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PETITIONER: COMMISSIONER OF INCOME-TAX, MADHYA PRADESH

       Vs.

RESPONDENT: LADY KANCHANBAI

DATE OF JUDGMENT: 16/12/1969

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C.

CITATION:  1970 AIR  691            1970 SCR  (3) 323  1970 SCC  (1) 140

ACT: Income-tax  Act,  1922-S. 2(11)(i)(a)  and  proviso-Previous year  relevant  to  assessment year 1950-51  in  respect  of sources  of  income outside  "taxable"  territory-Assessee’, ’assessed’, meaning of.

HEADNOTE: Prior  to  the  assessment year  1950-51  the  assessee  was assessed under the Indian Income-tax Act, 1922 in the status of  a  non-resident  Hindu  Undivided  Family.   The  income received  by  the  assessee in the former  Indian  State  of Madhya  Bharat was not subject to tax under the Act but  was taken into consideration in computing its "world income" for the   purpose   of  determining  the   ’rate.    After   the Constitution  came  into  force the  present  definition  of "taxable  territories" was incorporated into the  Income-tax Act  by  the Finance Act, 1950 and the areas  in  which  the assessee was carrying on business with which this appeal  is concerned were included therein with the result that for the assessment  year 195051 the assessee who was a  resident  of Madhya  Bharat was deemed to be a resident in  the  "taxable territories" during the "previous year" and hence liable  to be taxed in respect of its income received in Madhya Bharat. Prior  to  the  assessment year  1950-51  the  assessee  had proceeded on the basis that its account year ended on Diwali day, but for the assessment year 1950-51, in respect of  its income from business in Madhya Bharat it chose the financial year  ending on March 31, 1950 as the "previous year".   The Income  Tax  Officer  as well  as  the  Appellate  Assistant Commissioner  rejected  the claim of the  assessee  that  it could make such a choice.  The Tribunal reversed the finding of  the Income Tax Officer and the High Court  on  reference agreed with the tribunal.  On the question whether under the circumstances  of the case, having regard to s.  2(11)(i)(a) of  the  Income Tax Act, 1922, the assessee is  entitled  to take  the  year ended on 31-3-1950 as  the  "previous  year" relevant  to the assessment year 1950-51 in respect  of  his sources of income arising outside the "taxable territory", HELD  : The High Court was right in answering in  favour  of the asseme. (1)It is clear from the provisions of s. 2(11)(i) (a) that

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in  respect  of any separate source of  income,  profits  or gains  unless the assessee has made a choice  in  accordance with the second part of s. 2(11)(i)(a) the 12 months  ending on  31st day of March next the preceding year for which  the assessment is made is the "previous year".  The section does not refer to the income of the assessee generally but to his "separate  sources of income, profits and gains".  Hence  it is  possible for an assessee to have a  different  "previous year"  for  each  "separate source of  income,  profits  and gains" : and the business of the as-sessee in Madhya  Bharat constituted a separate source of income. [326 C-G] Commissioner  of Income Tax v. Savumamurathy, [1946]  I.T.R. 185;  Rhodesia Metals Ltd. v. Commissioner of Taxes,  (1941) I.T.R. Supp. 45, refeffed to. 324 (2)For the purpose of finding out the total "world income" of the assessee, the income derived by the assessee from its businesses outside the "taxable territories" had been  taken into  consideration in the past; but that was done only  for the purpose of determining the rate at which the  assessee’s income should be assessed.  No tax was imposed on the income from those business.  The expression that "where in  respect of a particular source of income, profits and gains" in  the proviso to S. 2(11)(i)(a) means the income from a particular source  which has been brought to tax under the Act and  not which  has been taken into consideration for  computing  the total world income of the assessee.  In the context the word "assessee"  in the proviso to s. 2(11)(i)(a) refers  to  the person  whose  income,  profits or gains  in  respect  of  a particular  source had been once assessed to tax.  The  word "assessed"  in  that  proviso  means  subject  to  levy   or imposition of tax not computed. [327 C-F] Commissioner  of  Income  Tax, Bombay  v.  Kemchand  Ramdas, (1938)  VI,  I.T.R. 414 and Seth Badridas Daga and  Anr.  v. Commissioner  of  Income Tax Central  and  United  Provinces (1.949)XVII I.T.R. 209, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 19 of 1969. Appeal from the judgment and order dated October 28, 1960 of the  Madhya Pradesh High Court in Misc.  Civil Case No.  291 of 1958. S.   T.  Desai,  S.  K.  Aiyar and B.  D.  Sharma,  for  the appellant. M.C.  Chagla, Rameshwar Nath, Mahinder Narain and  Swaranjit Sodhi, for the respondents. The Judgment of the Court was delivered by Hedge,  J. In this appeal by certificate the  question  that arises  for decision is whether under the  circumstances  of the  case  having regard to Section 2 (I I) (i) (a)  of  the Income  Tax Act, 1922 (to be hereinafter referred to as  the Act), the assessee is entitled to take the year ended on 31- 3-1950  as  the "previous year" relevant to  the  assessment year  1950-51  in respect of his sources of  income  arising outside  the "taxable territories".  This question under  S. 66(1)  of the Act was answered in favour of the assessee  by the  High  Court  of  Madhya-Pradesh.   Aggrieved  by   that decision, the Commissioner of Income Tax, Madhya Pradesh has brought this appeal. The  assessee (the respondent) is a Hindu  Undivided  Family with  its  Head-office  at Indore and  branches  at  several places.  It derives income from property, business in cotton and  oil  seeds,  speculation,  dividends,  managing  agency

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commissions, etc.  Prior to the assessment year 1950-51, the assessed’was assessed under the Indian Income Tax Act,  1922 in the status of a nonresident Hindu Undivided Family.   The income which accrued to or was 325 received by the assessee in the former Indian States was not subject   to   tax  under  the  Act  but  was   taken   into consideration  in  computing  its  "world  income"  for  the purpose  of  determining the rate.  After  the  Constitution came   into  force,  the  present  definition  of   "taxable territories"  was incorporated in the Income Tax Act by  the Finance  Act, 1950 and the areas in which the  assessee  was carrying  on the businesses with which we are  concerned  in this  appeal  were  included therein.   The  result  of  the amendment  was  that for the assessment  year  1950-51,  the assessee who was a resident of Madhya Bharat, was deemed  to be  a  resident  in the  "taxable  territories"  during  the "previous  year" and hence liable to be taxed in respect  of its income. that accrued or received in Madhya Bharat.   For the  purpose of its accounts the assessee was. adopting  the year ending on Diwali day.  In the returns submitted by  the assessee,  prior  to  the assessment year  1950-51,  it  had proceeded on the basis that its account year ended on Diwali day; but for the assessment year 1950-51, in respect of  its income  accrued  from its businesses in  Madhya  Bharat,  it chose  the  financial year ending on March 31, 1950  as  the "previous  year".   The Income Tax Officer as  well  as  the Appellate  Assistant Commissioner rejected the claim of  the assessee that it could make: such a choice.  The Income  Tax Officer  assessed  the  assessee  on  the.  basis  that  the "previous year" in respect of the concerned source,,,  ended on  Diwali  of  1949.  That decision  was  affirmed  by  the Appellate   Assistant  Commissioner;  but  the  Income   Tax Appellate.  Tribunal reversed the finding of. the Income Tax Officer and the Appellate Assistant Commissioner and  agreed with  the  stand  taken  by  the  assessee.   Thereafter   a reference was made to the High Court of Madhya Pradesh under s.  66(1) of the Act at the instance of the Commissioner  of Income Tax but the- High Court agreed with the view taken by the tribunal.  Hence this, appeal. The  question  for our consideration is  whether  the,  view taken by the High Court is correct ? In order to decide that question,  it is necessary to find out the true scope of  s. 2(11)(i)(a) or the Act,which  provision defines the term "previous  year" thus "    "Previous year" means- (ii) in respect of any separate source of income, profits and gains- (a)the  twelve  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 twelve months in respect  of  a  year ending  on any date other than the said 31st day  of  March, then, at the option of Sup.Ct.(INP)/70-6 326 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........ he shall not, 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

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Officer  and upon such conditions as the Income Tax  Officer may think fit to impose."                     (emphasis is ours). From  the above provision, it is- clear that in  respect  of any -separate source of income, profits or gains, unless the assessee had made a choice in accordance with 2nd part of s. 2  (1 1 ) (i) (a), the twelve months ending on 31st  day  of March  next the preceding year for which the  assessment  is made is the "previous year". Therefore all that we have to see is whether the  assessee’s income,  profits  or gains in respect of the  businesses  in Madhya Bharat had been assessed previously.  If they had not been  previously  assessed then the  assessee’s  case  comes within. the first Part -of S. 2 (II) (i) (a).  In that event his  return was in accordance with law.  Therefore  we  have first  to  see  what is meant by "source of  income"  in  s. 2(11)(i)  (a)  of  the Act and  then  proceed  to,  consider whether those sources of income had "once been assessed". It  is necessary to note that s. 2 ( 1 1 ) (i) (a) does  not refer  to  the income of the assessee Generally but  to  his "separate  sources of income, profits and gains".  Hence  it is  possible for an assessee to have a  different  "previous year"  for  each  "separate source of  income,  profits  and gains"  as held by the Madras High Court in Commissioner  of Income Tax v. Savumamurathy(1).  In Rhodesia Metals Ltd.  v. Commissioner  of Taxes (2) the Judicial Committee  -observed that  "source"  means  not  a  legal  concept  but  which  a practical  man  would  regard as a real  source  of  income. There  is  hardly any room for doubt, nor was  it  contended otherwise that the business of the assessee in Madhya Bharat constituted a separate source or sources.  Hence all that we have  to  see  is whether the  income  accruing  from  those businesses had "once been assessed" under the Act. This takes us to the question what exactly is the meaning of -the expressions "assessed" and "assessee" in the proviso to (1) (1946) I.T.R. 185. (2) (1941) I.T.R. Sup. 45. 327 2(11)(i)(a).    The  words  "assessed",   "assessment"   and ’assessee" have different meaning in different contexts.  As observed  by  Judicial Committee in Commissioner  of  Income Tax,  Bombay v. Kemchand Ramdas(l) the word "assessment"  is used  in  the Act as meaning sometimes  the  computation  of income,  sometimes  the determination of the amount  of  tax payable and sometimes the procedur laid down in the Act  for imposing  liability upon the tax payer.  Similarly the  word "assessee" connotes different meaning in different contexts- see  Seth Badridas Daga and anr. v. Commissioner  of  Income Tax Central and United Provinces(’). It  is  true that for the purpose of finding out  the  total "world  income" of the assessee, the income derived  by  the assessee from its businesses outside the taxable territories had  been  taken into consideration in the past.   That  was done  only for the purpose of determining the rate at  which the assessees income should be assessed.  No tax was imposed on  the income from those businesses.  In other  words,  the income  derived by the assessee from the businesses  carried on  by it in territories outside the  "taxable  territories" were not brought to tax under the Act.  The expression  that "where in respect of a particular source of income,  profits and  gains" in the proviso lo s. 2 (I 1 ) (i) (a) means  the income  from a particular source which has been  brought  to tax  under  the  Act  and not  which  has  been  taken  into consideration  for computing the total world income  of  the assessee.  In the context the word "assessee" in the proviso

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to  s.  2(11)(i)(a)  refers to-  the  person  whose  income, profits or gains, in respect of a particular source had been once  assessed to tax.  The word "assessed’ in that  proviso means subject to levy or imposition of tax not compute. For  the  reasons mentioned above, we agree  with  the  view taken  by the High Court.  In the result this  appeal  fails and the same is dismissed with costs. R.K.P.S.                                              Appeal dismissed. (1)  (1938) VI, I.T.R. 414. (2)  (1949) XVII I.T.R. 209. 328