BEAUMONT, C.J. -
(2.) THIS is a reference under Section 66 (2), Income Tax Act, 1922, in which the Commissioner raises this question :-
In view of the provisions of Section 16 read with Section 14 (b) of the Act has the Income Tax Officer correctly included in the computation under Section 16 of the Act, of the total income of the assessee for the purposes of his 1932-33 assessment his share of Rs. 1,14,812 in the income of the Imperial Movietone Co., for the calendar year 1931.
The reason for raising that question requires some explanation.
(3.) THE assessee in a gentleman named Abubaker Abdul Rahman, and the year of assessment is the year 1932-33, that is the year ending 31st March, 1933. THE assessee is a partner in two different firms, one, Abubaker Abdul Rahman & Co., and the other the Imperial Movietone Co. He also has certain property which produces income, apart from his interest in the firms. THE accounts of the assessee and of the firm of Abubaker Abdul Rahman & Co., are made up to Diwali, that is, in the case of the previous year in respect of the year of the assessment, 9th November 1931. But the Imperial Movietone Co., makes up its accounts to 31st December.
That firm was only started on 1st January 1931, so that, it is the firsts accounting period which ends on 31st December, 1931. In the return of the assessee for income-tax purposes he included his property received from outside sources, and deducted a loss in respect of the firm of Abubaker Abdul Rahman & Co., and he was assessed on 3rd February 1933 on an income of Rs. 26,262, nothing being included in that income in respect of any profits of the Imperial Movietone Co., THE accounts of that Company were made up to 31st December 1931, and the share of the assessee in the profits of that firm was assessed at Rs. 1,14,812. THE Income Tax Officer contended that the sum had escaped assessment within Section 34. Income tax had been paid direct by the Imperial Movietone Co., and therefore no income-tax was payable by the assessee on his share of the profits, having regard to Section 14(2) (b) of the Act. But the Income Tax Officer was of opinion that that income had escaped assessment, and was liable for super-tax under Section 55 of the Act, and his decision was upheld on appeal by the Assistant Commissioner. THE assessee, on the other hand, contends that the income which he received as a member of the Imperial Movietone Co., was received by him after the year for which he was assessed, and that those profits will have to be brought into the next year of assessment and have not escaped assessment.
The question involves a consideration of certain sections of the Income-tax Act. In the first place, it is necessary to notice that according to the decision of the Calcutta High Court in Behari Lal Mullick In re, the tax payable in the current year is not charged on the income of that year, but on the income of the previous year, that is to say, the tax under the Indian Act is actually levied on the income of the previous year and not as in England levied on the income of the current year though that income may be, and often is, estimated by reference to the income of the previous year, since in England the return has to be made before the current year has expired. That decision of the Calcutta High Court was apparently approved by the Privy Council in Commissioner of Income-tax v. Tehri Garhwal State though whether the full implications of the doctrine are realized by the income-tax authorities in India may be doubted. If that is the basis on which income-tax is levied, it is obviously of great importance to ascertain what the "previous year" is; and "previous year" is defined by Section 2(11), Income Tax Act, in these terms :-
"Previous year" means -
(a) the 12 months ending on 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 12 months in respect of a year ending on any date other than the ending on the day to which his accounts have so been made up :"
Then there is a proviso that the assessee is not to be entitled to change the meaning of the expression "previous year" when once fixed by him, without the consent of the Income Tax Officer. There is, I think, nothing in that definition to suggest that an assessee can fix more than one date which determines the previous year. If an assessee has two businesses with different accounting periods for those two businesses, he cannot, I think, fix two different dated, which will give him two separate previous year for the purpose of the Income-tax Act. But on the other hand, I can see no reason why an assessee should not fix one date for himself, whilst a firm of which he is a member with others fixes another date. "Assessee" is defined in sub-section (2), Section 2, as meaning a person by whom income tax is payable and under Section 3 income-tax is charged not only on every individual but on every Hindu undivided family, company, firm and other association of individuals. So that, in my opinion a firm is clearly an assessable unit and therefore an assessee under the Income tax Act. The position which arises in this case is that the assessee has fixed for himself as the "previous year" the year ending 9th November 1931, whilst the Imperial Movietone Company in which the assessee is a member, has fixed as the "previous year" the year ending 31st December 1931.
The next section to look at is Section 22(2) which provides that in the case of any person other than a company, falling within the provisions of that section, a return has to be made setting forth the total income during the previous year. That Section applies both to the assessee and to the Imperial Movietone Company which is also an assessee. For the purpose of making a return as to his total income, the assessee has to comply with Section 16 the effect of which read with sub-section (2), Section 14, is that he has to include in his total income such an amount of the profits or gains of any firm which have been assessed to income-tax as is proportionate to his share in the firm at the time of such assessment. What Section 14(2) provides is that income-tax is not payable by an assessee in respect of his share in the profits of a firm, which has been already assessed, because naturally that share cannot be taxed twice over. If the firm is assessed, and pays the tax, then the individual members of that firm are not separately assessable in respect of their shares in the profits. But when it comes to a return of the total income of the partners for the purpose of super tax then, they have to include in their total income their respective shares in the profits of the firm, which have been separately assessed.
Now the position of the assessee in this case is that he has to make a return of his total income down to 9th November 1931. It is quite clear that he cannot in that return include income which is proportionate to his share in the profits of the Imperial Movietone Company at the time of the assessment of these profits, since that share can only be ascertained after the accounting period ending on 31st December 1931. Therefore it seems to me clear that the assessee in respect of the previous year, which applies to him, cannot be required to include his share of profits in the Imperial Movietone Company. That is not really questioned by the income tax authorities. But they contend that as soon as the share of the profits of the assessee in the Imperial Movietone Company was ascertained, then that share was liable to tax, and must be treated as having escaped assessment under Section 34. I cannot agree with that view of the matter. It seems to me that that would really involve that the assessee was accountable in respect of two previous years, one ending 9th November and the other ending - so far as his position as a member of the Imperial Movietone Company was concerned - 31st December and that I think is wrong. I think the assessee is only liable to tax in respect of the pervious year which ends on 9th November 1931, and that any profits to which he was entitled from the Imperial Movietone Company at the date of the assessment of that company must necessarily fall within the next year of assessment of the assessee - the year, that is, from 10th November 1931 to 9th November 1932. Section 55, which imposes super tax which is the tax which the Commissioner seeks to levy in this case, does not I think carry the question any further, because all that that section provides is that in addition to the income-tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year, an additional duty of income tax (in this Act referred to as super tax).