Commissioner of Income-tax, Central Vs. Mugneeram Bangur and Co. - Court Judgment

Sabyasachi Mukharji, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the following three questions have been referred to this court:

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was eligible for relief under Section 25(4) of the said Act in respect of income from property ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to claim in the first instance set off of the business loss against income from property under Section 24(1) of the said Act, and thereafter to claim relief under Section 25(4) of the said Act in respect of interest on securities, speculation profits and dividends ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that relief under Section 25(4) of the said Act was available to the assessee in respect of super-tax ?'

2. The assessee is a firm. The proceedings relate to its assessment for the assessment year 1961-62. The previous year was 2016-17 Diwali for guddi and other departments excepting the jute department for which the previous year was 2016-17, Ratha Jatra. The Diwali ended in the relevant year on October 20, 1960. The assessee-firm consisted of seven partners and was carrying on business under a deed of partnership. The partners had agreed that the said partnership should be governed by the memorandum and articles of association of M/s. Mugneeram Bangur & Co. Ltd., a newly formed company with effect from October 18, 1960. The certificate of incorporation as a limited company, it was noted by the Tribunal, was issued by the Registrar of Companies on October 21, 1960. In the course of the assessment proceedings, the assessee had claimed reliefs under Section 25(3) and Section 25(4) of the Indian I.T. Act, 1922, on the ground that the partnership had discontinued its business and had been succeeded by a limited company styled as M/s. Mugneeram Bangur & Co. Ltd., during the relevant previous year, that is to say, Diwali year 2016-17. The assessee had also claimed exemption from super-tax on this account. These claims were not allowed by the ITO in his order for the year under reference and the assessment was completed on a total income of Rs. 6,92,508 under Section 23(3) of the Indian I.T. Act, 1922.

3. The following facts were found by the AAC to be correct:

(i) that the assessee's business had commenced on the Ram Navami day in the month of April, 1917 ;

(ii) that the first accounting year ended on November 13, 1917, (Diwali year 1973-74);

(iii) that the profit for the said year for the period of six months was less than Rs. 50,000 and, therefore, for the financial year 1917-18 (Diwali year 1973-74) no income-tax had been paid ; and

(iv) that as at that time super-tax had been charged under the Super Tax Act, 1917, on a previous year's income no super-tax had been charged as that was the first year of the firm and there was no income in the earlier year.

4. It was stated that in the subsequent financial year, that is to say, 1918-19 (previous year ending on October 2, 1918), the income of the said firm was Rs. 10,45,983, that income-tax was charged on a round figure of Rs. 10,50,000 at 12 paise per rupee and the income-tax payable thereon amounted to Rs. 65,625. As super-tax (unlike income-tax), was chargeable on the income of the previous year, the income of the previous assessment year 1917-18 (Diwali year 1973-74), being below the taxable limit of super-tax, no super-tax was charged. In the subsequent financial year also, it was stated, no super-tax was charged and on an estimated income of Rs. 1,00,000 income-tax at 12 paise per rupee amounting toRs. 6,250 was charged. In respect of the financial year 1920-21, the total income of the firm was Rs. 6,53,500 on which both income-tax and supertax were charged for the financial year 1921-22. Before the AAC, it was also contended by the assessee that M/s. Mugneeram Bangur & Co. Ltd., was formed under the Companies Act, 1956, and the entire assets of the firm were transferred to that company which got a certificate of incorporation on October 21, 1960. The memorandum and articles of association of the limited company were made and entered into on October 13, 1960, by the erstwhile partners agreeing that the business and properties belonging to the firm should, with effect from October; 18, 1960, be governed by the regulations given in the memorandum and articles of association of the limited company and the company was registered with the Registrar of Companies, West Bengal, on October 17, 1960. As all the properties of the firm got vested in the company on its registration on October 17, 1960, there was a succession by the company to the business carried on by the assessee-firm and relief under Section 25(4) of the Indian I.T. Act, 1922 should be allowed.

5. After discussing the rival contentions of the parties and the relevant facts and law, the AAC held that the assessee was entitled to the relief under Section 25(4) of the Indian I.T. Act, 1922, in respect of the previous year ended on October 21, 1960, relevant for the assessment year 1961-62. He further held that, even if succession was held to have taken place on October 21, 1960, the assessee was entitled to relief under Section 25(4) of the Indian I.T. Act, 1922, in respect of the income of the previous year ended on October 21, 1960.

6. Regarding the relief from super-tax, the AAC was of the view that the firm had an income chargeable to super-tax for the financial year 1919-20 in respect of the income of the previous year ending on November 2, 1918. In view of the provisions of Section 19 of the Excess Profits Tax Act, 1919, the firm was charged excess profits tax only, as the super-tax was less and, accordingly, the AAC was unable to agree that the firm could be deemed to have been assessed t6 super-tax earlier than 1920-21.

7. Against the order of the AAC, an appeal was filed by the Department before the Tribunal and it would be relevant to refer to the relevant provisions of the order of the Tribunal. The Tribunal was of the opinion that whether the company was incorporated on October 21, 1960, or earlier was of no consequence in adjudicating the points at issue. Regarding the quantum of relief, the Tribunal referred to the assessment of the assessee which was made on the basis of the following figures :

Head of incomeAmount of profitAmount of lossRs.Rs.

Int. on securities (profit) 3,240 --Property (profit)7,91,548 --Business (loss)--7,92,087Speculation (profit) 23,427--Other sources (profit) 6,66,380

--

14,84,5957,92,087(--) 7,92,087

Profit 6,92,508

8. The Tribunal, after hearing the rival contentions of the parties and referring to the decision of the Supreme Court in the case of Chugandas & Co. : [1965]55ITR17(SC) , observed that the claim of the assessee had been that all the assets had been acquired only out of business funds and that no distinction had been made by the assessee as between the assets of one kind or the other assessed under the provisions of the I.T, Act. According to the assessee, therefore, the assessee was entitled to relief both from the income from property as well as income from other sources. According to the assessee, the bifurcation made in the income-tax assessment had no basis as far as the assessee's accounts were concerned. The Tribunal accepted the contention and referred to the relevant authority and applying the principles of the said authority held that the assessee was eligible for the exemption as claimed by it. The Tribunal, further, observed that even assuming that this view was wrong, still the assessee's alternative claim of adjustment of the business loss against the property income was bound to succeed. The Tribunal referred to Section 24(1) of the Indian I.T. Act, 1922, and held that the assessee was entitled to succeed in getting this property income set off against the business loss.

9. The Tribunal, then, considered the claim of the assessee for exemption from super-tax. The Tribunal observed that the only year to which it was necessary to direct its attention was 1919-20. If the assessee had paid super-tax in that year, then the claim for exemption would fail, so far as the exemption from super-tax was concerned. If the assessee had not been assessed to super-tax for that year, then the assessee's claim was bound to succeed. The Tribunal was unable to accept the contention of the Revenue that the word 'assessed' has to be understood even in the sense of computation made for the purpose of finding out whether the excess profits tax would be higher than the super-tax. The Tribunal observed that such computation was only a provisional computation. In that view of the matter, the Tribunal was of the view that the AAC had acted rightly ingiving relief for super-tax also. In these circumstances, the three questions indicated above have been referred to this court.

10. The first question, therefore, to which we must direct our attention is the eligibility of relief under Section 25(4) of the Indian I.T. Act, 1922, on the basis of the facts found by the Tribunal. Now, for that, it is necessary to refer to Section 25(4) of the Indian I.T. Act, 1922. Section 25 is headed as 'assessment in case of discontinued business'' Sub-section (1) of Section 25 deals with the situation where a business, profession or vocation was discontinued in a year. Sub-section (2) of Section 25 deals with the situation, when any person discontinues any business, profession or, vocation, as to what is to be done. Here, though we are concerned with Sub-section (4) of Section 25 in the instant case, it may be instructive, in view of the decision of the Supreme Court, to set-out Sub-section (3) as well as Sub-section (4) of Section 25 of the Indian I.T. Act, 1922. These provided as follows :

'(3) Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918 (VII of 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) Where the person who was at the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person 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 andgains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference : Provided that Sub-sections (3) and (4) shall not apply-

(a) to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either for the year beginning on the 1st day of April, 1920, or for the year beginning on the 1st day of April, 1921 ;

(b) to a business, profession or vocation on which income-tax was at any time charged in the bands of a company under the Indian Income-tax Act 1886 (II of 1886), or on which income-tax would have been charged in the hands of a company for the assessment year ending on the 31st day of March, 1918, if the company having been in existence in that year, had also been in existence in the year ending on the 31st day of March,1917.'

11. Sub-section (5) of Section 25 dealt with certain conditions under which the claim could not be entertained. In the facts and circumstances of this case, we are not concerned with that situation here. Sub-section (6) of Section 25 is also not relevant for our present purpose. The scheme behind the introduction of Section 25 was explained by the Madras High Court in the case of Meyyappa Chettiar v. CIT : [1943]11ITR247(Mad) . There, explaining the scheme of Sub-sections (3) and (4) of Section 25 of the Indian I.T. Act, 1922, Mr. Justice Patanjali Sastri, as the learned Chief Justice then was, who delivered the judgment of the Madras High Court, observed as follows (p. 258):

'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 of1918, 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 petition 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 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 limit. 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-section (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 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.'

12. This passage has been relied on in disposing of the reference by this court in the case of CIT v. B. P. (India) Ltd. : [1979]116ITR440(Cal) . It is essential, it appears, that to give relief from double taxation, the current income was to be charged because the scheme of taxation under 1922 Act was changed from the Act of 1918. Lest there should be double taxation, the scheme, as contained in Sub-section (3) and Sub-section (4) of Section 25 of the Indian I.T. Act, 1922, was envisaged. It is significant to note that if the conditions under Sub-sections (3) and (4) of Section 25 were fulfilled, then it was the intention of the legislature that 'no tax shall be payable in respect of income, profits and gains', though Sub-section (3) dealt with some contingencies and Sub-section (4) dealt with another contingency, but the clear mandate was that no tax should be payable in respect of the income, profits and gains for a particular period. Now, this Sub-section (3) of Section 25 came up for consideration by the Supreme Court in the case of CIT v. Chugandas & Co. : [1965]55ITR17(SC) . There, the assessee was a dealer in securities holding securities as stock-in-trade and had been charged to tax under the Indian I.T. Act, 1918, in respect of business. It received Rs. 4,13,992 and Rs. 1,01,229 as interest on securities in the years 1946 and 1947 respectively. The firm discontinued its business on June 30, 1947. The assessee, it may incidentally be noted, was a firm. The question arose as to whether the interest onsecurities formed part of the assessee's business income for the purpose of exemption from tax under Section 25(3) of the Indian I.T. Act, 1922. It was held by the Supreme Court that the assessee was entitled to exemption under Section 25(3) in respect of interest on securities as well. The Supreme Court held that there was no reason to restrict the condition of the applicability of the exemption under Section 25(3) only to income on which the tax was payable under the head 'profits and gains of business, profession or vocation'. The exemption under Section 25(3), according to the Supreme Court, was general. The Supreme Court further noted that the heads of income described in Section 6 of the Indian I.T. Act, 1922, and further elaborated for the purposes of computation, in Sections 7 to 10 and Sections 12, 12A, 12AA and 12B, were intended merely to indicate the classes of income. According to the Supreme Court, the heads did not exhaustively delimit the sources from which the income arose. Business income was broken up under different heads only for the purpose of computation of the total income. By that breaking up, the income did not cease to be an income of the business, according to the Supreme Court, the different heads of income being only a classification prescribed by the Act for computation. At page 22 of the report, the Supreme Court observed that Mr. Justice Tendolkar, in his judgment under appeal, was of the view that the income from business, to be computed under Section 10, alone could be admitted to the exemption under Section 25(3). The majority of the court held that all the income earned by carrying on the business qualified for the exemption. Now, Sub-section (3) of Section 25 of the Indian I.T. Act, 1922, according to the Supreme Court, expressly provides that the income of a business, profession or vocation, which was charged at any time under Act 7 of 1918 to tax was, on discontinuance of that business, profession or vocation, exempt from liability to tax under Act 11 of 1922 between the end of the previous year and the date of such discontinuance. The tax was charged, the Supreme Court noted, under the Indian I.T. Act, on specific units such as, individuals, HUFs, companies, local authorities, firms and association of persons or partners of firms or members of associations individually and a business, profession or vocation was not a unit of assessment by itself. When, therefore, Section 25(3) enacted, according to the Supreme Court, that the tax was charged at any time on any business, it was intended that the tax was at any time charged on the owner of any business. If that condition was fulfilled in respect of the income of the business under the Act of 1918, the owner or his successor-in-interest qua the business, would be entitled to get the benefit of the exemption under it if the business was discontinued. The section in terms referred to tax charged on any business, that is to say, tax charged on any person in respect of income earned by carrying on the business. Undoubtedly, it was not all income earned by a personwho conducted any business which was exempt under Sub-section (3) of Section 25. Non-business income, according to the Supreme Court, would certainly not qualify for the privilege. Relying on this passage at page 22 of the report, learned advocate for the Revenue contended that the Supreme Court was categorical on this point that non-business income could not qualify for the privilege. Therefore, according to learned advocate for the Revenue, if the income from house property had been derived, then such an income, it was urged, would not be entitled to be exempted under Section 25(4) of the Act, which used the same expression. But the Supreme Court conditioned the aforesaid expression by observing in the very next sentence that there was no reason to restrict the condition of the applicability of the exemption only to income on which tax was payable under the head 'Profits and gains of business, profession or vocation' The legislature had made no such express reservation and there was no warrant for reading into Sub-section (3), such a restricted meaning. Sub-section (3), it might be noticed, according to the Supreme Court, does not refer to chargeability of income to tax under a particular head as a condition for obtaining the benefit of the exemption. It is true that the assessee in that case was a firm. It is also true that the firm means a combination of persons carrying on business. But, when the Supreme Court observed that non-business income would certainly not qualify for the privilege of the exemption, the Supreme Court was treating such income, which was treated as separately and excluded from the business income as such, and was not the income of the assessee but claimed either as holder of securities or holder of house properties. The Supreme Court then referred to the other provisions of the Act and was of the view that the other provisions lend support to the conclusion that the legislature intended to mean what the Supreme Court had taken to mean. For instance, the Supreme Court had noted that where the legislature had intended to refer to a specific head on taxation under Section 6 of the Act as a condition for imposing an obligation or claiming a right, the legislature had in terms referred to such a head. As for example, the Supreme Court had referred to Section 18(2), where liability had been imposed upon any person responsible for paying any income chargeable under the head 'Salaries' to deduct income-tax and super-tax on the amount payable. Similarly, under Section 18(3), the person responsible for paying income under the head 'Interest on securities' was liable to deduct income-tax and super-tax at the prescribed rates on the amount of interest payable. Section 24, similarly, prescribed a set off in respect of the loss sustained under any of the heads mentioned in Section 6 against the income, profits and from any other heads in that year. The Supreme Court observed that these were some of the provisions in which reference was made to specific heads of items of 'taxation'. But the exemption underSection 25(3) of the Indian I.T. Act, 1922, was general. It was not restricted to income chargeable under Section 10 of the Act only. Some indications, according to the Supreme Court, were also furnished by the scheme of Sub-sections (1) and (2) of Section 25. Under Sub-section (1), the ITO was given power to make what was called 'accelerated assessment' when a business, profession or vocation was discontinued in any year. The reason for the rule contained in Sub-section (1) of Section 25, according to the Supreme Court, was to prevent the loss of revenue by the assessee discontinuing the business, profession or vocation and frittering away or secreting assets and income or disappearing from the scene of activity. But such an assessment would, in the normal course, have to be in respect of the entire income of that business, profession or vocation. The Supreme Court then referred, at page 24 of the report, to Sub-section (4) of Section 2 of the Indian I.T. Act, 1922, which defined 'business' as including any trade, commerce or manufacture or any adventure or concern in the nature of a trade, commerce or manufacture. Business, therefore, according to the Supreme Court, was an activity of a commercial nature. According to the Supreme Court, by Section 25(3) indisputably exemption from payment of tax was intended to be given where there had been in respect of the same activity double taxation when the Act 11 of 1922, was enacted. If the right arose on the discontinuance of an activity styled as 'business', as Section 25(3) expressly provided, tax in connection with that activity would prima facie be tax payable on the income profits and gains derived from that business activity. The heads described in Section 6, and further elaborated for the purpose of computation of income, in Section 7 to Section 10 and Sections 12, 12A, 12AA and 12B, were intended merely to indicate the classes of income. The heads did not exhaustively delimit the sources from which the income arose. The Supreme Court, referring to the previous decision, observed that business income was broken up under different heads only for the purpose of computation of the total income of the business, and, by that breaking up, the income did not cease to be the income of the business, the different heads of income being only a classification prescribed by the I.T. Act for the computation of income. It could not be gainsaid that there was on the part of the legislature a desire, by enacting Section 25(3), to give relief to two classes of income subjected to double taxation for the income of the year 1921-22. Interest on securities not being exposed to double taxation for the year 1921-22, because there was no taxation on that income, the benefit of Section 25(3) was not admissible to that class of income.

13. This view of the Supreme Court was clarified by the Supreme Court itself in the decision in the case of O. RM. M. SP. SV. Firm v. CIT : [1967]63ITR404(SC) . There, an HUF carried on a money-lending business in British India and Federated Malaya States. It was assessed to tax underthe Indian I.T. Act, 1918. The entire profits of the foreign business came to be assessed in the hands of the family under that Act as they were remitted to British India. In 1938, there was a partition in the family and, therefore, the members of the family constituted themselves into a firm and continued the business as partners. The firm was dissolved on March 22, 1952, and had claimed relief under Section 25(3) of the Indian I. T. Act, 1922, on the ground of discontinuance of the business. It was held that the foreign business must be held to have been charged under the provisions of the Indian I.T. Act, 1918, within the meaning of Section 25(3) and the firm was entitled to the relief claimed. The Supreme Court observed in that case that the firm was entitled to relief under Section 25(3) with regard to the rental income from the house properties owned by the foreign business. This decision of the Supreme Court was rendered in an appeal from a decision of the Madras High Court in the case of the same assessee in O. RM. M. SP. SV. Firm v. CIT : [1964]52ITR801(Mad) , where, dealing with the second question regarding the entitlement to the relief under Section 25(3) in respect of the rental income from house property owned by the foreign firm, the Division Bench of the Madras High Court, at page 810, observed that that question was unnecessary in view of the conclusion that the court had reached on the other aspects. But the Division Bench further observed that the Tribunal was right with regard to the points raised on this question, viz., that the assessee was not entitled to the relief. The High Court observed that income from property, buildings, and land appurtenant thereto ordinarily described as house property income is charged under Section 9 of the Act. According to the Madras High Court, it was a separate head of charge like Section 10 which covered the income from business, profession or vocation. The house property income could be assessed only under Section 9 and not under Section 10 even if the income was treated by the assessee as a part of business profits and even if the income was derived in the course of the business of letting houses. Both incomes, according to the Madras High Court, for the ownership of the property and the resulting income therefrom claimed by the owner, attracted the assessment. There was no element of business in such ownership, nor could it be submerged or effaced by the conduct of the assessee dovetailing it with a business activity. Dealing with this conclusion, the Supreme Court in the decision which we have referred to, viz. : [1967]63ITR404(SC) , at page 410, observed as follows :

'The second question of law arising in this appeal is whether the assessee was entitled to relief under Section 25(3) of the 1922 Act with regard to the rental income from house properties owned by the foreign firm which was discontinued in the year of account. A similar question was the subject-matter of consideration in Commissioner of Income-tax v. Chugandas & Co. : [1965]55ITR17(SC) . which has already been referred to. In that case, the assessee-firm, a dealer in securities, holding securities as its stock-in-trade, had been charged to tax under 1918 Act, in respect of business. It received Rs. 4,13,992 and Rs. 1,01,229 as interest on securities in the years 1946 and 1947, respectively. The firm discontinued its business on June 30, 1947. The question at issue was whether the interest on securities formed part of the assessee's business income for the purpose of exemption from tax under Section 25(3) of the 1922 Act. It was held by this court that the assessee was entitled to exemption under Section 25(3) in respect of interest on securities as well. It was pointed out that there was no reason to restrict the condition of the applicability of the exemption under Section 25(3) only to income on which the tax was payable under the head ' Profits and gains of business, profession or vocation'. The exemption under Section 25(3) is general. It was explained by this court that the heads of income described in Section 6 of the 1922 Act, and further elaborated for the purpose of computation in sections 7 to 10 and 12, 12A, 12AAand 12B, are intended merely to indicate the classes of income. The heads do not exhaustively delimit sources from which income arises. Business income is broken up under different heads only for the purpose of computation of the total income. By that breaking up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Income-tax Act for computation. The ratio of this decision applies to the present case and it must accordingly be held that the assessee was entitled to relief under Section 25(3) of the 1922 Act with regard to the rental income from house properties owned by the foreign firm which was discontinued in the year of account.'

14. Therefore, in the light in which the Supreme Court has understood its previous decision in the case of CIT v. Chugandas & Co. : [1965]55ITR17(SC) , and in the light of the plain language used under Section 25(4), that is to say, me exemption given on the tax payable in respect of income, profits and gains for the period, we are of the opinion that the assessee, in the facts of this case, was entitled to relief even in respect of income from house property. The observation of the Supreme Court in the said decision that non-business income could not be included in the amount of income on which exemption was contemplated under Section 25(3), in our opinion, should be construed in the light of the entirety of the observation and in the background of the other observations made by the Supreme Court. In that light, it meant that the income which was not earned, though earned by the assessee in the year in a separate capacity, that is to say, in the capacity as a dealer in securities or as a house owner, was nothing which was inter-linked with the business. Indeed, in the case of a firm like this,the activity was the business activity and it must be entitled to the exemption. In this connection, the Allahabad High Court, in the case of CIT v. Smt. Indermani Jatia : [1970]77ITR133(All) , had also taken this view. We may incidentally refer to the observations of the Division Bench of this court in the case of Bikamchand Bagri v. CIT : [1962]44ITR746(Cal) , where at page 756, dealing with the nature of partnership income, the Division Bench observed as follows :

'The assessee is a partnership. A partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Now, an individual may carry on business and may do many other things but a partnership comes into existence only for the purpose of carrying on business, see Inderchand Hariram v. Commissioner of Income-tax : [1952]22ITR108(All) , approved in Lakshminarain Ram Gopal & Sons Ltd. v. Government of Hyderabad : [1954]25ITR449(SC) . The property and the assets of a partnership are held by it solely for the purposes of its business. The shares in set No. 2 were the assets of the assessee-firm must be regarded as held by it for the purposes of its business.'

15. Incidentally, we may mention that in the case of CIT v. B. P. India Pvt. Ltd. : [1979]116ITR440(Cal) , we had referred to the 12th Report of the Law Commission which made it clear that the levy contemplated under Section 25(3) of the Indian I.T. Act, 1922, was mainly there in that Act to give relief to those assessees who had paid tax under the 1918 Act and was to really save them from double taxation for one year, on the introduction of the 1922 Act, which changed the basis of the charging period.

16. By applying the ratio of the decision of the Supreme Court, referred to hereinbefore, in this case, we answer question No. 1 in the affirmative and in favour of the assessee.

17. The next question with which we are concerned is the second question which we have set out hereinbefore. It was urged on behalf of the assessee that this was really an alternative contention and if the decision on the first question was in favour of the assessee then this question would not arise. It is true that this was an alternative submission made on behalf of the assessee. But in view of the specific question referred to this court and in view of the findings recorded by the Tribunal, it is material, in our opinion, and necessary that we should also record our views on this aspect. It is necessary, to appreciate this question, to refer to the figures, which we have set out hereinbefore. It would be apparent that for the relevant year the amount of profit from the property was Rs. 7,91,548 whereas, the business loss was Rs. 7,92,087. Under Section 24(1) of the I.T. Act, an adjustment of the loss under one head against the income from any other head is permissible. Sub-section (1) of Section 24does not say that any business loss in Section 10 should be adjusted only against any income from other sources first and then only against other incomes. There is no prohibition in the Act, in our opinion, for the adjustment claimed by the assessee. As a matter of fact, this position would be made abundantly clear if one considers Sub-section (1) of Section 24 in contradistinction to Sub-section (2) of Section 24 of the Indian I.T. Act, 1922. This position is also fully corroborated by the views of the Supreme Court in the case of CIT v. P.M. Muthuraman Chettiar : [1962]44ITR710(SC) . In the case of Western States Trading Co. P. Ltd. v. CIT : [1971]80ITR21(SC) , the Supreme Court observed at page 25 of the report as follows :

'While Sub-section (1) of Section 24 provides for setting off the loss under one of the heads mentioned in Section 6 against the profits under a different head in the same year, Sub-section (2) provides for the carrying forward of the loss for one year and setting off the same against the profits or gains of the assessee from the business in the subsequent year or years.'

18. Referring to the decision of the Supreme Court in the case of CIT v. Cocanada Radhaswami Bank : [1965]57ITR306(SC) , the Supreme Court emphasised in the aforesaid decision that Sub-section (2) of Section 24 in contradistinction to Sub-section (1) of Section 24 is concerned only with business and not with the other heads under Section 6 of the Act. In view of the scheme of Section 24, we are of the opinion, that the assessee was entitled to the relief, as claimed by it, even on the alternative basis. The second question, therefore, must be answered in the affirmative and in favour of the assessee.

19. The third question is about the claim of the assessee for an exemption in respect of super-tax. We have set out hereinbefore Sub-section (4) of Section 25 of the Indian I.T. Act. 1922, and the proviso (a) to the said Sub-section provides that Sub-sections (3) and (4) shall not apply to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either in the beginning of April 1, 1920, or for the year beginning on April, 1, 1921. In other words, the assessee would be entitled to relief in respect of super-tax also provided the income, profits and gains of the business had been assessed to super-tax for the year either in the beginning of April 1, 1920, or for the year beginning on April 1, 1921. That the assessee had been assessed to super-tax to one of these two years is not in dispute. The dispute is whether the assessee was assessed for any earlier year even in which it could not be said that the assessee was assessed to super-tax for the first time in those years mentioned in the proviso. The Excess Profits Duty Act was passed in 1919. It applied for the accounting period for the 12 months ending on March 31, 1919, or any other date on which the assessee had closed the account. Section 19 of the said Act is material and provides as follows :

'19. Where the profits of any business in the accounting period are chargeable to excess profits duty under the provisions of this Act and to super-tax under the provisions of the Super-tax Act, 1917, then.

(1) if the amount chargeable as excess profits duty exceeds that chargeable as super tax, excess profits duty shall alone be charged, and

(2) if the amount chargeable as super-tax exceeds that chargeable as excess profits duty, super-tax shall alone be charged, and the provisions of this Act and the Super-tax Act, 1917, shall be construed accordingly.'

20. At that time super-tax was 12 pies in a rupee. The assessee's income was Rs. 101/2 lakhs. It was chargeable to super-tax on Rs. 10 lakhs after giving the minimum exemption. Super-tax was thus calculated to amount to Rs. 56,000. Therefore, the excess profits duty on the same amount came to Rs. 68,750. In view of the provisions of Section 19 of the Excess Profits Duty Act, 1919, the asses-see was subjected to tax in accordance with that section. It was contended that in order to find out whether the assessee was liable to super profits duty or excess profits duty, there had to be the computation. It was urged on behalf of the Revenue that once the super-tax was found to be lower, the excess profits duty was alone to be demanded, but, the demand should be consistent with the super tax to the extent of Rs. 56,000 and the excess profit duty to the extent of Rs. 12,750. It is impossible to accept that construction. The section says 'assessed to duty', and if the amount chargeable as excess profits duty exceeded that chargeable amount as super-tax, excess profits duty should alone be charged which would be in excess. For the purpose of finding our that excess, a computation, or, as the Tribunal has preferred to use the expression, 'a provisional computation' had to be made. Such a provisional calculation or computation cannot be said to be an assessment to super-tax. Though the expression 'assessment' has been used in a different context, as indeed in several decisions beginning from the decision of the Privy Council in the case of CIT v. Khemchand Ramdas [1938] 6 ITR 414, we have to find out whether the expression 'assessed' had been used in the proviso to Section 25(4) of the Indian I.T. Act, 1922, in such wide or loose sense of provisional calculation or the calculation was only to find out whether it was dutiable or not, which cannot be called an assessment under the Super Profits Tax Act, which disentitles the asses-see to the relief under the proviso to Sub-section (4) of Section 25 of the Act. In that view of the matter, we are of the opinion that the Tribunal came to the correct conclusion on the construction of the section. In the premises, the third question, in our opinion, must also be answered in the affirmative and in favour of the assessee.

21. In the premises, all the three questions are answered in favour of the assessee and in the affirmative.

22. In the facts and circumstances of the case, the parties will pay and bear their own costs.

Sudhindra Mohan Guha, J.

23. I agree.