- (1.) THE matter originally came before Bhargava and Upadhya who on May 20, 1960, delivered the following judgments.
(2.) THE question referred by the Income-tax Appellate Tribunal for opinion of this court is : "Whether on the facts of the case, the assessee family is entitled, in respect of its Benaras business, to exemption from tax under section 25(4) of the Income-tax Act for the period from October 19, 1942, to October 7, 1943 ?" THE assessee is a Hindu undivided family which was carrying on business at Banners in the name of Dalsukh Rai Jai Dayal. This Hindu undivided family was succeeded by a partnership firm in carrying on that Banaras business with effect from October 8, 1943, and the question that arose was as to the relief to which the assessee family became entitled under section 25(4) of the Income-tax Act. This question fell for decision in the proceedings for assessment for the assessment year 1944-45. THE previous year of the assessee corresponding to this assessment year was the period beginning on October 19, 1942, and ending on October 7, 1943, under the first part of section 25(4) of the Income-tax Act. This contention of the assessee was rejected by the Tribunal and, consequently, the question mentioned above has been referred to this court by the Tribunal at the instance of the assessee. For purposes of applying the proviso of section 25(4) of the Income-tax Act, it is necessary to determine in each case, where the question arise, as to what is the date of succession and what is the previous year for purposes of section 25(4) of the Act. In the case before us, the date of succession is admittedly October 8, 1943. The previous year, for the purpose of section 25(4) of the Income-tax Act, would be the completed accounting year of the assessee ending on any date preceding the date of succession, i.e., October 8, 1943. This is also the principle which has been laid down by the Supreme Court in Commissioner of Income-tax v. Srinivasan. The same principle was also laid down by the Bombay High Court in an earlier case of Ambaram Kalidas v. Commissioner of Income-tax. Applying that principle to the facts of present case, the previous year for the purpose of section 25(4) of the Income-tax Act would be the period beginning on October 19, 1942, and ending on October 7, 1943, because October 7, 1943, is a date preceding the date of succession which, as mentioned above, is admittedly October 8, 1943. In this case, therefore, the findings of fact recorded lead to the conclusion that the date of succession was October 8, 1943, and the previous year for purposes of section 25(4) of the Income-tax Act was the accounting period beginning on October 19, 1942, and ending on October 7, 1943. Under the first part of section 25(4) of the Income-tax Act, the assessee is entitled as of right to be exempted from tax on the income earned during the period between the end of the previous year and the date of succession. In this case, therefore, the income, that would be exempted from tax under this part of section 25(4) of the Income-tax Act, would be the income earned between October 7, 1943, which was the date on which the previous year ended, and October 8, 1943, which was the date on which the succession took place. Consequently, the contention of the assessee that under the first part of section 25(4) of the Income-tax Act the income earned during the period October 19, 1942, to October 7, 1943, is exempted is incorrect and cannot be accepted. It may be unfortunate that the succession took place on October 8, 1943, which was the very first day of the next accounting period following the previous year October 19, 1942, to October 7, 1943, with the result that the assessee in effect gets no relief at all because no income was earned by the assessee between October 7, 1943, and October 8, 1943. If the date of succession had been later than October 8, 1943, and any income had been earned during that period that could have been the income of the assessee which would have been exempt from the tax Even in the present case, if the assessee had earned any income in the period between October 7, 1943, and October 8, 1943, and before succession took place, that income would be the income exempt under the first part of section 25(4) of the Income-tax Act. Such a contingency could have arisen if on October 8, 1943, the date of succession itself, any income had been earned by the assessee in this Banaras Business prior to the succession taking place on that very day. The facts found by the Tribunal, however, show that no such income was earned and, consequently, under the first part of section 25(4) of the Income-tax Act, if applied with out reference to the second part, the assessee in the present case is not entitled to exemption from tax on any income. Of course, under the second part, the assessee could have made a further claim that the income of the assessee for the previous year October 19, 1942, to October 7, 1943, be deemed to be the income of this period in respect of which he could claim exemption as of right, which means that the assessee could claim that the income earned between October 19, 1942, and October 7, 1943, be treated as the income for the period October 7, 1943, to October 8, 1943, and exemption for that period be granted on that basis. The question, however, does not arise in this reference made to this court by the Tribunal because there is no mention that any application was made putting forward such a claim under the second part of section 25(4) of the Income-tax Act. The facts as they appear from the appellate order of the Income-tax Appellate Tribunal as well as the statement of the case make no mention of any application being made putting forward such a claim and it is, therefore, not at all necessary to consider that aspect of the case. The reference as sent to this court merely deals with the question whether the income in respect of which exemption is being claimed under section 25(4) of the Income-tax Act should be held to be the income earned between October 19, 1942, and October 7, 1943, and that question has to be answered against the assessee in view of the reasons given above. It may also be mentioned that this decision in the present case is exactly in line with the decision of the Bombay High Court in the case of Ambaram Kalidas cited earlier. In these circumstances, the answer to the question referred is in the negative. The reference maybe returned to the Tribunal with this answer. The department will be entitled to the costs of this reference which is fixed at Rs. 200. I have had the advantage of reading the order proposed by my learned brother but with great respect I regret I am unable to agree.
(3.) THE question referred by the Income-tax Appellate Tribunal for the opinion of this court is as to whether on the facts of the case the assessee is entitled in respect of its Banaras business to exemption from tax under section 25(4) of the Income-tax Act for the period from October 19, 1942, to October 7, 1943. The relevant faces as set out in paragraph 2 of the statement of the case are that after the period October 19, 1942, to October 7, 1943, which is the accounting period of the previous year for the assessment year 1944-45, the assessees business at Banaras was taken over by a partnership firm with effect from October 8, 1943, and the assessee claims that no tax could be levied in respect of the income of the period October 19, 1942, to October 7, 1943, because of the provisions of section 25(4) of the Income-tax Act. Section 25(4) of the Income-tax Act reads a follows : "25. (4) Where the person who was at the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first maintained person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person 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 differece : Provided that sub-sections (3) and (4) shall not apply - (a) to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either for the year beginning on the 1st day of April, 1920, or for the year beginning on the 1st day of April, 1921; (b) to a business, profession or vocation on which income-tax was at any time charged in the hands of a company under the Indian Income-tax Act, 1886 (11 of 1886), or on which income-tax would have been charged in the hands of a company for the assessment year ending on the 31st day of March, 1918, if the company having been in existence in that year, had also been in existence in the year ending on the 31st day of March, 1917." No tax is payable in respect of the income of the period between "the end of the previous year" and "the date of such succession". In the instance case the date of such succession has been found to be October 8, 1943. The period prior to this date and subsequence to the end of the previous year is the period in respect of which the exemption has been provided for. On behalf of the department it is contended that the words "previous year" is the period in respect of which the exemption has been provided for. On behalf of the department it is contended that the words "previous year" mean the previous year immediately preceding the assessment year. In In re Pt. Lachhman Pandey a Bench of this court of which my learned brother was a member held that the previous year means "the account year preceding the date of succession." In Commissioner of Income-tax v. Srinivasan the Super Court laid down : ".... the expression end of the previous year in sub-section (3) and (4) of section 25 of the Indian Income-tax Act, 1922, in the context of those sub-sections means the end of an accounting year (a period of full 12 months) expiring immediately preceding the date of discontinuance or succession." "The expression previous year substantially means an accounting year comprised of a full period of twelves months and usually corresponding to a financial year preceding the financial year of assessment." ;