this is a special rule in cases of discontinuance of business whereby not merely the income of the previous year but also the income of the assessment year between the end of the previous year and the date of the discontinuance is assessed to tax. Sub-section (3) provides that if the business, profession or vocation was charged under the provisions of the Act of 1918, a different rule of computation of income should prevail. The ingredients of this sub-section are: 1. The business, profession or vocation must have been charged to tax under the provisions of the Indian Income-tax Act, 1918. 2. That business must have discontinued. 3. On such discontinuance no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of discontinuance. 4. In addition to the privilege of non-payment of tax for that period, the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of that period. That is to say, the assessee can ask for the substitution of the income, profits and gains from the end of the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be receipt of income. The following observation of Kania J. in Kamdar ( B.M.), In re [1946] 14 ITR 10 , 39 has been approved by the Supreme Court in Keshav Mills Ltd. v. Commissioner of Income-tax [1953] 23 ITR 230 at pages 241, 242 : It is true that the words used in section 4(1)(a ) relate to the first receipt after the accrual of the income. Once it is received by the party entitled to it, in respect of any subsequent dealing with the said amount it cannot be said to be 'received' as income on that occasion. Though the facts warrant the conclusion in the present case that the assessee received all the income from his foreign business and suffered tax on such receipt, the question still remains whether it can be said that its foreign business was charged to tax under the 1918 enactment. We shall now refer to the origin and necessity of provisions like subsections (3) and (4) of section 25 of the Act. Under the Indian Income-tax Act of 1918, income-tax was charged on the income of the year in which the return was made by the assessee. The income of the year however could not be computed till the year ended. So the revenue ascertained the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of computation of income specific heads of charge are created. Whatever does not fall within the special heads, falls within section 12, the residuary provision. Even emphasising the words on which occurring in section 25(3) it should be noted that the tax on business, in the context, is a convenient description for tax on business income. The essential incidence of tax is upon the persons conducting the business in respect of the income from such business. Where an assessee received money prior to 1939 in the taxable territory from foreign business income, he was taxed only because of the receipt, which no doubt emerged from and formed part of his business income, though the business, as such, was beyond the purview of the taxing enactment. While it is true that the receipt can be described as part or whole of the business income, as the case may be, it is equally true that the basis of taxation was not that it was income, profits and gains of a business but that the assessee received in the taxable territory income which he earned beyond the territory. We shall now refer to the decision of this court in Commissioner of Income-tax v. S.V.R.M. Palaniappa Chettiar [1951] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee by his learned advocate, Mr. Rajah Iyer, was that the words 'on which tax was at any time charged' should be construed as meaning 'with reference to which tax was at any time charged'. In other words, the contention is that the income derived by the assessee was in relation to a business and therefore the assessment of the income must be treated as an assessment of the business. No doubt, under the provisions of the Income-tax Act, the tax is payable by an assessee but the assessment of the tax is on the basis of various heads of income derived by the assessee one of which is business. It cannot, therefore, be said that because tax was payable by the assessee on the profits received from a business in a foreign territory such assessment is an assessment of the business. Then again at page 174 bottom : Of course, if the assessee succeeded in establishing that in fact, though wrongly, such profits were taxed on the basis of a business carried on by the assessee though in foreign territory the fact of such assessment might possibly enable the assessee to claim the benefit of section 25(4). But of this there is no proof. It is possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition in the family under which some of the vilasams were allotted to the father and the rest were allotted to the son who was the assessee. During the assessment year 1939-40 the assessee claimed that there was a discontinuance of the business within the meaning of section 25(3) of the Act, and as the business of the joint family was taxed under -the Act of 1918, it was not liable to be taxed for the period between April 13, 1938, and March 23, 1939. It was held that on partition the assets of the joint family were split up, and the joint family business no longer continued its existence but was terminated, and that therefore there was discontinuance within the meaning of section 25(3) and the family was taxed under the Act of 1918 was not mooted. The department did not contend in that case that the benefit of section 25(3) would not be available to the assessee as there was no charge on the business under the 1918 Act. It is true that on the facts of the case the family conducted business in foreign parts under various vilasams. But we are unable to treat this decision as authority for holding that an assessment on the receipts from a foreign business would in effect be a charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of the business of letting houses. It is the ownership of the property and the resulting income therefrom qua owner that attracts assessment. There is no element of business in such ownership; nor can the ownership be submerged or effaced by the conduct of the assessee dove-tailing it in a business activity. This is now settled law and no useful purpose would be served by referring to the decisions on the subject. Section 25(3) deals only with business, profession or vocation. Property income cannot, under whatever circumstances derived, be comprised in the category of business income. The Tribunal was, therefore, right in excluding the property income from the relief under section 25(3), even if the assessee is entitled to such a relief. It is not necessary to discuss question No. 3 as the point raised therein is covered by the decision of this court in M.L.M. Muthiah Chettiar v. Commissioner of Income-tax [1959] 35 ITR 339. The formula adopted by the Tribunal in giving relief to the assessee is in accordance with that decision. Following that decision the question is answered against the department and in favour of the assessee. There will be no order as to cos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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