New Ambadi Estates (P.) Ltd. vs Commissioner of Income Tax

K.K. Usha, J.—Reference at the instance of the assessee arises from the order of the Tribunal, Cochin Bench in IT Appeal No. 768 (Cochin) of 1982. The assessment year is 1978-79. Following question is referred for the opinion of this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the share income from Kadamane Estate Company, for the year ended on 31-3-1978, was includible in the assessment of the applicant for the assessment year 197 8-79 though the previous year of the firm ended on 31-3-1978 and that of the applicant ended on 31-12-1977 instead of the share income from Kadamane Estate Company, for the year ended 31 -3-1977?

The assessee is a private limited company which is a partner in a registered firm Kadamane Estates Co. The partnership which owns tea plantations closed its accounts on 31st March each year. The previous year followed by the assessee-company for its business ended on 31st December each year. According to the assessee, for the purpose of accounting the income from the partnership business the previous year should be taken as the previous year followed by the assessee and not the previous year followed by the firm. The above claim was rejected by the ITO. Appeals filed by the assessee were rejected both by the 1st appellate authority as well as the Tribunal.

It is contended by the learned counsel for the assessee before us that the assessing authority as well as the appellate authority has committed a mistake in rejecting the claim put forward by the assessee. He relied on a decision of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. R.Y. Singara Mudaliar, . The learned counsel appearing on behalf of the revenue brought to our notice a decision of this Court in COMMISSIONER OF Income Tax, KERALA Vs. M. S. SHEIK ROWTHER., , and also decisions of the Bombay and Calcutta High Courts of Commissioner of Income Tax, Bombay City-ii Vs. Mckenzies Ltd., and Biswanath Goenka v. CIT [1990] 84 CTR 138. He contended that by applying section 3(1)(f) of the income tax Act, 1961 (''the Act'') the income from the partnership business can be assessed in the hands of the assessee only in the year 1978-79.

Relevant provisions as contained in section 3 read as follows:

''Previous year ''defined -(1) For the purposes of this Act, ''previous year'' means-

(a) the financial year immediately preceding the assessment year; or

(b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date; or

(c) to (e) ******

(f) where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee''s share in the income of the firm, the period determined as the previous year for the assessment of the income of the firm; or

On going through the provisions contained u/s 3 as above, we are inclined to accept the contention raised by the revenue that clause (f) of sub-section (1) of section 3 is the relevant provision applicable in this case. In M.S. Sheik Rowther''s case (supra), this Court considered a case coming under the Indian income tax Act, 1922. Section 2(11)(ii) of the 1922 Act contained a provision in pari materia with clause (f) of subsection (1) of section 3. In that case, the assessee was a partner in a firm which closed its accounts on 30-4-1958. The assessee had other sources of income also and had been following the period from 1st April to 31st March as the period of his ''previous year''. Therefore, for the assessment year 1958-59, his accounting period ended on 31-3-1958. This Court held that it is clear from section 2(11)(ii) that in respect of the share of the income of a partner of the firm, if the firm has been assessed as such, the period determined for the assessment of the income of the firm shall be taken to be the period for the assessment of the partner in respect of his share of the income from the firm. After noting that the period for which the firm was assessed ended on 30-4-1958 and, therefore, the partner, the assessee, will also have to be assessed in respect of his share of income from the above partnership for the period ended on 30-4-1958, this Court took the view that the income from the partnership is assessable in the hands of the assessee in the assessment year 1959-60. In coming to the above conclusion, this Court took the view that nothing in section 2(11)(ii) indicates that the assessment should be in the year 1958-59. The assessment in the year 1958-59 must be in relation to the income during the period of 12 months which ended on or before 31-3-1958. As mentioned earlier, the period ended in the case of the firm after 31-3-1958.

On the facts of the present case, the period ended on 31-3-1978 and not on a day beyond 31-3-1978. Therefore, the income from the partnership has necessarily to be assessed in the year 1978-79 itself. The principle laid down by this Court in M.S. Sheik Rowther''s case (supra) has been understood in the same manner by the Calcutta High Court and also by the Bombay High Court in Mckenzies Ltd.''s case (supra).

We do not find that the Andhra Pradesh High Court had considered the real effect of clause (f) of section 3(1) as it was considered by the Bombay or Calcutta High Court nor was there a consideration of the decision of this Court in M.S. Sheik Rowther''s case (supra). In the light of the above discussion, we are of the view that the income of the assessee from the partnership was correctly assessed in the year 1978-79. We, therefore, answer the question referred in the affirmative in favour of the revenue and against the assessee.