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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 ..... of one Meyyappa Chettiar and his two brothers carried 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthiah Chettiar's v. Commissioner of Income-tax [1959] 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 referred at the instance of the Commissioner of Income-tax and question No. 2 at the instance of the assessee. It will be convenient to refer to the terms of section 25 forthwith. It is in the following terms : "25. (1) Where any business, profession or vocation to which sub-section (3) is not applicable, is discontinued in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 to the date of discontinuance of the income of the previous year and can claim a refund of tax difference if the substitution were to lead to such a result. The assessee, therefore, gets a double advantage : (i) non-taxability of the income between the end of the previous year and the date of discontinuance and (ii) the substitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt 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 "the previous year" and levied tax on such income provisionally. After the actual income was ascertained the assessment was completed. Then the assessee would be entitled to refund if he had paid more tax on the provisional assessment or he would pay the deficiency if he had paid less. This mode of levying and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness, 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] 20 ITR 170. This has been very much relied on by the learned counsel for the department, and indeed his submission is that that decision completely supports him, to contend that the decision of the Tribunal is wrong. Learned counsel for the assessee has attempted to disting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 to interpret section 25(4) as meaning that if in fact there was an assessment of the business carried on in a foreign territory, though legally such assessment was not permissible, the requirement of the section is satisfied and it would not be now open to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of tax on the business income as such. The distinction between tax on receipts derived from a source which being a foreign business was not taxable and tax on the income from business as such is real and not merely verbal. If only a portion of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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