Commissioner Of Income-Tax, Madras vs K. Srinivasan And K. Gopalan

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 9 of 1952

Decision Date: 22 December 1952

Coram: Mehr Chand Mahajan, Natwarlal H. Bhagwati

In the matter titled Commissioner of Income-Tax, Madras versus K. Srinivasan and K. Gopalan, the judgment was delivered on 22 December 1952 by the Supreme Court of India. The case was heard before a bench comprising Justice Mehr Chand Mahajan, Justice Natwarlal H. Bhagwati and Justice Das, Sudhi Ranjan. The petitioners were the Commissioner of Income-Tax, Madras, and the respondents were the two brothers, K. Srinivasan and K. Gopalan. The decision is reported in 1953 AIR 118 and 1953 SCR 463, with further citations including F 1956 SC 367, RF 1961 SC 1633, and F 1969 SC 1068. The statutory framework relied upon was the Indian Income-Tax Act of 1922 (XI of 1922), specifically sections 2(1), 25(3), 25(4) and 26(2). The respondents’ partnership firm had been assessed under the earlier Income-Tax Act of 1918, and its accounting year ended on 30 June each year. The partnership transferred its business to a limited company on 1 March 1940 and sought relief under section 25(4) of the 1922 Act for the period from 1 July 1938 to 29 February 1940, a span of twenty months. The assessment for the year 1940-41 reflected this claim, while the income-tax authorities argued that the exemption could be allowed only for the eight-month period from 1 July 1939 to 29 February 1940.

The Court held that the expression “end of the previous year” occurring in subsections (3) and (4) of section 25 must be interpreted to refer to the end of the full accounting year—i.e., a twelve-month period—immediately preceding the date of discontinuance or succession. Accordingly, the partnership was entitled to claim exemption only for the period from 1 July 1939 to 29 February 1940. The Court further explained that a proper construction of sections 25 and 26 does not empower the income-tax officer to make an accelerated assessment for the year in which succession occurs on the profits of that same year, nor to assess the successor prematurely in order to provide relief to the predecessor. The exemption contemplated in section 25(4) and the apportionment required by section 26(2) must be effected in the assessment year in which the profits of the year of succession are assessed under section 3 of the Act. For the purposes of the charging provisions, the term “previous year” is linked to the assessment year that follows immediately, but it is not rigidly tied to an assessment year in every circumstance, and it cannot be said to have meaning only when used in relation to a financial year. The Court’s interpretation thereby clarified the temporal scope of the exemption and the limits on the assessing authority’s powers.

In this case, the Court observed that the term “previous year” did not acquire any meaning unless it was employed in reference to a financial year. In certain circumstances, the expression could denote a completed accounting year that immediately preceded the occurrence of a particular contingency. The matter before the Court arose from a civil appeal, specifically Appeal No. 9 of 1952, which challenged the judgment and order dated 2 January 1950 issued by the High Court of Judicature at Madras. The High Court judges Satyanarayana Rao and Viswanatha Sastri had rendered opinions in a case referred as No. 68 of 1946. The appellant was represented by the Attorney-General for India, assisted by counsel, while the respondents were represented by counsel for the appellant. The judgment was delivered on 22 December 1952 by Justice Mahajan.

The appeal concerned a reference made by the Income-Tax Appellate Tribunal under section 66(1) of the Indian Income-Tax Act, XI of 1922. Prior to the year 1939-40, the respondents, who were brothers, had operated the daily newspaper “The Hindu” in Madras as partners. The profits of this partnership had been subject to income tax under the Indian Income-Tax Act of 1918. The partnership’s accounting year spanned twelve months and terminated on 30 June each year. For the accounting year ending 30 June 1938, an assessment was made in the fiscal year 1939-40, and the partnership was taxed for that assessment year.

On 1 March 1940, the respondents transferred the newspaper business as a going concern to a newly formed private limited company named Kasturi and Co. Ltd. For the assessment year 1940-41, the respondents asserted that the partnership should not be liable to income tax on the income earned from the end of the accounting year that concluded on 30 June 1938 up to 29 February 1940, the date on which the limited company succeeded to the business— a period of twenty months. They relied on section 25(4) of the Act, contending that the earlier assessment under the 1918 Act covered that interval.

The Income-Tax Officer rejected this claim, reasoning that because the assessment concerned the year 1940-41, the “previous year” for that assessment was the year ending 30 June 1939. Accordingly, the officer held that the exemption under section 25(4) could only apply to the interval from 1 July 1939 to 29 February 1940, a period of eight months. This determination was affirmed on appeal by the Appellate Assistant Commissioner. The Tribunal subsequently held, after a proper construction of section 25(4), that no tax was payable by the partnership for the entire period from 1 July 1938 to 29 February 1940, covering the full twenty months. The Tribunal’s finding formed the basis of the question referred to the High Court for its opinion.

In the appeal filed by the Commissioner of Income-tax, who acted as the appellant, the Tribunal presented a reference to the High Court and asked that Court to state its opinion on the following question: “Whether, on the facts of this case, the Appellate Tribunal was correct in holding that the period for which profits were entitled to exemption from tax under section 25(4) of the Indian Income-tax Act, 1939, was the period beginning on 1 July 1938 and ending on 29 February 1940.” The reference was heard by Judges Satyanarayana Rao and Viswanatha Sastri. The two judges gave opposite answers. Judge Satyanarayana Rao accepted the Tribunal’s conclusion and answered the question affirmatively. Judge Viswanatha Sastri answered the question in the negative. Because the opinion of the senior judge was that the Tribunal’s view was correct, the High Court confirmed the Tribunal’s order. Leave to appeal to this Court was subsequently granted, and the present appeal arose on a certificate issued by the High Court.

The central issue for determination in this appeal was whether, on a correct construction of section 25(4) of the Act and considering the facts of the case, the period whose profits could be exempted from tax was the eight-month span from 1 July 1939 to 29 February 1940, or the longer twenty-month span from 1 July 1938 to 29 February 1940. To resolve this issue, the Court needed to set out the relevant statutory provisions. Section 2(11) of the Act, which defines “previous year” for the purposes of this appeal, provides that the previous year is “the twelve months ending on the thirty-first day of March immediately preceding the year for which the assessment is to be made, or, if the assessee’s accounts have been prepared to a date falling within those twelve months for a year ending on a date other than the thirty-first of March, then, at the option of the assessee, the year ending on the date to which his accounts have been prepared.” Section 3 of the Act is the charging provision and states that when any Central Act imposes income-tax for a particular year at a certain rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act, with reference to the total income of the previous year of every individual, Hindu undivided family, company, local authority, firm, other association of persons, or the partners of the firm or the members of the association taken individually. Section 25 of the Act contains special provisions for certain cases, and the portions of that section relevant to this appeal were then set out for consideration.

If a business, profession or vocation to which sub-section (3) does not apply is discontinued in any year, the tax authority may make an assessment for that year based on the income, profits or gains earned from the end of the previous year up to the date of discontinuance. This assessment is to be made in addition to any assessment, if any, that was already made on the basis of the income, profits or gains of the whole previous year.

Sub-section (3) provides that where any business, profession or vocation on which tax had at any time been charged under the Indian Income-tax Act, 1918 (VII of 1918) is discontinued, then, unless there has been a succession that brings sub-section (4) into operation, no tax shall be payable for the period between the end of the previous year and the date of discontinuance. In such a case the assessee may also claim that the income, profits and gains of the previous year shall be deemed to be the income, profits and gains of that intervening period. If the assessee makes such a claim, the income-tax officer must assess tax on the basis of the income, profits and gains of the period in question. Where tax has already been paid on the income, profits and gains of the previous year and that amount exceeds the tax liability calculated on the basis of the new assessment, the excess amount must be refunded to the assessee.

Sub-section (4) deals with succession. It states that if a person who, at the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), was carrying on any business, profession or vocation on which tax had been charged under the 1918 Act, is succeeded in that capacity by another person – and the change is not merely a change in the constitution of a partnership – then the original person is not liable to tax for the period between the end of the previous year and the date of succession. The original person may also claim that the income, profits and gains of the previous year shall be deemed to be the income, profits and gains of the period preceding the succession. Upon such a claim, an assessment is to be made on the basis of the income, profits and gains of that period, and if tax has already been paid on the previous year’s income, profits and gains in an amount that exceeds the liability determined by the new assessment, the surplus must be refunded.

Finally, sub-section (6) provides that when an assessment is to be made under sub-section (1), sub-section (3) or sub-section (4), the Income-tax Officer may serve a notice on the person whose income, profits and gains are to be assessed. In the case of a firm, the notice may be served on any person who was a member of the firm at the time of its discontinuance. In the case of a company, the notice may be addressed to the principal officer of the company.

The Court explained that the officer may serve a notice containing any of the requirements that could be included in a notice issued under sub-section (2) of section 22, and that the provisions of the Act shall, to the extent possible, operate as if the notice had been issued under that sub-section. For a correct interpretation of section 25, the Court found it necessary to set out the legislative history and purpose of the enactment. Under the Income-Tax Act of 1918, tax was imposed on the income of the current year, that is, the year of assessment. Because the actual income of that year could not be ascertained until after the year ended, the assessment was originally made on the basis of the “previous year” income, with an adjustment later made after the assessment year to reflect the true income of the assessment year. The Act of 1922 altered this procedure. Section 3 of the 1922 Act provided that the income of the previous year would be the basis of the charge and that tax would be levied on that previous-year income, even though the tax was formally for the assessment year. When the 1922 Act was enacted, the earlier system of assessment was retained for one transitional year. Consequently, for the financial year 1922-23 there were two separate assessments of the same income: one under the new 1922 Act on the income of 1921-22, and another under the old system also on the income of 1921-22. Thus the income of 1921-22 was taxed twice, once under the 1918 Act and again under the 1922 Act. To correct this anomaly and to ensure that the number of assessments corresponded to the number of years a business operated, section 25(3) of the 1922 Act was introduced. This provision exempted from tax the profits earned between the end of the previous year and the date a business was discontinued when the profits had already been taxed under the 1918 Act. However, the 1922 version of section 25 contained no relief for cases where a business was succeeded to after being taxed under the 1918 Act. In 1939 the legislature enacted a measure to extend comparable relief to succession cases. Accordingly, section 26(2) of the Act was amended and a new subsection 25(4) was inserted by the 1939 amendment. The effect of these changes was that, upon the transfer of a business, the transferor—the person who had been succeeded in the business—would receive the same tax relief as if he had discontinued the business himself. The overall scheme of the legislation is that, by virtue of the charging provision, namely section 3, income-tax is imposed for a financial year at the rate prescribed by the annual Finance Act on the total income of the year in question.

The Court explained that under the statute the term “previous year” refers to the income year of each individual, partnership or company, and that each previous year’s income is assessed separately in the assessment year that follows. Although the assessment year is defined as the financial year, the previous year need not correspond exactly to the preceding financial year; its meaning is given by section 2(11)(a) of the Act. The respondents were therefore assessed for the assessment year 1939-40 on income earned in the previous year that ended on 30 June 1938. Their income for the accounting year ending 30 June 1939 would, in the normal course, be assessed in the financial year 1940-41, and the profits of the year ending 30 June 1940 would be assessed in the financial year 1941-42. The succession of the business occurred during the accounting year 1939-40. At that time, before the amendment of 1939, sub-section (2) of section 26 imposed liability on the person who succeeded to the business as if he had carried on the business for the whole year and had received all the profits of that year. Consequently, Kasturi and Company Limited would have been deemed liable to be assessed on the total profits of the year ending 30 June 1940 even though it actually received profits for only four months of that year.

The Court then noted that the 1939 amendment altered sub-section (2) of section 26 so that both the predecessor and the successor are each assessed only on the actual share of income, profit or gain that they earned in the year of succession. Under the amended provision the profits of the year in which succession occurs are to be divided between the predecessor and the successor in proportion to the period each enjoyed the business, each party being taxed at the rate applicable to him. Each party must compute his own profit according to section 10 and the other relevant provisions, claim the deductions and allowances to which he is entitled, and be assessed separately. If the business was taxed under the Indian Income-tax Act, 1918 and the successor is exempt under section 25(4), the predecessor is not liable for tax on the profits from the end of the previous year up to the date of succession, while the successor is liable under sub-section (2) of section 26 for the profits earned after the date of succession. The proviso to sub-section (2) provides two exceptions to the rule that the successor is not taxed on profits before the succession: (1) where the predecessor cannot be located, and (2) where tax assessed on the predecessor cannot be recovered from him. In either of these situations the successor would be liable for tax on the profits of the entire accounting year ending 30 June 1939 as well as the whole accounting year ending 30 June 1940, with the “preceding year” in this context being the year ending 30 June 1939. The Court then framed the issue of whether, under these circumstances, the successor would be entitled to the relief granted by section 25(4).

The Court observed that when tax could not be recovered from the predecessor, the successor became responsible for tax on the profits of the year in which the succession occurred up to the date of succession, and also for the profits earned during the preceding year. Accordingly, if either of those situations arose, Kasturi and Company Limited would have been liable to pay tax on the profits of the whole accounting year that ended on 30 June 1939, as well as on the whole accounting year that ended on 30 June 1940; the “preceding year” in this context was therefore the year ending on 30 June 1939. The Court then considered whether the firm was entitled to the relief provided by section 25(4).

Representing the Commissioner of Income-Tax, Madras, the Attorney-General argued that Justice Satyanarayana Rao had erred in granting the firm exemption for a twenty-month period. The Attorney-General maintained that, under section 25, sub-section (4), the only permissible relief covered the eight-month period from 1 July 1939 to 1 March 1940. It was further submitted that the profits of the year of succession were to be assessed in the ordinary course in the financial year 1941-42, and that the Income-Tax Officer possessed no authority to make an accelerated assessment so as to provide relief to the persons who succeeded in the business. Consequently, the Attorney-General held that it was incorrect to interpret the phrase “previous year” in section 25, sub-section (4) as relating either to the assessment year 1939-40—the year in which the succession took place—or to the assessment year 1941-42, in which the profits would ordinarily be assessed. On a proper construction of the sub-section, and having regard to its legislative history and purpose, the Attorney-General contended that the assessee firm was entitled to exemption only for the period between 1 July 1939 and 29 February 1940, and to no longer period.

The Court found merit in this argument. It noted that section 25(4) had been inserted into the 1922 Act in 1939, at the same time that section 26(2) was amended. A plain reading of sections 25(4) and 26(2) together indicated that the Income-Tax Officer was not empowered to conduct an accelerated assessment in the year of succession on that year’s profits, nor to prematurely assess the successor so as to grant relief to the predecessor. The exemption contemplated by section 25(4) and the apportionment required by section 26(2) therefore had to be applied in the assessment year in which the profits of the year of succession were scheduled to be assessed under the provisions of the Act, and not earlier.

The Court explained that the “previous year” for this case could not be the accounting year that began on 1 July 1937 and ended on 30 June 1938. This is because the income, profits and gains of the succession year—namely the accounting year that began on 1 July 1939 and ended on 30 June 1940—had to be divided between the predecessor and the successor under section 26(2). The successor becomes liable for tax on those profits if the predecessor defaults, and such profits could only be assessed in the assessment year 1941-42. By contrast, the income, profits and gains of the accounting year that began on 1 July 1938 and ended on 30 June 1939 were initially the sole responsibility of the predecessor and were scheduled for assessment in the assessment year 1940-41. The successor would also be liable for tax on those profits if the predecessor failed to pay. Section 25(4) provides that when the profits of the year of succession are to be assessed, the predecessor may claim exemption from tax on profit earned from the end of the “previous year” up to the date of succession. Here, “previous year” signifies the completed accounting year immediately preceding the succession date, i.e., the year ending 30 June 1939. The predecessor may further claim that profits earned from 1 July 1939 to 29 February 1940 be treated as profits of the accounting year 1 July 1938 to 30 June 1939, and if tax in excess of the amount chargeable on that broken period has been paid in assessment year 1940-41, a refund of the excess should be granted. In reality, the firm was entitled to the relief in section 25(4) for assessment year 1941-42, but the Income-Tax Officer was prepared to grant it in assessment year 1940-41, leaving the assessee without any grievance.

Satyanarayana Rao J. held that the expression “previous year” in subsection (1) of section 25 refers to the accounting year that is relevant to the assessment year in which the discontinuance occurs. He observed that the section authorises the Income-Tax Officer to make a cumulative assessment covering the profits from the end of the last accounting year that had been assessed before the discontinuance up to the date of discontinuance. He further stated that subsection (3) of section 25 is an exception to the general rule stated in subsection (1), and although the wording in subsection (3) differs from that in subsection (1), the assessment year for subsection (3) should also be taken as the year in which the discontinuance occurs. Consequently, there was no justification for a different interpretation of the phrase “previous year” in subsection (4).

The judge explained that the meaning assigned in this sub-section differed from the meaning attached to sub-section (1). Applying the same reasoning, the learned judge also gave the expression “previous year” in subsection (4) of section 25 the same interpretation. Consequently, the judge held that the firm was entitled to exemption from tax for profits earned between 1 July 1938 and 29 February 1940, a period of twenty months. Counsel for the respondents, however, did not accept the entire reasoning of Justice Satyanarayana Rao and argued vigorously that the judge’s conclusion was the only one that could be reached by a true construction of the language used in the various sub-sections of section 25. In summary, his argument asserted that sub-section (1) of section 25 gives the Income-tax Officer the option to make an accelerated assessment in the year of discontinuance. This option applies when a business terminates without having been assessed under the 1918 Act and covers income, profits and gains earned up to the discontinuance date that were not previously assessed. He further explained that the phrase “previous year” in this sub-section refers to the end of the accounting year whose profits were last assessed to tax. In the present case, that year ends on 30 June 1938. He contended that any alternative interpretation would create a hiatus, resulting in a situation where the Income-tax Officer could assess the profits of the broken period on the date of discontinuance but would then be unable to assess the profits of the entire previous year that had already expired, which would defeat the purpose of the power granted by the sub-section. On the same line of reasoning, counsel suggested that the words “between the end of the previous year and the date of such discontinuance” in subsections (3) and (4) should be given the same meaning as in sub-section (1). Accordingly, the assessee should receive exemption for profits earned between 1 July 1938 and 29 February 1940. It was further argued that the two terminal dates fixed for assessment under section 25(1) were the same as those fixed for exemption under sections 25(3) and 25(4). Therefore, allowing assessment under 25(1) for a period different from that for which relief was provided under 25(3) and 25(4) would be erroneous. Finally, it was urged that the scope of the charge authorized by section 25(1) was co-extensive with the extent of the relief provided in subsections (3) and (4). Before proceeding further, the Court noted that it would be convenient to make a few observations regarding the proposition stated by Justice Satyanarayana Rao that section 25(1) provides…

In this case the Court observed that section 25(1) of the Income-Tax Act did not permit a cumulative assessment when a business was discontinued. The wording of the provision, the Court held, gave no authority to the Income-Tax Officer to combine profits from two separate accounting periods into a single total and to apply the tax rate of one financial year to that total. The provision merely allowed the Officer, at his discretion, to make an accelerated assessment of the profits earned up to the date of discontinuance within the year in which the discontinuance occurred, rather than waiting for the normal assessment that covered the whole financial year. This accelerated assessment could be made in addition to the regular assessment for the financial year of discontinuance. The Court noted that counsel for the petitioner had correctly acknowledged that the earlier construction of subsection (1) by the trial Judge was inaccurate.

The Court then rejected the principal argument advanced by the petitioner that the language of subsection (1) supported an analogy with the language of subsections (3) and (4). It declared that this argument rested on a fallacy and could not be sustained. Subsection (1) was described as a power given to the Income-Tax Officer, if he chose to use it, to carry out a premature assessment at the time of discontinuance so as to avoid loss of revenue that might result from the disappearance of the assessee. In other words, the provision imposed a liability of premature assessment on the assessee and conferred no benefit upon him. By contrast, subsections (3) and (4) were characterized as substantive relief provisions intended to relieve taxpayers from tax in certain circumstances; they were not of the same kind as subsection (1). The Court stressed that merely grouping these subsections together in the same section did not make them identical in nature or effect.

The Court further held that the learned judge who had treated subsections (3) and (4) as exceptions to the rule in subsection (1) was plainly mistaken. In reality, subsection (1) itself constituted an exception to the general charging rule set out in section 3 of the Act. The purpose of subsections (3) and (4) was to grant relief to businesses that had suffered double assessment in the financial year 1922-23, and such relief was to be given in the assessment year in which the income and profits of the accounting period of discontinuance or succession were to be assessed. The Income-Tax Officer was not authorised to accelerate this relief by making a premature assessment of those profits. The Court pointed out that the language of subsections (3) and (4) differed from that of subsection (1) and that they dealt with distinct categories of taxpayers, reinforcing the conclusion that the provisions served different purposes and could not be construed as co-extensive.

In the matter before the Court, it was observed that the various sub-sections of section 25 dealt with distinct categories of taxpayers. Sub-section (1) applied to a class of assessee who had never been subjected to double taxation, whereas sub-sections (3) and (4) applied to a different class that had been assessed under the Act of 1918 and consequently had paid tax twice. The Court noted that the liability for premature assessment imposed by section 25(1) on the first class arose from considerations wholly different from those that gave rise to the exemption provisions contained in sub-sections (3) and (4) for the second class. Because of this difference, the relief granted under the latter provisions could not be said to be co-extensive with the liability imposed under the former. The Court further stated that provisions dealing with exemptions and deductions in the Income-tax Act could not be interpreted by analogy with the charging sections of the Act, even when the language of the provisions was similar. Counsel for the petitioner, Mr Aiyangar, argued that sub-section (1) crystallised the assessee’s rights on the date of discontinuance, thereby relieving him from further tax after that date and also entitling him to the additional relief found in sub-section (3). The Court found this contention to be without foundation, explaining that sub-section (1) did not confer any irrevocable right that could not later be altered to the assessee’s disadvantage. Rather, it imposed a premature burden that, but for this provision, the assessee would not have been required to bear until the appropriate year of assessment arrived. The learned Attorney-General rejected the petitioner’s construction, maintaining that sub-section (1) did not empower the Income-tax Officer to assess, in the year of discontinuance, profits of an accounting year that had already closed before the discontinuance. Those profits, according to the Attorney-General, had to be assessed in the usual manner in the relevant financial year, and any authority to make an accelerated assessment was limited to the broken period beginning with the end of the completed accounting year immediately preceding the discontinuance and ending on the date of discontinuance.

The Court then expressed that, for the purpose of deciding the present case, it was unnecessary to finally determine the precise meaning of the words “between the end of the previous year to the date of discontinuance” as used in section 25(1). After a careful examination of the various relevant provisions of the Act, the Court concluded that the expression “end of the previous year” appearing in sub-sections (3) and (4) referred to the end of an accounting year—i.e., a full twelve-month period—that expired immediately prior to the date of discontinuance or succession. In the facts of this case, that date was 30 June 1939. The Court affirmed that this interpretation was consistent with the reasoning of Viswanatha Sastri J, and it was satisfied that this construction correctly reflected the legislative intent behind the provisions in question.

In holding that, considering the purpose of the legislature in enacting sub-sections (3) and (4) of section 25 and the plain wording of those sub-sections, the assessee’s arguments could not be accepted, the learned Judge concluded that the expression “previous year” in those sub-sections was linked to the assessment year 1940-41. The Court, however, could not agree with that conclusion. According to the scheme of the Act, the profits of the year in which the business was discontinued could not be taxed until the financial year 1941-42, and the “previous year” related to that assessment would be the accounting year ending 30 June 1940. It is clear that an accounting year ending after the date of discontinuance cannot correctly be described as the “previous year” preceding that date. The term “previous year” primarily denotes an accounting year consisting of a full twelve-month period that normally corresponds to a financial year and that precedes the financial year of assessment. The term may also refer to a twelve-month accounting year adopted by the assessee for his own bookkeeping, which is different from the financial year but still precedes a financial year. For the purposes of the charging provisions of the Act, unless a specific provision states otherwise, the term is associated with the assessment year that follows it, although it is not invariably attached to an assessment year in every circumstance. It cannot be said that the expression “previous year” lacks meaning unless it is used in relation to a financial year; in some contexts it can mean a completed accounting year that immediately precedes the occurrence of a contingency. The interpretation adopted by this Court for the expression in sub-sections (3) and (4) of section 25 is consistent with the definition contained in section 2(11) of the Act. Any alternative interpretation would produce several anomalies, the most striking being that where a person’s accounting year coincides with the financial year, exemption under section 25(3) or (4) could never be granted for a period exceeding twelve months, whereas where a person employs a different accounting year, exemption could extend up to twenty-four months. Such a result could not have been intended by the framers of the legislation. The view that “previous year” in the context of section 25(3) and (4) means a completed accounting year immediately preceding the discontinuance or succession is supported by the provisions relating to non-liability for tax for the broken period and by the assessee’s claim that the income, profits and gains of the previous year should be deemed to represent the income, profits and gains of the broken period. The legislative intent was to provide relief from double assessment for the year 1922-23.

In cases where a taxpayer’s business is discontinued or succeeded, the taxpayer was held to be entitled to claim an exemption from tax for the period that was interrupted. The taxpayer could also treat the income, profit or gain of the preceding accounting year as the income, profit or gain of that interrupted period. The Appellate Tribunal’s judgment cited the opinion of the Select Committee that was recorded when clause one of section twenty-five was debated in draft Bill number XXVI of 1921. However, the High Court correctly ruled that such parliamentary commentary could not be used as a permissible aid in interpreting the statute. The counsel representing Mr Aiyangar did not press the issue further before the bench, and therefore the matter remained for consideration by the judges. Nevertheless, counsel for the respondent drew the bench’s attention to the provisions of the Income-Tax Manual that had been in force for many years. He asserted that the revenue department had consistently interpreted sub-sections three and four of section twenty-five in the same manner as the senior High Court judge. He further contended that this departmental view represented the true construction of those sub-sections for purposes of tax assessment. The judges found that this argument lacked any legal merit and could not be accepted as a correct interpretation of the statutory provisions. It was observed that the department had later altered its position and amended the manual to reflect a different view on the provisions. The judges held that the department’s interpretation could not be treated as an authoritative guide when the question involved construction of statutory language. Accordingly, the appeal was allowed by the judges, overturning the previous decision. The earlier answer given by the senior High Court judge was declared incorrect and therefore set aside. The interpretation advanced by Justice Viswanatha Sastri was affirmed as the correct construction of the statutory provisions. In the circumstances of the case, the judges made no order as to costs, leaving the parties to bear their own expenses. The final order therefore confirmed that the appeal was allowed and the relief sought by the appellant was granted. The records show that the agent representing the appellant was G H Rajadhyaksha, while the agent representing the respondent was M S K Aiyangar.