Alfred Henry Lionel Leach, C.J.
1. This reference has been made by the Commissioner of Income-tax, Madras, in accordance with a direction given to' him by this Court under Section 66(3) of the Indian Income-tax Act, 1922.
2. The reference involves the interpretation of Section 25(3) of the Act.
3. The petitioner and his brothers were members of an undivided Hindu family, and when joint the family carried on a money-lending business in India and in the Federated Malay Slates. The business was of long standing and had been assessed to income-tax under the Act of 1918. On the 2nd June, 1938, the joint status was severed. Thereafter the members of the family continued the business in the same places as partners. The financial year with which this reference is concerned commenced on the 13th April, 1938. On the 22nd December, 1939, the petitioner claimed that the income of the family from the 13th April, 1938, to the 2nd June, 1938, was not liable to be taxed by reason of the provisions of Sub-sections (3) and (4) of Section 25. The Income-tax Officer accepted the petitioner's statement that there had been a partition, but he rejected the contention that the family was not liable to pay the tax on the profits earned between the 13th April and the and June, 1938. The petitioner appealed to the Appellate Assistant Commissioner who agreed with the Income-tax Officer. The petitioner then asked the Commissioner to make a reference to the Court under Section 6.6.(2) and as the Commissioner refused to do so, the petitioner moved the Court for an ' order under Sub-section (3) of that section directing the Commissioner to make a reference. The Court directed the Commissioner to refer for decision the following question:
Whether the income of the family from the 13th April, 1938, to the and June, 1938, is not liable to be taxed by virtue of Section 25(3) of the Income-tax Act? ' In his statement of the case the Commissioner has suggested that the application of the petitioner made to the Income-tax Officer on the 22nd December, 1939, was out of time, and it is necessary to decide this question as well, because naturally the Court is not prepared to embark upon an academic discussion of the question referred if the petitioner has delayed beyond the period allowed by law in raising his objection. To decide the question of limitation .regard must be had .to the provisions of Sub-section (5) as well as the provisions of Sub-section (3) of Section 25. Sub-section (3) reads as follows:
Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is discontinued, then, unless there has been a succession by virtue of which the provisions of Sub-section (4) have been rendered applicable, no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such ' assessment, a refund shall be given of the difference.
4. Sub-section (5) states:
No claim to the relief afforded under Sub-section (3) or Sub-section (4) shall be entertained unless it is made before the expiry of one year from the date on which the business, profession or vocation was discontinued or the succession took place, as the case may be.
5. The Commissioner says that by his application of the 22nd December, 1939, the petitioner was claiming 'relief' under Sub-section (3) and as the application was made more than one year from the date on which the family ceased doing business? as a family the sands had rim out. On the other hand, the petitioner says that the word ' relief' in Sub-section (5) has, so far as Sub-section (3) is concerned, reference only to the words ' and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period ' which are to be found therein. He points to the fact that Sub-section (3) states emphatically that a business on which a tax was charged under the provisions of the Act of 1918 shall not be chargeable in respect of the income of the period between the end of the previous. year and. The date of discontinuance and he says that 'relief' cannot be contemplated in this connection because it must be presumed that the Income-tax Officer will Carry out his duties in accordance with the provisions of the Act. Besides being exempt from tax during this peviod the assessee is allowed to claim a refund if an amount of tax has already been paid in respect of the income of the previous year exceeding the amount payable on the basis of the income received in the year of discontinuance. He is entitled to recover the whole of the difference. It is said that it is here that a provision for relief is necessary and Sub-section (5.) has been inserted in order to impose a time limit.
6. In my judgment the petitioner's contentions are sound. The Legislatuue could only contemplate the Income-tax Officer doing his duty and therefore would not consider it necessary to provide for ' relief'' against an illegal order. The provisions to be found in the Act with regard to appeal and reference are there for that purpose. Under the Act of 1918 an assessee paid the tax for a particular year on the income actually earned in that year. The Act of 1922 effected a great change. An assessee now pays the tax in the year of assessment on the income earned in the previous year. Sub-section (3) of Section 25 of the present Act is designed to prevent the injustice of double taxation and in order to do this it is necessary to give the assessee a refund should his income in the year of discontinuance be less than his income for the previous year. It seems to me that it is only in this connection that the word 'relief' is used in Sub-section (5).
7. Turning now to the main question, in Commissioner of Income-tax, Madras v. Karuppiah (1937) 2 M.L.J. 43 : L.R. 64 IndAp 102 : I.L.R. (1937) Nag. 191 (P.C.) this Court held that where a partner carried on the business of the partnership after its dissolution he succeeds to the business within the meaning of Section 26(2) and can be assessed to tax in respect of the profits of the business for the previous year. This decision applies in the present case and the partnership must be deemed to have succeeded to the business of the family. This is not disputed, but the petitioner says that Sub-section (3) of Section 25 stands alone and that the word 'discontinued' should not be read as 'cessation' of business. Here reliance is placed on the decision of the Bombay High Court in Commissioner of Income-tax, Bombay v. P.E. Polson I.L.R. (1942) Bom. 216 where this argument was accepted. The Bombay High Court considered that the word 'discontinued' by itself, and if not controlled by the context, would cover a discontinuance by disposal.
8. I find myself unable to share this opinion. In the first place, the same word is used in Section 44 which says that where a business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of discontinuance or dis-solution a partner or a member shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable. This section clearly deals with a case of cessation of business. The word 'discontinued' in Sub-section (3) of Section 25 cannot be given a different meaning from the meaning it has in Section 44 unless the context in Sub-section (3) demands it, and I can find nothing in subsection (3) which would warrant the Court departing from this well accepted rule of construction. On the other hand, I consider that the words ' then, unless there, has been a succession by virtue of which the provisions of Sub-section (4) have been rendered applicable' which follow the word 'discontinued' in Section 25(3) give strong indication that the word 'discontinued' there means 'cessation'. As already pointed out, Sub-section (3) has been inserted merely for the purpose of preventing double taxation.
9. Full support for this opinion is to be found in the judgment of Scrutton, J., in Bartlett v. Inland Revenue Commissioners (1914) 3 K.B. 686 where it was held that if the owner of a business sells it to a company, the business is not discontinued within the meaning of Section 24(3) of the Finance Act, 1907, which provides. that where a profession, trade, or vocation is discontinued, a person charged or chargeable with income-tax in respect of that profession, trade or vocation shall be chargeable on the actual amount of the profits or gains arising from the profession, trade or vocation in that year. It was there argued that the appellant's trade having been discontinued in the year, he was only Chargeable on the actual amount made in that year, and . there was no power to go back to the three years' average. In dealing with this contention Scrutton, J., said:
The answer to that appears to me to be very simple. The trade was not discontinued in the year. The trade was sold to a company and continued during the whole year.
10. In the present case the business was continued by the same persons, not as members of a joint family, but as partners.
11. For these reasons, I hold that the income of the family from the 13th April, 1938, to the 2nd June, 1938, is liable to be taxed by virtue of Section 25(3), and I answer the reference accordingly. The Commissioner is entitled to his costs, which I would fix at Rs. 250.
Patanjali Sastri, J.
12. I agree that the reference should be answered as suggested in the judgment just delivered by my Lord. In view, however, of the different opinion expressed by the Bombay High Court in P.E. Polson, In re,1 which was strongly pressed upon us by the assessee's learned counsel, I wish to add a few observations.
13. The question is whether Section 25(3) of the Indian Income-tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1939, providing for certain reliefs in cases of discontinued business, etc., charged to tax under the Indian Income-tax Act, 1918, applies when a Hindu undivided family carrying on business becomes disrupted and the members continue the business thereafter as partners; in other words, does the discontinuance which the provision has in view refer only to the closing down or extinguishment of a business, etc., or cover succession to a business which is continuing. The question of discontinuance or succession was of special importance in England in view of the basis of taxation being different in either case vide Rules 8(2) and 11 of the Rules applicable to Cases I and II, Schedule D of the Income-tax Act, 1918 and the terms have acquired well-recognised meanings in income-tax usage. (See Bartlett v. Inland Revenue Commissioners I.L.R. (1942) Bom. 216 and M. Faraday and others v. Carter. They have accordingly been adopted in the Indian Income-tax Act, 1922, as denoting two different situations for which the Act makes separate provisions in Sections 25 and 26, and before the Amendment Act of 1939 was passed the Courts in this country, including the Bombay High . Court had uniformly held that 'discontinuance' for the purpose of Section 25 did not cover mere change of ownership. (See Commissioner of Income-tax, Bombay v. Sanjana and Co., Ltd. I.L.R.(1925) 50 Bom. 87 Kalu Mal Shori Mal v. Commissioner of Income-tax, Punjab : [1938]6ITR290(Patna) , Hanutram Bhuramal v. Commissioner of Income-tax, Bihar and Orissa : [1938]6ITR290(Patna) . But it is argued--and the argument was accepted by the Bombay High Court in the case already referred to--that the amendments introduced in Sections 25 and 26 by the Act of, 1939 now compel a different interpretation of the term in Section 25(3). It seems to me, however, with all respect, that the well-marked distinction for purposes of assessment between discontinuance and succession has not been obliterated by the recent amendments and that it would lead to considerable confusion in working the Act if the provisions specifically relating to the one were understood as applicable to the other. For instance, Section 25(1) provides for an accelerated assessment when a business, etc., which was not at any time charged under the Act of 1918 is 'discontinued ', evidently as a safeguard against risk to revenue which the delay in assessing a person who is no longer in business involves as such person might disappear or become insolvent before the normal time for assessment arrives. Now if 'discontinuance' is to be understood as covering change of ownership--the word must obviously have the same meaning in both Sub-section (1) and subsection (3)--the special procedure indicated in Section 25(1) would become applicable to cases of succession, for which, however, specific provision is made in sec-tion 26(2) for an apportioned assessment in the normal course, i.e., in the year following the succession, with different safeguards for the protection of revenue in the contingencies aforementioned. This would result in an incoherent scheme of assessment.
14. Turning now to the amendments introduced by the Act of 1939 on which the assessee's learned counsel relies in support of his contention, it is true that Section 26(2) has been amended so as to provide, in the case of a succession in business, etc., for the assessment of the predecessor and the successor each in respect of his actual share of the profits of the previous year, instead of, as before, assessing the successor in respect of the profits earned even by the predecessor. The predecessor having thus been made liable for tax in respect of his share of profits in the year of succession, it is only fair that he should be relieved from this burden, in cases where his business, etc., had been charged under the Act of 1918, for precisely the same reason as in the case of discontinuance of a business, etc.,so charged, namely, to redress the hard-ship involved in the assessment of the profits of the year 1921-22, twice over, once in that year as the income thereof on adjustment under the Act of 1918, and once in the next year as the income of the previous year under the Act of 1922. Hence the enactment of the new Sub-section (4) of Section 25 extending the benefit conferred under Section 25(3) to cases of succession to a business, profession, etc., charged under the Act of 1918. This provision, however, would make it possible for the relief in respect of the double assessment referred to above being claimed more than once if the change of ownership occurred after 1st April, 1939, once by the predecessor at the time of succession and once by the successor when the latter closes down the business in any subsequent year. This had to be provided against, as such relief has to be granted only once and that to the predecessor who suffered the double assessment, and Section 25(3) was accordingly amended so as to exclude the successor from its benefits when he discontinues the business subsequently as, so far as he is concerned, he will have suffered tax only for the exact number of years for which he has carried on the business. Hence the insertion of the words ' then unless there has been a succession by virtue of which the provisions of subsection (4) have been rendered applicable ' after the word 'discontinued' in Sub-section (3). The learned Judges in P.E. Poison, In re1, apparently thought that this exception applied only where succession and subsequent discontinuance both occurred in the same year as they referred to it as contemplating a case ' very unlikely to occur but at the same time possible.' But the exception clearly covers a wider ground and operates to exclude the successor from the benefits of the subsection whenever he may discontinue the business.
15. Such being the objects and reasons of the relevant amendments introduced in 1939, I find it difficult, with all respect, to see why they should be regarded as having the effect of widening the scope of the term 'discontinuance' in Section 25(3) so as to cover cases of succession. It is true that after the amendments the predecessor in the case of a change of ownership is put on the same footing as if he had closed down his business on the date of succession for purposes of relief in respect of the double assessment of the profits of 1921-22. But this is done by enacting the new Sub-section (4) of Section 25 which provides such reliefs subject to the condition that the predecessor is one who was carrying on the business, profession, etc., at the commencement of the Amendment Act. To ignore this condition and to bring the case of a succession occurring before the commencement of that Act within the purview of Section 25(3) as covered by the word ' discontinued 'seems to me opposed alike to sound canons of construction and to the scheme of assessment laid down in the principal Act. Itmust be remembered that in England a provision for apportionment of the tax burden between the predecessor and the successor in cases of succession (rule 9 of the rules applicable to cases I and II, Schedule D, of the Income-tax Act, 1918, corresponding to Section 2, Taxes Management Act, 1800) has been in existence side by side with a provision for relief in cases of discontinuance Rule 8(2) of the same rules corresponding to Section 25(3), Finance Act, 1907, but this has not,been considered to warrant the wider interpretation of the word 'discontinued' favoured by the Bombay High Court (see Bartlett v. Inland Revenue Commissioners I.L.R. (1942) Bom. 216 and M. Faraday and Ors. v. Carter (1914) 3 K.B. 686 already referred to).
16. The question of limitation raised by the Commissioner of Income-tax turns on the proper interpretation of the newly introduced Sub-section (5) of Section 25 which provides:
That no claim to the relief afforded by Sub-section (3) or Sub-section (4) shall be entertained unless it is made before the expiry of one year from the date from which the business, profession or vocation was discontinued or the succession took place as the case may be.
17. It will be seen that Sub-sections (3) and (4) of Section 25, provide for two concessions in respect of a business, etc., charged under the Act of 1918, namely, (1) an exemption from tax of the income of the period between the end of the previous year and the date of the discontinuance or succession and (2) an adjustment, at the option of the assessee, of the tax levied on the income of the previous year with reference to the profits of the said period and a refund of the excess tax if any, already collected. In the present case the petitioner sought only concession (1). To obtain that concession, the assessee does not have to call upon the Income-tax Officer to do anything. The Act exempts the income of the period in question and the Officer has merely to take note of the exemption and abstain from assessing such income; while for concession (2) the assessee has to make a 'claim' before the Officer, as it involves the Officer doing something, namely, an assessment of the income of the said period and adjustment of the tax paid on the income of the previous year with reference to the income so assessed and a refund of the excess tax, if any, already paid. If the Income-tax Officer has to take action in this manner for granting this relief, it stands to reason that a time limit should be imposed for a claim to be made in that behalf, as the task of making a proper assessment for the relevant period might become increasingly difficult with the lapse of time. But what reason could there be for imposing a time limit for asking the Income-tax authorities to abstain from doing a thing which the Act directs them not to do? A time limit for this purpose would, indeed, mean that the Income-tax authorities would be free to disregard the plain duty imposed on them by the Act, leaving the assessee without a remedy, if only they assess and levy the tax on the exempted profits, either under Section 23 or Section 34, after the expiry of the time limited. It seems to me that a construction of Section 25(5) which leads to such anomalous results ought not to be readily accepted. It is said that the word 'relief' is wide enough to cover both the benefits afforded under Sub-sections (3) and (4). It may be so in ordinary usage uncontrolled by context, though the assessee may well retort that not much relief is afforded to him when the Crown, having already taxed him for as many years as he carried on the business, merely abstains from taxing once more. But in the context of Section 25 I am of opinion that it would be a reasonable construction of the words 'claim to the relief afforded under Sub-section (3) or Sub-section (4)' to hold that they refer only to the relief by way of adjustment of the tax levied on the income of the previous year and the consequential refund, if any, for which the assessee has to make a 'claim' under Sub-sections (3) and (4). The plea of limitation cannot therefore prevail. I concur also in the order for costs.