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TMI Blog1980 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Act was available to the assessee in respect of super-tax ?" The assessee is a firm. The proceedings relate to its assessment for the assessment year 1961-62. The previous year was 2016-17 Diwali for guddi and other departments excepting the jute department for which the previous year was 2016-17, Ratha Jatra. The Diwali ended in the relevant year on October 20, 1960. The assessee-firm consisted of seven partners and was carrying on business under a deed of partnership. The partners had agreed that the said partnership should be governed by the memorandum and articles of association of M/s. Mugneeram Bangur Co. Ltd., newly formed company with effect from October 18, 1960. The certificate of incorporation as a limited company, it was noted by the Tribunal, was issued by the Registrar of Companies on October 21, 1960. In the course of the assessment proceedings, the assessee had claimed reliefs under s. 25(3) and s. 25(4) of the Indian I.T. Act, 1922, on the ground that the partnership had discontinued its business and had been succeeded by a limited company styled as M/s. Mugneeram Bangur Co. Ltd., during the relevant previous year, that is to say, Diwali year 2016-17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the memorandum and articles of association of the limited company and the company was registered with the Registrar of Companies, West Bengal, on October 17, 1960. As all the properties of the firm got vested in the company on its registration on October 17, 1960, there was a succession by the company to the business carried on by the assessee-firm and relief under s. 25(4) of the Indian I.T. Act, 1922 should be allowed. After discussing the rival contentions of the parties and the relevant facts and law, the AAC held that the assessee was entitled to the relief under s. 25(4) of the Indian I.T. Act, 1922, in respect of the previous year ended on October 21, 1960, relevant for the assessment year 1961-62. He further held that, even if succession was held to have taken place on October 21, 1960, the assessee was entitled to relief under s. 25(4) of the Indian I.T. Act, 1922, in respect of the income of the previous year ended on October 21, 1960. Regarding the relief from super-tax, the AAC was of the view that the firm had an income chargeable to super-tax for the financial year 1919-20 in respect of the income of the previous year ending on November 2, 1918. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples of the said authority held that the assessee was eligible for the exemption as claimed by it. The Tribunal, further, observed that even assuming that this view was wrong, still the assessee's alternative claim of adjustment of the business loss against the property income was bound to succeed. The Tribunal referred to s. 24(1) of the Indian I.T. Act, 1922, and held that the assessee was entitled to succeed in getting this property income set off against the business loss. The Tribunal, then, considered the claim of the a assessee for exemption from super-tax. The Tribunal observed that the only year to which it was necessary to direct its attention was 1919-20. If the assessee had paid super-tax in that year, then the claim for exemption would fail, so far as the exemption from super-tax was concerned. If the assessee had not been assessed to super-tax for that year, then the assessee's claim was bound to succeed. The Tribunal was unable to accept the contention of the Revenue that the word " assessed " has to be understood even in the sense of computation made for the purpose of finding out whether the excess profits tax would be higher than the super-tax. The Tribunal obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person 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 the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and, if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference: Provided that sub-sections (3) and (4) shall not apply (a) to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either for the year beginning on the 1st day of April, 1920, or for the year beginning on the 1st day of April, 1921 ; (b) to a business, profession or vocation on which income-tax was at any time charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant period might become increasingly difficult with the lapse of time. But what reason could there be for imposing a time limit for asking the income-tax authorities to abstain from doing a thing which the Act directs them not to do ? A time limit for this purpose would, indeed, mean that the income-tax authorities would be free to disregard the plain duty imposed on them by the Act, leaving the assessee without a remedy, if only they assess and levy the tax on the exempted profits, either under section 23 or section 34, after the expiry of the time limit. It seems to me that a construction of section 25(5) which leads to such anomalous results ought not to be readily accepted. It is said that the word 'relief' is wide enough to cover both the benefits afforded under subsection (3) and (4). It may be so in ordinary usage uncontrolled by context, though the assessee may well retort that not much relief is afforded to him when the Crown, having already taxed him for as many years as he carried on the business, merely abstains from taxing once more. But in the context of section 25, 1 am of opinion that it would be a reasonable construction of the words 'claim to the relief a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, was general. The Supreme Court further noted that the heads of income described in s. 6 of the Indian I.T. Act, 1922, and further elaborated for the purposes of computation, in ss. 7 to 10 and ss. 12, 12A, 12AA and 12B, were intended merely to indicate the classes of income. According to the Supreme Court, the heads did not exhaustively delimit the sources from which the income arose. Business income was broken up under different heads only for the purpose of computation of the total income. By that breaking up, the income did not cease to be an income of the business, according to the Supreme Court, the different heads of income being only classification Prescribed by the Act for computation. At page 22 of the report, the Supreme Court observed that Mr. Justice Tendolkar in his judgment under appeal, was of the view that the income from business, to be computed under s. 10, alone could be admitted to the exemption under s. 25(3). The majority of the court held that all the income earned by carrying on the business qualified for the exemption. Now, sub-s. (3) of s. 25 of the Indian I.T. Act, 1922, according to the Supreme Court, expressly provides that the income of a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efer to chargeability of income to tax under a particular head as a condition for obtaining the benefit of the exemption. It is true that the assessee in that case was firm. It is also true that the firm means a combination of persons carrying on business. But, when the Supreme Court observed that non-business income would certainly not qualify for the privilege of the exemption, the Supreme Court was treating such income, which was treated as separately and excluded from the business income as such, and was not the income of the assessee but claimed either as holder of securities or holder of house properties. The Supreme Court then referred to the other provisions of the Act and was of the view that the other provisions lend support to the conclusion that the legislature intended to mean what the Supreme Court had taken to mean. For instance, the Supreme Court had noted that where the legislature had intended to refer to a specific head on taxation under s. 6 of the Act as a condition for imposing an obligation or claiming right, the legislature had in terms referred to such a head. As for example, the Supreme Court had referred to s. 18(2), where liability had been imposed upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aborated for the purpose of computation of income, in s. 7 to s. 10 and ss. 12, 12A, 12AA and 12B, were intended merely to indicate the classes of income. The heads did not exhaustively delimit the sources from which the income arose. The Supreme Court, referring to the previous decision, observed that business income was broken up under different heads only for the purpose of computation of the total income of the business, and, by that breaking up, the income did not cease to be the income of the business, the different heads of income being only a classification prescribed by the I.T. Act for the computation of income. It could not be gainsaid that there was on the part of the legislature a desire, by enacting s. 25(3), to give relief to two classes of income subjected to double taxation for the income of the year 1921-22. Interest on securities not being exposed to double taxation for the year 1921-22, because there was no taxation on that income, the benefit of s. 25(3) was not admissible to that class of income. This view of the Supreme Court was clarified by the Supreme Court itself in the decision in the case of 0. RM. M. SP. SV. Firm v. CIT [1967] 63 ITR 404. There, an H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , attracted the assessment. There was no element of business in such ownership, nor could it be submerged or effaced by the conduct of the assessee dovetailing it with a business activity. Dealing with this conclusion, the Supreme Court in the decision which we have referred to, viz., [1967] 63 ITR 404, at page 410, observed as follows: " The second question of law arising in this appeal is whether the assessee was entitled to relief under section 25(3) of the 1922 Act with regard to the rental income from house properties owned by the foreign firm which was discontinued in the year of account. A similar question was the subject-matter of consideration in Commissioner of Income-tax v. Chugandas Co. (1965] 55 ITR 17 (SC), which has already been referred to. In that case, the assessee-firm, a dealer in securities, holding securities as its stock-in-trade, had been charged to tax under 1918 Act, in respect of business. It received Rs. 4,13,992 and Rs. 1,01,229 as interest on securities in the years 1946 and 1947, respectively. The firm discontinued its business on June 30, 1947. The question at issue was whether the interest on securities formed part of the assessee's business inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or as a house owner, was nothing which was inter-linked with the business. Indeed, in the case of a firm like this, the activity was the business activity and it must be entitled to the exemption. In this connection, the Allahabad High Court, in the case of CIT v. Smt. Indermani Jatia [1970] 77 ITR 133, had also taken this view. We may incidentally refer to the observations of the Division Bench of this court in the case of Bikamchand Bagri v. CIT [1962] 44 ITR 746, where at page 756, dealing with the nature of Partnership income, the Division Bench observed as follows: " The assessee is a partnership. A partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Now, an individual may carry on business and may do many other things but a partnership comes into existence only for the purpose of carrying on business, see Inderchand Hariram v. Commissioner of Income-tax (1952]22 ITR 108 (All), approved in Lakshminarain Ram Gopal Sons Ltd. v. Government of Hyderabad (1954]25 ITR 449 (SC). The property and the assets of a partnership are held by it solely for the purposes of its business. The shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. P. Ltd. v. CIT [1971]80 ITR 21, the Supreme Court observed at page 25 of the report as follows : " While sub-section (1) of section 24 provides for setting off the loss under one of the heads mentioned in section 6 against the profits under different head in the same year, sub-section (2) provides for the carrying forward of the loss for one year and setting off the same against the profits or gains of the assessee from the business in the subsequent year or years. Referring to the decision of the Supreme Court in the case of CIT v. Cocanada Radhaswami Bank [1965]57 ITR 306, the Supreme Court emphasised in the aforesaid decision that sub-s. (2) of s. 24 in contradistinction to sub-s. (1) of s. 24 is concerned only with business and not with the other heads under s. 6 of the Act. In view of the scheme of s. 24, we are of the opinion, that the assessee was entitled to the relief, as claimed by it, even on the alternative basis. The second question, therefore, must be answered in the affirmative and in favour of the assessee. The third question is about the claim of the assessee for an exemption in respect of super-tax. We have set out hereinbefore sub-s. (4) of s. 25 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... super-tax was found to be lower, the excess profits duty was alone to be demanded, but, the demand should be consistent with the super tax to the extent of Rs. 56,000 and the excess profit duty to the extent of Rs. 12,750. It is impossible to accept that construction. The section says " assessed to duty ", and if the amount chargeable as excess profits duty exceeded that chargeable amount as super-tax, excess profits duty should alone be charged which would be in excess. For the purpose of finding our that excess, a computation, or, as the Tribunal has preferred to use the expression, "a provisional computation" had to be made. Such a provisional calculation or computation cannot be said to be an assessment to super-tax. Though the expression "assessment" has been used in a different context, as indeed in several decisions beginning from the decision of the Privy Council in the case of CIT v. Khemchand Ramdas [1938]6 ITR 414, we have to find out whether the expression "assessed" had been used in the proviso to s. 25(4) of the Indian I.T. Act, 1922, in such wide or loose sense of provisional calculation or the calculation was only to find out whether it was dutiable or not, which c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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