# [1970] 3 S.C.R. 323

- **Citation:** [1970] 3 S.C.R. 323
- **Court:** Supreme Court of India
- **Decided:** 1969-12-16
- **Case number:** Civil Appeal No. 19 of 1969
- **Bench:** J. C. Shah, K. S. Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1970-3-s-c-r-323-4921
- **Pages:** 5

## Headnote

Income-tax Act, 1922-S. 2(1l)(i)(a) and proviso-Previous year
relevant to assess111ent year 1950-51 in respect o/ sources of income outside "taxable" territory-'Assessee', 'assesse~·, meaning of.
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 incorile" for the
purpose of determining the rate. After the Constitution calne into force
the present definition of "taxable territories" was incorpo,.ted 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 fdr 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 Appelate
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 ques·
tion whether under the circumstances of the case,
having
regard to
s. 2( ll)(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
tl•e '1axable territory",
HELD : The High Court was right in answering in favour of the
assessee.
(I) le is clear from the provisions of s. 2(11) (i)(a) that in respect
of any separate source of income, profits or gains unless the asses,,ee ·has
made a choice in accordance with the second part of s. 2(1l)(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
~ources of income, profits and gains".
H.;-nce it is possible for an assessec
to have a different "previous year" for each "separate source of income,
profits and gains" : and the business of the assessee in Madhya Bharat
constituted a separate source of income. [326 C-0]
Commissio11er of Income Tax v. Sarumamuratlty. [1946] I.T.R. 185;
RA<Hhsia Metals Lrd. v. Commissioner of Tt4es, (1941) J.T.R. Supp. 45,
referred to.
324
SUPREME COURT REPORTS
(1970) 3 S.C.R.
(2) Fdr 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
provh~o
means subject to levy or imposition of tax not compu.ted. [327 C-F]
Conimissioner of Income Tax, Bombay v. Kemchand Ramdas,

## Text

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E
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H
a23
COMMISSIONER OF INCOME-TAX, MADHYA PRADESH
i·.
LADY KANCHANBAI
December 16, 1969
[J. C. SHAH AND K. S. HEGDE, JJ.j
Income-tax Act, 1922-S. 2(1l)(i)(a) and proviso-Previous year
relevant to assess111ent year 1950-51 in respect o/ sources of income outside "taxable" territory-'Assessee', 'assesse~·, meaning of.
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 incorile" for the
purpose of determining the rate. After the Constitution calne into force
the present definition of "taxable territories" was incorpo,.ted 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 fdr 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 Appelate
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 ques·
tion whether under the circumstances of the case,
having
regard to
s. 2( ll)(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
tl•e '1axable territory",
HELD : The High Court was right in answering in favour of the
assessee.
(I) le is clear from the provisions of s. 2(11) (i)(a) that in respect
of any separate source of income, profits or gains unless the asses,,ee ·has
made a choice in accordance with the second part of s. 2(1l)(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
~ources of income, profits and gains".
H.;-nce it is possible for an assessec
to have a different "previous year" for each "separate source of income,
profits and gains" : and the business of the assessee in Madhya Bharat
constituted a separate source of income. [326 C-0]
Commissio11er of Income Tax v. Sarumamuratlty. [1946] I.T.R. 185;
RA<Hhsia Metals Lrd. v. Commissioner of Tt4es, (1941) J.T.R. Supp. 45,
referred to.
324
SUPREME COURT REPORTS
(1970) 3 S.C.R.
(2) Fdr 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
provh~o
means subject to levy or imposition of tax not compu.ted. [327 C-F]
Conimissioner 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 ( 1949) XVII l.T.R. 209,
referred to.
CIVIL APPELLATE JURISDICTION :
Civil Appeal No. 19 of
1969.
A
B
c
Appeal from the judgment and order dated October 28, 1960
D
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 appe'lant.
M. C. Chagla,
Rameshwar Nath,
Mahinder Narain
and
· Swaranjit Sodhi, for the respondents.
E
The Judgment of the Court was delivered by
fledge, J.
fa this appeal by certificate the question that
arises for decision is whether under the circumstances of the case
having regard to Section 2(11) (i)(a) of the Income Tax Act,
1922 (to be hereinafter referred to as the Act) , the assessee is
F
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 nnder s. 66 (l) of the Act was answered in favour of
the assessee by the High Coun of Madhya Pradesh.
Aggrieved
by that decision, the Commissioner of Income Tax, Madhya PraG
desh 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 commissions, etc. Prior
·to the assessment year 1950-51, the assessee was assessed under
H
the Indian Income Tax Act, 1922 in the status of a non-resident
lfmdu Undivided Family. The income which accrued to or was
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ll
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C.l.T. \', KANCHAN BAI ( Hegde, J.)
3~5
received by the assessec 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
1his appeal were included therein.
The result of the amendmi;nt
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 ia
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 1950-5.1, it
had proceeded on the basis that its account year ended on Diwall
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. assessce that it could make such
a choice.
The Income Tax Oflker assessed the assessee on the
b11sis that the "previous year" in respect of the concerned sources
ended on Diwali of 1949.
That decision was aflirmed 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( I) 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 thb
appeal.
The question for our consideration is whether the view takrn
by the High Court is correct 1
In orJer to decide that question.
it is necessary to find out the true scope of s. 2( 11 J(i) (a) of
the Act, which provision dennes the term "previous year" thus :
G
" "Previous year'' 1l1eansH
(ii) in respect of any SC/hlrale .\ottrce of ;ncome.
profits and gains-
(a) the twelve months ending on 3 lst day o(
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 3 bt day of March. then. at the option of
L7Sup.CL1NP117fl-·6
326
SUPREME COURT REPORTS
( 1970]3 S.C.R.
the assessee, the yea_r ~nding on the date to which his
accounts have been so made up :
Provided that where in respect of a particular source
of income, profits anp 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 OJ?tion given by this Sub-Clause so as to
vary the meanmg of \he 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.'·
(emphasis is ours).
From the above provision, it is clear that in respect of any
·,;cparate source of income, profits or gains, unless the assesscc
had made a choice in accordance with 2nd part of s. 2 ( 1 I) ( i) (a).
the twelve months ending on 31st day of March next the preceding year for which the :1ssessment is made is the ''.previous year".
Therefore all that we have ·to see is whether the asscssee'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 assessec's case comes within the first part
·of s. 2 ( 11) ( i) (a). In that event his return was in accordance
A
B
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with law. Therefore we have first to see what is meant by "sourc~ E
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( 11 )(i)(a) does not refer to
the income of the asscssee generally but to his "separate ,ourcc:;
of income, profits and gains". Hence it is possible for an assessee
F
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 /llcome Tax v. Savumamurathy('). In Rhodesia
Metals Lttl. v. Commissioner of Taxes(') 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
G
is hardly any room for douht, nor was it contended otherwisethat the business of the asscssee 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
H
the expressions "assessed" and "assessee" in the proviso to
-·----·--
(!) (1946) I.T.R. t85.
(2) (1941) I.T.R. Sup. 45.
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B
c
D
•
E
••
C.I.T. v. KANCHAN BAI (Hegde, J.)
30-
- I
s.
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(') the word "assessment" is used
in the Act as meaning sometimes the computation of income, sometimes the determination of the amount of tax payab~ and sometimes the procedure laid down in the Act for imposing liability
upon the tax payer. Simi.lady the word "assessee" connotes different meaning in different contexts--see Seth Badridas Daga and
anr. v. Commissioner of Income Tax Central and United Prorinces(').
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 ra\e ·at which the assessee's income s.hould be
Jssessed.
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 "taxabl~
territories" were not brought to tax under the Act. The. expression that "where in 1'1',spect of a particular source of income, pfllfits and gains" in the proviso lo 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 th~
word "assessee" in the provi'o 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. Jn the result this appeal fails and tl1e
smne is dismissed with costs.
R.K.P.S.
Appeal dismissed.
i 11(19J~i·VI,1.T.R. 414.
11) 1 19~9! xvn 1.T.R. 209.