1960-VIL-60-MP-DT

Equivalent Citation: [1962] 44 ITR 242

 

MADHYA PRADESH HIGH COURT

 

Miscellaneous Civil Case No. 291 of 1958

 

Dated: 28.10.1960

 

COMMISSIONER OF INCOME-TAX, NEW DELHI

 

Vs

 

LADY KANCHANBAI

 

For the Commissioner: K. A. Chitaley and V. S. Dabir

For the Assessee: M. Adhikari (Advocate-General)

 

Bench

P. V. Dixit (CJ) And K. L. Pandey, JJ.

 

JUDGMENT

P. V. Dixit, CJ.

In this reference under section 66(1) of the Income-tax Act the question referred to us by the Appellate Tribunal is:

"Whether, having regard to section 2(11)(i)(a) read with its proviso, the assessee is entitled to take the year ended March 31, 1950, as the 'previous year' for the purpose of the assessment year 1950-51 in respect of a source of income, the income from which was computed according to Maru year ended with Diwali for the earlier assessment years for the purpose of determining the assessee's total world income for those years?"

The facts which give rise to the question are as follows: The assessee is a Hindu undivided family with its head office at Indore and branches at several places. It derives its income from property, business in cotton and oil seeds, speculation, dividends, managing agency commissions, etc. Prior to the assessment year 1950-51, which is the assessment year in question, the family was assessed in the status of a non-resident Hindu undivided family. The income which accrued to or was received by the assessee in the former Indian States and which was not brought into the "taxable territories" as defined before April 1, 1950, was not subject to any tax under the Income-tax Act. That income was, how ever, included in the assessee's total world income for the purpose of determining the rate applicable to the taxable income. After the merger of Indian States and inauguration of the Indian Republic the definition of "taxable territories" was amended so as to make the whole of India excluding Jammu and Kashmir and Pepsu Union taxable territories with respect to any period after March 31, 1950. The result of the amendment was that for the assessment year 1950-51 an assessee, who was a resident of Madhya Bharat, a Part B State, in the relevant previous year was deemed to have been a resident in the taxable territories prior to April 1, 1950, and such an assessee as a resident became taxable in respect of his income of the previous year accrued or received within Madhya Bharat or from outside. In the returns filed by the assessee family for the assessment years before 1950-51 the assessee family closed its account with the Diwali falling in October or November and adopted the period of year from one Diwali to another as the account year and was assessed on that footing. In the assessment year 1950-51 the assessee chose the financial year ending on March 31, 1950, as the previous year for sources of income which was not subject to tax before the definition of "taxable territories" was amended in 1950 but which was included in the total world income for the purpose of determining the rate applicable to taxable income. The Income-tax Officer disallowed the claim of the assessee holding that its case did not fall under the substantive provision contained in section 2(11) of the Act and that as the assessee family had "once been assessed" in the previous assessment years in respect of such sources of income, profits and gains on the basis of the Diwali year, therefore, it was not open to it to vary the previous year. Accordingly the family was assessed by the Income-tax Officer on the basis of the Diwali year ending with Diwali 1949 as the account year. The Appellate Assistant Commissioner agreed with the view of the Income-tax Officer.

The claim of the assessee was, however, conceded by the Appellate Tribunal. The Tribunal took the view that section 2(11) was confined in its operation to the ascertainment of income from any particular source which would go towards the making of the total income; that income from sources situated outside the taxable territories prior to the amendment of the definition of "taxable territories" in 1950 had not been assessed; and that the assessment for the assessment year 1950-51 in respect of such sources of income, profits and gains being the first assessment after the amendment, no question of previous exercise of option under section 2(11) (i) (a) could arise and consequently the assessee could adopt the financial year ending with March, 31, 1950, as the previous years in respect of such sources of income, profits and gains. On this view the Tribunal set aside the assessment directing the Income-tax Officer to make a fresh assessment according to law. The present reference has been made at the instance of the Commissioner of Income-tax, New Delhi.

Under the scheme of the Income-tax Act, income-tax is charged in respect of the "total income" of the previous year of an assessee. "Previous year" has been defined in section 2(11) which, so far as is material here, reads as follows:

"'Previous year' means--

(i) in respect of any separate source of income, profits and gains--

(a) the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said 31 day of March, then, at the option of the assessee, the year ending on the date to which his accounts have been so made up:

Provided that where in respect of a particular source of income, profits and gains an assessee has once been assessed, or where in respect of a business, profession or vocation newly set up an assessee has exercised the option under sub-clause (c), he shall not, in respect of that source or, as the case may be, business, profession or vocation, exercise the option given by this sub-clause so as to vary the meaning of the expression 'previous year' as then applicable to him except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose."

Under this definition of "previous year" the account year or the year of income is normally one ending on the 31st March of the year in which the income is earned. But if the assessee chooses he can adopt any other period as his year of account not terminating with the 31st March if his accounts have been made up to that date on which under his system of accounting his account year ends. The proviso to clause (a) of section 2(11)(i) prohibits the assessee from changing his year of account in respect of a particular source of income, profits and gains if he has once been assessed except with the consent of the Income-tax Officer. An assessee can have separate "previous years" in respect of income, profits and gains from different sources. This is clear enough from the fact that the "previous year" defined in section 2(11) is "in respect of any separate source of income, profits and gains."

Now, it cannot be disputed that the income which the assessee derived at Indore and at other places was from different sources of income. Each branch of a business is a separate source of the purposes of section 2(11). In Rhodesia Metals Ltd. v. Commissioner of Taxes [1941] 9 I.T.R. (Suppl.) 45 (P.C.) the Privy Council quoted with approval the statement from Ingram on Income Tax that "'source' means not a legal concept but something which a practical man would regard as a real source of income". To the same effect are the decisions in Kamakshya Narain Singh v. Commissioner of Income-tax [1943] 11 I.T.R. 513 (P.C.) and Rani Amrit Kunwar v. Commissioner of Income-tax [1946] 14 I.T.R. 561 (All.). In Hart v. Sangster [1958] 34 I.T.R. 303 (C.A.) it has been held that England, with reference to "new source", "source means the same thing as origin and that the source of interest on a bank deposit is the actual deposit and not any contract between the bank and the depositor about tendering of deposits and their acceptance by the bank." It is, therefore, permissible for the assessee family having the head office at Indore and branch offices at other places to have separate previous years for the different offices.

This is not disputed by the department. What has been contended on behalf of the department is that even before April 1, 1950, the assessee was assessed in respect of income, profits and gains from sources in non-taxable territories and that being so the assessee was not entitled under the proviso to clause (a) of section 2(11)(i) to vary the previous year adopted by it, namely, the Diwali year and claim that it should be assessed on the basis of the financial year as the previous year. The argument of the learned Advocate-General that the expression "an assessee has once been assessed" used in the proviso to clause (a) has a wide connotation and means computation of the total world income in the case of non-residents and that, therefore, though the income of the assessee from non-taxable territories was not included in its total income or total taxable income, yet it was assessed on this income inasmuch as it was included in its total world income for determining the rate of tax applicable to it. On the other hand, it was contended on behalf of the assessee that the computation of its income from sources in non-taxable territories before the definition of "taxable territories" was amended in 1950 was not an assessment in itself; that "assessment" in the proviso meant that the income, profits and gains from a particular source should have been charged to tax by their inclusion in the total income; that as in the previous assessment years the income from sources in non-taxable territories was not included in the total income but was taken into account only for the proposes of rate it could not be said that the assessee family had been assessed in respect of the profits and gains of that source; and that, therefore, in regard to such sources the assessee had the liberty of adopting the financial year ending on March 31, 1950, as the previous year.

The question stated for our opinion, therefore, becomes one of true construction of the expression "an assessee has once been assessed" as used in the proviso to clause (a) of section 2(11)(1). The expression has to be construed in the context of the opening words of the proviso, namely, "provided that where in respect of a particular source of income, profits and gains". These words are important and give the clue to the meaning of the expression has once been assessed". The word "assessment" has not been defined in the Act. It has been used in the Act, as observed by the Privy Council in Commissioner of Income-tax v. Khemchand Ramdas [1938] 6 I.T.R. 414 (P.C.) as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable, and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The word thus bears different meanings according to the context in which it is used. The proviso to section 2(11)(i)(a) speaks of assessment "in respect of a particular source of income, profits and gains". Now, it cannot be questioned that under the Act income-tax is one tax and not a collection of taxes on different items of income. As was pointed out by Beasley C.J. in Commissioner of Income-tax v. Namberumal Chetty & Sons [1933] 1 I.T.R. 32 (Mad.), an assessment to income-tax is one whole and not a group of assessment of different items of income (see also Kamdar, In re [1946] 14 I.T.R. 10 (Bom.).) There cannot, therefore, be any assessment in the sense of determination of the amount of tax payable "in respect of a particular source of income, profits and gains". It would be altogether unreal to say that the expression "an assessee has once been assessed" as used in the proviso means that in respect of a particular source of income, profits and gains the amount of tax payable has been determined. Consistent with the scheme of the charging Provisions of the Act, the only sensible construction that can be given to the expression "where...an assessee has once been assessed" in respect of a particular source of income, profits and gains is where the income, profits and gains of a particular source has been computed in the manner laid down in the Act and included in the total income. In other Words, the expression "has once been assessed" is used in the Proviso as referring to the computation of income for its inclusion in the total income. In our judgment, section 23(1) of the Act throws considerable light on the meaning of the expression "has once been assessed" as used in the Proviso to section 2(11)(i)(a). That Provision says that if the Income-tax Officer is satisfied that a return made under section 22 is correct and complete, he shall assess the total income of the assessee, and shall determine the sum payable by him on the basis of such return. The assessment is on the total income, and there cannot be an assessment in respect of a particular source of income, profits and gains unless they are included in the total income. The Words "assess" and "assessment" as used in section 23, as has been held by the Privy Council in Seth Badridas Daga v. Commissioner of Income-tax [1949] 17 I.T.R. 209 (P.C.), refer Primarily to the computation of the amount of income. It follows, therefore, that the assessment spoken of in the proviso in respect of a particular source of income, Profits and gains means the computation of the income from the sources for the purpose of its inclusion in the total income.

Learned Advocate-General said that as under section 22 the assessee was required to state in the return of income his total income as well as total world income during the previous year, "assessment" meant computation of total world income and as the income of the assessee here from sources in non-taxable territories was included in the total world income for purposes of rate and determination of tax, there was assessment in respect of those sources. We do not agree. It is true that under section 22 an assessee is required to set forth in his return of income the total income and total world income during the previous year. But the assessment made under section 23 is on the total income of the assessee and not on the total world income. The "total world income" is of significance and importance only in the case of a nonresident for the purpose of determining the rate of tax applicable to his total world income. Section 23(1) itself makes a distinction between the assessment of the total income of an assessee and the determination of the sum payable by him on the basis of his return under section 22. In the determination of the amount of tax payable on the total income of a non-resident assessee, the income from a particular source which is not taxable is no doubt taken into account by its inclusion in the total world income. But that is not an "assessment" of income, profits and gains of that particular source. The determination of the tax payable is with regard to the tax payable on the total income and not on the income, profits and gains from any particular source.

For these reasons, we are of the opinion that the assessee family could not be said to have been assessed within the meaning of the proviso to clause (a) of section 2(11)(i) in respect of a source of income in non taxable territories which was included in the earlier Diwali account years for the purpose of determining the assessee's total world income and the average rate of tax applicable to its total world income. The answer to the question referred must, therefore, be that the assessee is entitled to take the year ending on March 31, 1950, as the Previous year for the purpose of the assessment year 1950-51 in respect of the source of income specified in the question. The assessee shall get the costs of this reference. Counsel's fee is fixed at Rs 250.

Questions answered in the affirmative.