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TMI Blog1963 (8) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... material time two sources of income, namely, (1) property, and (2) business. The previous year in respect of the first source, namely, property, was the financial year ending 31st March, 1956, while in respect of the second source, namely, business, having regard to the accounting year adopted by the assessee for the maintenance of his accounts, the previous year was Samvat year 2011. The assessee left India on 12th August, 1954, and returned on 14th February, 1956, with the result that he was not in India at any time during the period covered by Samvat year 2011, namely, 27th October, 1954, to 14th November, 1955, though during the period covered by the financial year ending 31st March, 1956, he was in India for a part of the period, namely, 14th February, 1956, to 31st March, 1956. The assessee had maintained a dwelling house in India throughout the period of his absence but since he was not in India at any time during Samvat year 2011, he was treated as non-resident in Samvat year 2011, under section 4A(a)( ii) which was the relevant provision applicable to the case. In the financial year ending 31st March, 1956, however, he was treated as resident under section 4A(a)(ii ) since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) could not be attracted unless an assessee was non-resident in all the different previous years corresponding to the assessment year, that is, in respect of all sources of income. It was contended on behalf of the assessee that since in the present case he was not non-resident in both the previous years but was resident in one of the two previous years, namely, the financial year ending 31st March, 1956, section 17(1) did not apply and he was not liable to be taxed on his business income at the rates specified in that section. Both these contentions were rejected by the revenue authorities and on the matter being carried in appeal to the Tribunal, the Tribunal also negatived these contentions. The assessee thereupon asked the Tribunal to state a case and to refer to this court the questions of law arising out of its order under section 66(1) and the following questions of law, namely : "(1)Whether the word 'year' in section 4A is to be understood as meaning (a) the previous year as defined in section 2(11) or (b) the financial year preceding the assessment year irrespective of the choice or determination of one or more previous years for different sources ? and (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t view was altered by the amendment effected by the Income-tax (Amendment) Act, 1939, and it is now possible for an assessee to have different previous year for each separate source of income. The language of the opening part of section 2(11) clearly shows that "previous year" is defined in reference to each separate source of income and consequently there can be different previous years for separate sources of income. This position is very clear and in fact it was not disputed on behalf of the assessee. "Total income" is defined in section 2(15) to mean total amount of income, profits and gains referred to in section 4(1) computed in the manner laid down in the Act. Section 4(1) prescribes the ambit of taxation and lays down what is the total income of the previous year of any person which, subject to the other provisions of the Act, is chargeable to tax under section 3. It defines the extent of the total income with reference to the residence of the assessee. All assessees are divided into three categories : (a) resident and ordinarily resident; (b) resident but not ordinarily resident; and (c) not resident, and the computation of the total income chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r tests specified in the section with reference to that year. The plain and natural meaning of these words is that whenever it is necessary to determine for the purpose of the Act whether an assessee is resident within the taxable territories in any year, the tests set out in section 4A(a) must be applied with reference to the year in respect of which the question arises and if any one of those tests is satisfied, the assessee would be resident in the taxable territories in such year. Now, as we have pointed out above, the concept of residence in any particular year becomes relevant when we consider the provisions of section 4(1), since the computation of total income of any previous year of an assessee under section 4(1) depends on the question whether the assessee was resident or not resident in the taxable territories during such previous year. It is in reference to the previous year, the total income of which is to be computed, that it is required to be determined for the purpose of the application of section 4(1) whether an assessee is resident or not resident and it is, therefore, obvious that the tests laid down in section 4A(a) for the purpose of determining the residence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Privy Council in Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax [1948] 16 ITR 240 . It is true that in that case the assessee was a company and the Privy Council was, therefore, concerned with section 4A(c) which defines residence of a company but the scheme underlying the definition of residence is the same in section 4A(c) as in section 4A(a) (merely the tests being different by reason of the assessee in one case being a company and in the other case an individual) and the construction put by the Privy Council on the expression "year" in section 4A(c) must also govern the interpretation of the expression "year" in section 4A(a). The expression "year" in section 4A(c) was understood by the Privy Council to refer to the previous year of the assessee company. This is what Lord Uthwatt, delivering the judgment of the Privy Council, observed in that connection: "Second, the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the application of the tests with reference to another previous year, the assessee may be found not resident. Such a contingency may well happen and in fact it has happened in the present case. It is, therefore, quite possible that an assessee may have different statuses in different previous years though the assessment year may be the same. We find that this view which we are taking has also been taken by a Division Bench of the Madras High Court in Commissioner of Income-tax v. V.E.K.R. Savumiamurthy [1946] 14 ITR 185 . Though that case related to the construction of section 4B, the reasoning of that decision applies equally to the construction of section 4A(a) and supports us in our conclusion that there may be different statuses in which an assessee may be liable to be assessed for the same assessment year depending on the previous years adopted by him for his separate sources of income. It may appear a little anomalous that one and the same person should be liable to assessment as resident in. respect of some sources of income and as not resident in respect of others according to the previous year he has adopted for the respective sources but once it is accepted that the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e section enacts that if an assessee other than a company is not resident in the taxable territories, the tax, including super-tax, payable by him or on his behalf on his total income shall be an amount equal to the income-tax which could be payable on his total income at the maximum rate, plus either the super-tax which would be payable on his total income at the rate of nineteen per cent. or the super-tax which would be payable on his total income if it were the total income of a person resident in the taxable territories, whichever is greater. The contention urged on behalf of the assessee by Mr. Raya was that the condition precedent to the applicability of the section was that an assessee should be not resident in the taxable territories and if an assessee was resident in the taxable territories even in respect of one source of income, he could not be said to be not resident in the taxable territories within the meaning of the section and in such a case the section could not apply so as to impose upon him tax liability at a higher rate than that ordinarily provided under the Finance Act under which an assessee would get the benefit of the slab system and the initial margin of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequence which would arise from this interpretation would be that if an assessee had some income as a non resident, not only his income as a non-resident but also his income as a resident would be liable to be taxed at the higher rate even though his income as a non-resident might be very small compared to his income as a resident. The learned Advocate-General agreed that such would be the consequence, but he pointed out that as a matter of practice in such cases the department was not taxing at the higher rate provided in section 17(1) the total income of the assessee chargeable to tax but only the income of the assessee as a non-resident. The practice followed by the department cannot, however, make the law. We have to determine the true interpretation of section 17(1) irrespective of any practice which may be followed by the department and quite uninfluenced by any such practice. If on a true construction section 17(1) yields one and only one meaning, namely, that contended for by the learned Advocate-General, we must place that meaning upon the section even if it produces hardship on the assessee. If the meaning of a legislative provision interpreted according to the recognised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax for that assessment year is derived wholly as a non-resident, he shall be liable to pay tax on such total income at the higher rate of taxation provided in the section. This construction would render the higher rate of taxation provided in the section applicable only to income derived by an assessee as a non-resident and would not subject the income derived by him as a resident to such higher rate of taxation which the construction contended for by the learned Advocate-General would have the effect of doing. But apart from this consideration, there is one other consideration which also throws some light on the intention of the legislature and inclines us to this view. The section provides that where a person is not resident in the taxable territories, the super-tax payable by him or on his behalf on his total income shall be an amount equal to the super-tax which would be payable on his total income at the rate of nineteen per cent. or the super-tax which would be payable on his total income if it were the total income of a person resident in the taxable territories, whichever is greater. This provision contrasts the total income of a person not resident in the taxable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be at all anomalous, but even if it were, it would certainly be less anomalous than the result which would arise if the construction contended for by the learned Advocate-General were accepted, for in that case an assessee who is not resident in the taxable territories even in respect of one source of income would be subject to the higher rate of taxation on his total income including his income as a resident. We are, therefore, of the view that section 17(1) applies only when an; assessee is non-resident in the taxable territories in respect of all sources of income and there is no source of income in respect of which he is resident in the taxable territories. This, in our opinion, is the true construction of section 17(1), but we may point out that even if the other construction were possible, namely, that when an assessee is not resident in the taxable territories in respect of any source or sources of income it can be said that he is not resident in the taxable territories despite the fact that he may be resident in the taxable territories in respect of the other sources of income, we should still be inclined to take the view which we are taking since it is a well settled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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