# ESTHURI ASWATHIAH v. COMMISSIONER OF INCOME-TAX, MYSORE •

- **Citation:** [1966] 3 S.C.R. 359
- **Court:** Supreme Court of India
- **Decided:** 1966
- **Bench:** K. Subba Rao, M. Hidayatullah, R.S. Bachawat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/esthuri-aswathiah-v-commissioner-of-income-tax-mysore-3714
- **Pages:** 6

## Headnote

Income-tax Act (11 ?f. 192,2). s, 2(11)-Length of previoU3 year-ft
should be only 12 calendar months--Previous year of 21 months-Rate a/
tax applicable.
Up to the assessment year lsl51-S2, the appellant adopted the yea•
ending on 30th June as the previous ·year applicable to him. For the
.... essment year, 1952-53, the assessee filed a return for 21 months commencing on !st July 1950 and ending-on 31st March, 1952 and r~uested
the Income-tax Officer to accord his ,Sanction to the change of the previous
year from an year ending on 30th Jorie 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. month$ .en.diμg on 31st March 1952 would be
asseosed to tax at the rate applicable to the total income in the sitld 21
months. Tue Appellate Assistant Coqunissioner 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 tl;tere cannot be a prevrous
year consisting of more than 12 il)\)nths; (ii) the Income-tax Officer had
no power to direct under the proviso to cl. (l)(a) of s. (2)(11) that the'
previous year should consist of 2t months; (iii) the Income-tax Officer
ohould have granted the. s.anction on condition that the asseMCc shall have
2 previoiμ, years, one consisting of a period of nine months from !st July
1950 μp 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 nocessarily 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· f
authority as the Board may 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 "prev:ous
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 assessn:ient
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 !st July 1950 to
3 lst March 1951 would have escaped taxation. [363 D-F]
{iii) There cannot be two p'tevious yea~s in respec~ of the same assess .. _
ment year and stich a concept of two previous years is repugnant to s. 3.
Section · 25 ( I) does not contemplate ~assessments in the same assessment
IOSup. Cl/66-10
360
SUPREME COURT REPORTS
fl %6] 3 S.C.R.
year in respect of two previous years. It only contemplates the usual
aaeament 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 or
discontinuance of the business. (363 H-364 C]
~iv) The lncome-ta.x Officer ~as no power to vary the rate on which
the m<:ome of the previous year IS to be assessed. The condition imposed
by the Jncome-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 redunda.nt, because, once the length of the previous year is
found lo be a penod of 21 months, the income of the entire period of
21 months, must be considered to, be the income of the previous year

## Text

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ESTHURI ASWATHIAH
v.
COMMISSIONER OF INCOME-TAX, MYSORE
•
[K. SUBBA RAO, M. HIDAYATULLAH AND R.S. BACHAWAT, JJ.j
Income-tax Act (11 ?f. 192,2). s, 2(11)-Length of previoU3 year-ft
should be only 12 calendar months--Previous year of 21 months-Rate a/
tax applicable.
Up to the assessment year lsl51-S2, the appellant adopted the yea•
ending on 30th June as the previous ·year applicable to him. For the
.... essment year, 1952-53, the assessee filed a return for 21 months commencing on !st July 1950 and ending-on 31st March, 1952 and r~uested
the Income-tax Officer to accord his ,Sanction to the change of the previous
year from an year ending on 30th Jorie 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. month$ .en.diμg on 31st March 1952 would be
asseosed to tax at the rate applicable to the total income in the sitld 21
months. Tue Appellate Assistant Coqunissioner 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 tl;tere cannot be a prevrous
year consisting of more than 12 il)\)nths; (ii) the Income-tax Officer had
no power to direct under the proviso to cl. (l)(a) of s. (2)(11) that the'
previous year should consist of 2t months; (iii) the Income-tax Officer
ohould have granted the. s.anction on condition that the asseMCc shall have
2 previoiμ, years, one consisting of a period of nine months from !st July
1950 μp 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 nocessarily 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· f
authority as the Board may 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 "prev:ous
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 assessn:ient
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 !st July 1950 to
3 lst March 1951 would have escaped taxation. [363 D-F]
{iii) There cannot be two p'tevious yea~s in respec~ of the same assess .. _
ment year and stich a concept of two previous years is repugnant to s. 3.
Section · 25 ( I) does not contemplate ~assessments in the same assessment
IOSup. Cl/66-10
360
SUPREME COURT REPORTS
fl %6] 3 S.C.R.
year in respect of two previous years. It only contemplates the usual
aaeament 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 or
discontinuance of the business. (363 H-364 C]
~iv) The lncome-ta.x Officer ~as no power to vary the rate on which
the m<:ome of the previous year IS to be assessed. The condition imposed
by the Jncome-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 redunda.nt, because, once the length of the previous year is
found lo be a penod 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 asseosment year.
1952-53, and the. entire income lllQlt
be 83SeSSed at the rate specified in the relevant Finance Act, and at no
other rate. [364 D-G]
QYIL APPl;!.LATE JURISDICDON : 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. Srinirasan and R. Gopalakrishnan, for the appellant.
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R. Ganapathy Iyer and R. N. Sachth~y, for the respondent.
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The Judgment of the Court was delivered by
Bachawat, J. The appeal raises a question of interpreiauon
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 I, 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 lo 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 total income in the period of 21 months ending
31-3-52 will be assessed to lax 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 l, 1950 and ending on March 31, 1952. In his appeals
before the Appellate Assistant Commissioner and the IncomeE
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ASWATHIAH v. C.l.T. (Bachawat, J.)
361
A 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
question( of law for the decision of the High Court of Mysore:
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P' "(!) Within the meaning of Sec. 2(ll)(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 contendD ed 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
E 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 IncomeF tax Officer had no power to direct under the proviso to cl. (i)(a) of
s.2(1 I) 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
G year" is defined ins. 2(11). The main part of cl. (i)(a) of s. 2(11)
reads:
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"(II) '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 the year for which the assessment is to be
made, or, if tte accounts of the assessee have been made
36~
SUPREME COURT
REPORTS
[1963] 3 S.C.R.
up to a date within the said twelve months in 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 lncome-rax, Madras v. K. Srini1·asm1 and K. Gopa/an(') 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 asscssee 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 al the option of the assessee the year
ending on some other date within the aforesaid period of 12 months,
if the account' of the assessee have been made up to such date.
The proviso to sub-cl. (i)(a) reads :
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"Provided that where in respect of a particular source
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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 asscssce 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 vocation, exercise the option given by this sub-clause so as
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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 Incometax Officer mav think fit to impose."
Sub-clause (i)(b) of s. 2(11) empowers the Central Board of Revenue
or its nominee to detennine the period of the previous year in
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respect of any person, business or company or class of person,
business or company. Sub-clause (i)(c) dejines 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
assessec'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
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(1) [19631 S.C.R. 486, 501
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ASWATHIAH' v. C.I.T. (Bachawat, J.)
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 Jess than 12 months. Under
s. 2(ll)(i)(c), the period of the previous year in respect of a newly
set up business, profession or vocation may be Jess than 12 months.
In this background, Jet us consider the meaning of s. 2(Jl)(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 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 μpon 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 I to March 31, the income of the
preceding 9 months from July I to March 31 would have escaped
taxation altogether.
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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 I up to March 31 and the other of a period of 12 months from
April I to the next succeeding March 31. This is an impossible
contention. There cannot be two previous years in respect of the
H · 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
SUPREME COURT
IU>PORTS
(1966] 3 S.C.R
of Income-tax( ), this Court pointed out that it is a contradiction in
terms to speak of six previous years 0in 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 fixed by the Finance Act every year.
Bys. 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 previous 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 I, 1950-and ending on March 31, 1952.
The Income-tax Otftcer bad 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 .
IJ) (1938) 33 l.T.R. 400, 404.
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