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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 ..... 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 section 25(3) and (4). The Income-tax Officer accepted the fact of partition amongst the members of the family, but rejected the contention that the family was not liable to pay tax on the profits for the said period. The High Court ultimately called for a reference on the following question : " Whether the income of the family from 13th April, 1938, to 2nd June, 1938, is not liable to be taxed by virtue of section 25(3) of the Indian Income-tax Act ?" After receipt of the reference, the High Court held that there was no discontinuance of the business within the meaning of section 25(3). The view taken by the High Court was that when a Hindu undivided family carrying on a business, which was taxed under the 1918 Act, became disrupted and the members continued the business thereafter as partners, there could be no discontinuance but only succession by the firm of the business of the family. It was held in that case that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under the provisions of the Indian Income-tax Act, 1918 (VII of 1918), is discontinued, then, unless there has been a succession by virtue of which the provisions of sub-section (4) have been rendered applicable 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 such discontinuance, and 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 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. Under this section exemption from liability to pay tax in respect of the income, profits and gains may be claimed by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 entire profits of the foreign business came to be assessed in the hands of the appellant under the 1918 Act, not because it was a business income but because such income had been remitted into British India. Therefore, in fact also it is not the foreign profits of a business that has been charged to tax but only the remittance which in the particular case was not less than the profits of the year." We have therefore to proceed on the footing that the assesssee received the entire profits of the foreign business in British India and the entire profits were assessed to income-tax in the hands of the assessee under the 1918 Act. It is necessary, at this stage, to set out the relevant provisions of the 1918 Act. Section 3, the charging section stated as follows : " 3. (1) Save as hereinafter provided, this Act shall apply to all income from whatever source it is derived, if it accrues or arises or is received in British India, or is, under the provisions of this Act, deemed to accrue or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Satyanarayana Rao J. stated as follows : " The relief under sub-clause (4) is permissible only if the tax on the business was charged under the provisions of the Indian Income-tax Act, 1918. If the foreign business at Muor was not and could not have been charged under the Act and the share in the profits of the family from that foreign business was charged under section 3 only on the receipt in British India, can it be said that the charge so made was a charge of a tax on the foreign business. The income received by the joint family could not have been charged under the head ' income derived from business ' but only as a receipt under section 3. The argument, however, on 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. 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., 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 the 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 income for the purpose of exemption from tax under section 25(3) of the 1922 Act. It was held by this court that the assessee was entitled to exemption under section 25(3) in respect of interest on securities as well. It was pointed out that there was no reason to restrict the condition of the applicability of the exemption under section 25(3) only to inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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