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TMI Blog1966 (10) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... dge(s) : V. RAMASWAMY., J. C. SHAH., V. BHARGAVA JUDGMENT The judgment of the court was delivered by RAMASWAMI J.---This appeal is brought, by certificate, against the judgment of the Madras High Court dated December 18, 1962, in T. C. No. 143 of 1960. The appellant (hereinafter called the " assessee ") was a firm called O.RM.M.SP.SV. Firm which was registered under section 26A of the Income-tax Act, 1922 (hereinafter called the " 1922 Act "). Prior to the constitution of the firm, the partners were members of a Hindu undivided family. The family which consisted of 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 (hereinafter called the " 1918 Act "). There was a disruption of the joint family status on June 2, 1938, and thereafter the members of the family continued the business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign business at Penang, Ipoh and Kambar ? (ii) Whether the applicant is also entitled to relief under section 25(3) of the Act with regard to rental income from house properties owned by the foreign firm which was discontinued in the year of assessment ?" The Appellate Tribunal also referred another question for the opinion of the High Court but it is not the subject-matter of the present appeal. The High Court held that the assessee was not entitled to relief under section 25(3) of the 1922 Act and accordingly answered both the questions in favour of the department. The view taken by the High Court was that the foreign business of the assessee cannot be deemed to have been charged under the provisions of the 1918 Act because the assessee was only taxed on remittances received from the profits of the foreign business and there was no tax on the foreign business itself under the 1918 Act. The High Court accordingly reached the conclusion that the assessee was not entitled to relief under section 25(3) of the 1922 Act. Section 25(3) of the 1922 Act is to the following effect : " 25. (3) Where any business, profession or vocation on which tax was at any time charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng which the business was carried on, the legislature enacted the exemption prescribed by section 25(3). This benefit was however restricted only to the income, profits and gains of business, profession or vocation on which tax had been charged under the provisions of the 1918 Act. By enacting section 25(3) the legislature intended to exempt the income, profits and gains resulting from the activity styled business, profession or vocation from tax when the business, profession or vocation is discontinued if tax was charged in respect thereof under the 1918 Act. The first question to be considered in this appeal is whether the assessee is entitled to both parts of the relief contemplated under section 25(3) of the 1922 Act in respect of the foreign business at Penang, Ipoh and Kambar. The controversy between the parties turns on the question whether the foreign business of the assessee was at any time charged under the provisions of the 1918 Act. It has been found by the Appellate Tribunal that the assessee was taxed on remittances received from and out of the profits of the foreign business. The finding of the Appellate Assistant Commissioner is stated in these terms : " The e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust be taken that there was an assessment to tax on the foreign business within the meaning of section 25(3) of the 1922 Act. In other words, the tax under the 1918 Act was charged upon the assessee in respect of his activity styled " foreign business " and in relation to it, and it must hence be taken, upon the facts found by the Appellate Tribunal in this case, that the foreign business of the assessee was charged under the 1918 Act within the meaning of section 25(3) of the 1922 Act. The High Court has taken the view that the foreign business of the assessee was not charged under the 1918 Act because what was taxed was the remittances received by the assessee from the foreign business and not the foreign business itself. In taking this view, the High Court has followed its previous decision in Commissioner of Income-tax v. S. V. R. M. Palaniappa Chettiar in which it was held that the words "on which " in section 25(4) of the 1922 Act cannot be interpreted as meaning " with reference to which " and that, in order to claim and avail the benefit under section 25(4), the tax clearly should be charged on the business as such under the 1918 Act. At page 173 of the report, Satyanarayan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undivided families, companies, local authorities, firms and associations of persons, etc., and business, profession or vocation is not a unit of assessment. When, therefore, section 25(3) enacts that tax was charged at any time on any business, it is intended that the tax was at any time charged on the owner of any business. If that condition be fulfilled in respect of the income of the business under the 1918 Act, the owner or his successor-in-interest in relation to the business will be entitled to get the benefit of the exemption under it if the business is discontinued. We are accordingly of the opinion that the High Court was in error in holding that the foreign business of the assessee was not charged under the provisions of the 1918 Act. The first question must, therefore, be answered in favour of the assessee and it must be held that the assessee is entitled to both parts of the relief contemplated under section 25(3) of the 1922 Act in respect of the foreign businesses at Penang, Ipoh and Kambar. 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 hous ..... X X X X Extracts X X X X X X X X Extracts X X X X
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