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PETITIONER: ESTHURI ASWATHIAH

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, MYSORE

DATE OF JUDGMENT: 04/06/1962

BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. SUBBARAO, K. HIDAYATULLAH, M.

CITATION:  1966 AIR 1285            1966 SCR  (3) 359  CITATOR INFO :  R          1976 SC  43  (6)

ACT: Income-tax  Act  (11 of 1922), s. 2(11)-Length  of  previous year--If should be only 12 calendar months-Previous year  of 21 months-Rate of tax applicable.

HEADNOTE: Up  to the assessment year 1951-52, the  appellant  -adopted the year ending on 30th June as the previous year applicable to  him.   For the assessment year,  1952-53,  the  assessee filed a return for 21 months commencing on 1st July 1950 and ending  on  31st March, 1952 and  requested  the  Income-tax Officer to accord his sanction to the change of the previous year  from an year ending on 30th June to an year ending  on 31st March.  The Income-tax Officer sanctioned the change on condition  that the total income in the period of 21  months ending  on 31st March 1952 would be assessed to tax  at  the rate  applicable to the total income in the said 21  months. The  Appellate  Assistant  Commissioner  and  the  Appellate Tribunal.  on  appeal, and the High Court, on  a  reference, confirmed the order. In  appeal  to this Court it was contended that  :  (i)  the scheme  of  Act and particularly ss. 2(11) and 3  show  that there  cannot be a previous year consisting of more than  12 months;  (ii) the Income-tax Officer had no power to  direct under  the  proviso to cl. (1) (a) of s. (2) (11)  that  the previous year should consist of 21 months; (iii) the Income- tax  Officer should have granted the sanction  on  condition that the ass shall have 2 previous years, one consisting  of a period of nine months from 1st July 1950 up to 31st  March 1951  and the other of a period of 12 months from 1st  April 1951  to  31st March 1952; and (iv) the  Income-tax  Officer should  have  accorded sanction to the change on  the  basis that the income for 21 months should be assessed at the rate applicable to the income of the last period of 12 months. HELD  : (i) A combined reading of the several clauses of  s. 2(11)  shows  that the length of a previous  year  need  not necessarily  be 12, calendar months.  Under s.  2(11)(i)(b), the previous year is such period as may be determined by the Central Board of Revenue or such, authority as the Board may

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authorise in this behalf, and the period so, determined  may be more or less than 12 months. [362 H-363 A] (ii)The Income-tax Officer may -refuse to give his  consent to  a  change  of the previous year, but  if  he  gives  his consent, he has ample power to impose the condition that the full  period  from the end of the "previous  year"  for  the preceding year’s assessment to the end of the new accounting year  should be taken as the previous year for the  cur-rent assessment  year.   The condition  properly  safeguards  the interests  of the Revenue because, if he had sanctioned  the change  on the footing that the previous year would only  be the  period of 12 months from 1st April 1951 to  31st  March 1952 the income of the preceding 9 months from 1st July 1950 to 31st March 1951 would have escaped taxation. [363 D-F] (iii)There  cannot be two previous years in respect  of the same assessment year and such a concept of two  previous years  is  repugnant  to  s.  3.  Section  25(1)  does   not contemplate assessments in the same assessment CI/66-10 360 year in respect of two previous years.  It only contemplates the  usual  assessment  in  respect of  the  income  of  the previous  year and a special and separate assessment in  the same assessment year in respect of the income of the  broken period between the end of the previous year and the date  of discontinuance of the business. [363 H-364 C] (iv)The Income-tax Officer has no power to vary the rate on which  the  income of the previous year is to  be  assessed. The  condition imposed by the Income-tax Officer,  that  the income  of the Previous year of 21 months would be  assessed at  the  rate  applicable to the income  for  21  months  is redundant, because, once the length of the previous year  is found to be a period of 21 months, the income of the  entire period of 21 months, must be considered to be the income  of the previous year relevant for the assessment year. 1952-53, and the entire income must be assessed at the rate specified in the relevant Finance Act, and at no other rate. [364 D-G]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 402 of 1965. Appeal from the order dated June 4, 1962 of the Mysore  High Court in Income-tax Referred Case No. 7 of 1961. K.   Srinivasan and R. Gopalakrishnan, for the appellant. R.   Ganapathy Iyer and R. N. Sachthey, for the respondent. The Judgment of the Court was delivered by Bachawat, J. The appeal raises a question of  interpretation ,of  the  proviso to cl. (i)(a) of S. 2(11)  of  the  Indian Income-tax  Act, 1922.  Up to the assessment  year  1951-52, the  appellant  adopted the year ending on June  30  as  the "previous  year" applicable to him.  The assessment for  the assessment year, 1951-52 was accordingly made in respect  of the  previous  year  ended  on  June  30,  1950.   For   the assessment year, 1952-53, the assessee filed a return for 21 months  commencing on July 1, 1950 and ending on  March  31, 1952,  and  requested the Income-tax Officer to  accord  his sanction  to  the change of the previous year from  an  year ending  on  June  30 to an year ending  on  March  31.   The Income-tax  Officer  duly  sanctioned the  change.   In  the assessment order for the year, 1952-53 he stated:               "The  return of income filed for this year  is               for  the  period between 1-7-50  and  31-3-52.               The permission to change the previous year  is               granted  subject  to the  condition  that  the

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             total income in the period of 21 months ending               31-3-52  will be assessed to tax at  the  rate               applicable to the total income in the said  21               months." The  appellant was apparently happy with this order, and  he made   no  protest  before  the  Income-tax  Officer.    The assessment  for the assessment year 1952-53 was  accordingly made  in  respect  of  the  income  of  the  previous   year consisting  of  21 months commencing from July 1,  1950  and ending  on  March  31,  1952.  In  his  appeals  before  the Appellate Assistant Commissioner and the Income- 361 tax  Appellate Tribunal, the appellant,  however,  contended that the total income of 21 months should be assessed at the rate applicable to the proportionate income for a period  of 12 months.  Both the authorities concurrently rejected  this contention.   On  the  application  of  the  assessee,   the Tribunal referred the following two questions of law for the decision of the High Court of Mysore:                "(1)  Within the meaning of Sec. 2(11)(a)  of               the  Income-tax  Act, whether  the  Income-tax               Officer is entitled to have the length of  the               ’previous  year’  as  21  months  though   the               assessee itself applies for such a change?               (2)When the length of the assessee’s  previous               year is allowed to be 21 months, whether it is               obligatory  on  the  part  of  the  Income-tax               Officer to tax the income for the said  period               of  21  months at the rate applicable  to  the               proportionate  income  for  a  period  of   12               months?" At the hearing of the reference, the second question of  law was no pressed.  The first question of law was pressed,  and it was contended that according to the scheme of the  Indian Income-tax  Act, there cannot be a previous year  consisting of  more than 12 months, and the Income-tax Officer was  not competent  to  constitute a previous year consisting  of  21 months  under  the proviso to cl. (i)(a) to s.  2(11).   The High  Court  rejected  this  contention  and  answered   the questions in favour of the Revenue and against the assessee. The  assessee  now appeals to this Court  on  a  certificate granted  by  the High Court under s. 66A(2)  of  the  Indian Income-tax Act, 1922. Mr.  Srinivasan repeated before us the contentions which  he urged  before the High Court.  He submitted that the  scheme of the Act and particularly ss. 2(11) and 3 show that  there cannot be a previous year consisting of more than 12 months, and the Income-tax Officer had no power to direct under  the proviso  to  cl. (i)(a) of s.2(11) that  the  previous  year should  consist of 21 months.  We are unable to accept  this contention. Section 3 is the charging section.  For any assessment year, income-tax  is charged on the income of the  previous  year. Section  3 does not define the length of the previous  year. The  "previous year" is defined in s. 2(11).  The main  part of cl. (i)(a) of s. 2(11) reads:               "(11) ’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 tile year  for  which               the  assessment  is  to be made,  or,  if  the               accounts of the assessee have been made               362               up to a date within the said twelve months  in

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             respect  of  a year ending on any  date  other               than  the said 31st 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 The  main part of cl. (i)(a) of s. 2(11) gives  the  primary meaning of the expression "previous year", and this  meaning was elucidated by Mahajan, J. in Commissioner of Income-tax, Madras v. K Srinivasan and K. Gopalan(1) thus:               "The expression ’previous year’  substantially               means an accounting period comprised of a full               period   of   twelve   months   and    usually               corresponding  to a financial  year  preceding               the  financial  year of assessment.   It  also               means  an accounting year comprised of a  full               period   of  twelve  months  adopted  by   the               assessee  for  maintaining  his  accounts  but               different   from   the  financial   year   and               preceding a financial year." Thus,  under  the main part of cl. (i)(a) of S.  2(11),  the previous  year  is either a period of 12  months  ending  on March 31 next preceding the assessment year or at the option of  the assessee the year ending on some other  date  within the  aforesaid period of 12 months, if the accounts  of  the assessee  have  been made up to such date.  The  proviso  to sub-cl. (i)(a) reads :               "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 (e),  he               shall  not, in respect of that source  or,  as               the case may be, business, profession or voca-               tion,  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." Sub-clause (i)(b) of s. 2(11) empowers the Central Board  of Revenue  or  its  nominee to determine  the  period  of  the previous year in respect of any person, business or  company or class of person, business or company.  Sub-clause  (i)(c) defines  the  previous  year in respect of a  newly  set  up business,  profession or vocation.  Subclause  (ii)  defines the previous year in respect of the share of the  assessee’s income in a firm. A combined reading of the several clauses of s. 2(11)  shows that  the length of a previous year need not necessarily  be 12 Calendar (1)[1963] S.C.R. 486, 501 363 months.   Under  s. 2(11)(i)(b), the previous year  is  such period as may be determined by the Central Board of  Revenue or such authority as the Board may authorise in this behalf, and  the  period so determined may be more or less  than  12 months.   Under s. 2(11)(i)(c), the period of  the  previous year  in respect of a newly set up business,  profession  or vocation  may be less than 12 months.  In  this  background, let us consider the meaning of s. 2(11)(i)(a).  The assessee has  the option to choose his accounting year ending on  any date  within  the preceding financial year as  his  previous year.   Once  he exercises this option, the meaning  of  the expression   "previous  year"  as  applicable  to   him   is

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determined, and he cannot exercise this option again "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." If the assessee  wants to  change  the  meaning  of  the  previous  year  as   then applicable to him, he must obtain the consent of the Income- tax  Officer,  and the Income-tax Officer  may  accord  such consent on proper terms.  The Income-tax Officer may  refuse to give his consent, but if he does give his consent, he has ample  power  to impose the condition that the  full  period from the end of the ’previous year’ for the preceding year’s assessment  to the end of the new accounting year should  be taken as the previous year for the current assessment  year. Thus,  if the previous year at any given time applicable  to the  assessee ends on June 30 and he wants to vary it so  as to make it end on March 31 next, the Income-tax Officer  has power to accord sanction to the change on the condition that the  previous year would consist of the entire period of  21 months  commencing  on June 30 of the year up to  which  his accounts  were  last made up to March 31 of the year  up  to which  his  accounts  are  newly  made  up.   The  condition properly  safeguards  the interest of the Revenue.   Had  he sanctioned the change on the footing that the previous  year of  the assessee in relation to the current assessment  year would  be the period of 12 months from April 1 to March  31, the income of the preceding 9 months from July 1 to March 31 would have escaped taxation altogether. Mr.  Srinivasan submitted that the Income-tax Officer  could grant  the  sanction on condition that the  assessee  should have two previous years, one consisting of a period of  nine months from July 1 up to March 31 and the other of a  period of  12 months from April 1 to the next succeeding March  31. This  is  an  impossible contention.  There  cannot  be  two previous years in respect of the same assessment year.   The charge  under s. 3 for any assessment year is in respect  of the  income  of  the  previous year.   The  concept  of  two previous  years in relation to the same assessment  year  is repugnant to s. 3. In Dhandhania Kedia & Co. v. Commissioner 364 of  Income-tax(  ),  this Court pointed out  that  it  is  a contradiction  in  terms to speak of six previous  years  in relation  to any specified assessment year.  Mr.  Srinivasan is  not right in submitting that s. 25(1)  contemplates  two previous  years.   Section 25(1) provides that  in  case  of discontinuance  of any business, profession or  vocation  in any assessment year, the Income-tax Officer may in that year make  an accelerated assessment in respect of the income  of the period between the end of the previous year and the date of such discontinuance, in addition to the usual  assessment in  respect  of the income of the  previous  year.   Section 25(1)  contemplates the usual assessment in respect  of  the income  of  the  previous year and a  special  and  separate assessment  in  the same assessment year in respect  of  the income of the broken period between the end of the  previous year  and  the  date  of the  discontinuance;  it  does  not contemplate,  as counsel submitted, assessments in the  same assessment year in respect of two previous years. Mr.  Srinivasan alternatively submitted that the  Income-tax Officer  could  accord sanction to the change on  the  basis that the income for 21 months should be assessed at the rate applicable  to the income of the last period of  12  months. This  again  is an impossible  contention.   The  Income-tax Officer has no power to vary the rate on which the income of the  previous  year is to be assessed.  The rate of  tax  is

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fixed  by  the Finance Act every year. By s. 3, the  tax  is levied at that rate for an assessment year in respect of the income of the previous year.  Once the length of the  previ- ous  year  is fixed and the income of the previous  year  is determined,  that  income  must  be  charged  at  the   rate specified  in  the Finance Act and at no  other  rate.   The order of the Income-tax Officer, in substance, permitted the change  of the previous year on condition that the  previous year  in  relation to the assessment  year,  1952-53,  would consist  of the period of 21 months commencing from July  1, 1950  and ending on March 31, 1952.  The Income-tax  Officer had  power to impose this condition.  The further  condition that  the income of the previous year of 21 months would  be assessed at the rate applicable to the income for 21  months is redundant.  Once the length of the previous year is found to be a period of 21 months, the income of the entire period of  21  months must be considered to be the  income  of  the previous year relevant for the assessment year, 1952-53, and the entire income must be assessed at the rate specified  in the relevant Finance Act. The appeal is dismissed with costs. Appeal dismissed. (1) (1958) 35 I.T.R. 400,404. 365