The Commissioner of Income Tax vs Ve.K.R. Savumiamurthy

Patanjali Sastri, J.—This reference arises out of an. assessment to Income Tax and excess profits duty made on the respondent as the

manager of a Hindu undivided family of the year 1940-41.

The family was carrying on business at Kaketiruppupudur (Ramnad district) in British India and in Ceylon and its income from both these

sources has been taxed on the footing that the family was "" resident "" and "" ordinarily resident "" in British India. In each case the income taxed was

of the"" previous year,"" which was the Tamil year Pramathi ending 12th April, 1940, for the Indian business and the financial year ending 31st

March, 1940, for the foreign business, the assessee''s accounts in the two places having been made up to those dates respectively. There was no

dispute that the family was "" resident "" in British India within the meaning of Section 4(1)(b) read with Section 4-A of the Indian Income Tax Act,

1922, as. amended by the Income Tax (Amendment) Act (VII of 1939.) The assessee, however,, contended that the family was "" not ordinarily

resident "" in British India within the meaning of the second proviso to Section 4(1) read with Section 4-B and that, accordingly, the income arising

to it from the business in Ceylon should not be included in the assessment, there being no suggestion that such business was controlled in India or

that such income was brought into British India.

Now, a Hindu undivided family is deemed to be "" ordinarily resident "" in British India if its manager is ordinarily resident in British India [4-B (b)]

and an individual and "" not ordinarily resident "" in British India "" in any year if he has not been resident in British India in nine out of the ten years

preceding that year or if he has not during the seven years preceding that year been in British India for a period of, or for periods amounting in all

to, more than two years"" [4-B (a)]. The assessee''s attempt before the Income Tax authorities to prove that his family was not resident in British

India in nine out of the ten years prior to the year of account having proved unsuccessful, he shifted his position before the Income Tax Appellate

Tribunal (Madras Bench) and sought to bring the case under the latter part of the Clause (a), contending that the "" seven years "" referred to in that

clause must be taken to be seven calendar years. The Tribunal ordered a fresh inquiry and it was found (i) that the manager of the family was in

British India from 541r (this was subsequently corrected into 606) days on the aggregate during the period of the seven calendar years from 1st

January, 1929, to 31st December, 1938, preceding, the year of account, whether of the Ceylon or the Indian business; (ii) that he was in British

India for 731 days on the aggregate during the seven Tamil years preceding Pramathi, the year of account of the Indian Business; and (in) that he

was in British India for 731 days on the aggregate during the seven financial years preceding the financial year 1939-40 which was the year of

account of the Ceylon business. It will thus be seen that if the seven ""years"" mentioned in Clause (a) be taken as seven-calendar years, the manager

cannot be said to have been in British India during that period for more than two years and the assessee''s joint family would be entitled,, under the

second proviso to Section 4(1) as a person "" not ordinarily resident''"" in British India, to claim the exclusion of the foreign income from the

assessment. The claim was accepted by the tribunal and the assessment was ordered accordingly to be reduced. The Commissioner of Income

Tax having challenged the correctness, of that view, the Tribunal has referred the following question to this Court for its decision:

Whether in the circumstances of the case, in computing the period or periods when the manager of the Hindu undivided family had not been in

British India, the seven years in Section 4-B of the Income tax Act should be taken as seven calendar years or seven previous years.

It may be mentioned here that the assessee raised before the Tribunal an alternative contention, viz., that, even if the aggregate period of the

manager''s stay in British India during the relevant years be taken as 731 days, it cannot be said to be "" more than two years "" as the seven years,

however reckoned, must include at least one leap year. But the Tribunal did not decide the point and it is not before us.

It is necessary, in order to appreciate the contentions of the parties, to describe in brief outline the scheme of taxation laid down in the Act so far

as it is material here. The tax is levied for each financial year commencing on the 1st of April at the rate or rates prescribed in the Finance Act in

force for the time being and is charged on the "" total income of the previous year "" (Section 3). The "" previous year "" may be either the financial

year next preceding or, at the option of the assessee, any other period of twelve months ending within such year if he has made up his accounts for

such period. It was held that an assessee could not have two separate ""previous years"" for the purpose of Income Tax [Commissioner of Income

Tax v. Abubaker Abdul ILR (1935) Bom. 679, but this view was superseded by the amending Act and it is now possible for an assessee to have

a different "" previous year "" from each separate source of income (Section 2(11)). "" Total income "" is the total amount of income, profits and gains

referred to in Sub-section (1) of Section 4 computed in the manner laid down in the Act (Section 2(15)). Section 4(1) refers to four classes of

income and proceeds for their assessment on a basis which differs according as the assessee is or is not "" resident "" or "" ordinarily resident "" in

British India during the previous year of which the income falls to be assessed. It is, accordingly, with reference to that year that the various tests of

residence "" or "" ordinary residence "" as defined in Section 4-A and Section 4-B have to be applied. The question is whether the "" seven years

preceding that year "" mentioned in Section 4-B (a) refers to the seven years ending on the day next preceding the commencement of the previous

year or to the period of seven years ending on the 31st December preceding the commencement of such year as suggested for the assessee.

Mr. P.R. Srinivasan appearing for the assessee relies on Section 3(59) of the General Glauses Act (X of 1897) which provides that in all

Central Acts and Regulations made after the commencement of that Act, unless there is anything repugnant in the subject or context "" year "" shall

mean "" a year reckoned according to the British calendar"". As the Calendar (new style) Act, 1750 (24 Geo. 2, c. 23) transferred the beginning of

the year in England from the 25th of March to 1st of January in and after 1752, it is urged that, in applying Section 4-B (a), the seven years must

be reckoned commencing from the 31st December, preceding the year of account and counting backward. We cannot agree. It is obvious that this

mode of computation would result in a gap, an interregnum, before the commence-ment of the "" previous year "" except, of course, where that year

also began from, the 1st of January. Such a result is repugnant to the intendment of the provisions of Section 4-B (a) read with Section 4(1) under

which the terminus ad quam is the commencement of the "" previous year "". We find nothing in Section 50 of the Act to which reference was made

in the course of the argument to support the interpretation contended for on behalf of the assessee.

It was said that if the "" seven years "" mentioned in Section 4-B (a) were taken as referring to the period immediately preceding the year of

account, it would give rise to the anomalous position of one and the same person being liable to assessment as "" resident "" in respect of some of his

sources of income and as ""not resident"" in respect of others according to the "" previous year"" he has adopted, for the respective sources. This

argument appears to have weighed very much with the Tribunal, but we see no force in it. It is true, as has been stated, that u/s 2(1) as amended, it

is possible for an assessee to have as many "" previous years "" as he has separate sources of income. But, as we have pointed out already, under

the scheme of taxation laid down in the Act the charge is made on the total income of the "" previous year "" and such income has to be computed on

the basis of the assessee''s residence or non-residence in British India during that year. That is to say, in respect of each separate source of income

the year of account is to be ascertained and if it is found on applying the provisions of Sections 4-A and 4-B with reference to that year that the

assessee was "" resident "" or ""non-resident "" or ""not ordinarily resident ""in British India as the case may be, the income of that year is to be

computed on the appropriate basis indicated and the total of the amounts thus computed for all the sources of income, whether British Indian or

foreign, is to be charged to tax. Such procedure may prove cumbrous but not unworkable in its application to particular cases where the assessee

has adopted different years of account for his separate sources of income and it is possible in such cases that he should be assessed as resident in

respect of some of the sources and non-resident in respect of others. But this, in our opinion, is no reason for disregarding a construction to which

the language of the provisions in question plainly points. And, after all, the construction contended for on behalf of the assessee, as we understand

it, does not help to resolve the supposed anomaly as, even on such construction, an assessee may, in conceivable cases, have to be dealt with as

resident and non-resident in respect of his different sources of income.

We are, therefore, of opinion that the expression "" seven years "" in Section 4-B of the Indian Income Tax Act should be taken as referring to the

period of seven years of twelve calendar months each immediately preceding the commencement of the relevant year and we answer the reference

in that sense. The assessee will pay Rs. 250 as costs of the Commissioner of Income Tax.