Ramaswami, J. - (1.) This appeal is brought, by certificate, against the judgment of the Madras High Court, dated December 18, l962 in T. C. No. 143 of 1960.
(2.) The appellant (hereinafter called the 'assessee') was a firm called O.RM.M.SP.SV. Firm which was registered under S. 26-A 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 Malaya 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 not liable to be taxed by reason of the provisions of S. 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 S. 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 was the assessee-firm which took over the business of the Hindu undivided family. The firm was dissolved on March 2, 1952. In the assessment for the year 1952-53 the assessee applied for relief under S. 25 (3) of the 1922 Act. The claim was rejected by the Income-tax Officer on March 7, 1956. The assessee preferred an appeal to the appellate Assistant Commissioner who dismissed the appeal holding that in the case of business carried on in foreign territory the business as such is not assessed under S. 3 of the 1918 Act but only receipt of the income in British India is assessed and it cannot, therefore, be held that the foreign business of the appellant was charged to tax under the 1918 Act. The assessee took the matter in further appeal to the appellate Tribunal which considered that the assessee was entitled to relief under S. 25 (3) of the 1922 Act except for the income received from the house properties in Malaya. The appellate Tribunal accordingly allowed the appeal of the assessee in part. Both the assessee and the Department applied to the appellate Tribunal for reference of the questions of law to the High Court. The appellate Tribunal allowed the applications and stated a case to the High Court on the following questions of law: "(i) Whether the assessee is entitled to both the parts of the relief contemplated under S. 25 (3) of the Act in respect of foreign business at Penang, Ipoh and Kambar (ii) Whether the applicant is also entitled to relief under S. 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.
(3.) The High Court held that the assessee was not entitled to relief under S. 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 S. 25 (3) of the 1922 Act.;