Appeal No 751 of 1965
Appeal from the judgment and order dated December 18 1962 of the Madras High Court in Tax Case No 143 of 1960
AK Sen K Parasarn K Rajender Chaudhuri and K R Chaudhuri for the appellant
BSen T A Ramachandran section P Nayyar for R N Sachthey for the respondent
The Judgment of the Court was delivered by Ramaswami J
This appeal is brought by certificate against the judgment of the Madras High Court dated December 18 1962 in TC No 143 of 1960
The appellant hereinafter called the assessee  was a firm called ORMMSP
Firm which was registered under section 26A of the Income tax Act 1922 hereinafter called the 1922 Act 
Prior to the constitution of the firm the partners were members of a Hindu undivided family
The family which consisted of Meyyappa Chettiar and his two brothers carried on money lending business in India and in the former Federated Malaya States and it was assessed under the Indian Income tax Act 1918 hereinafter called the 1918 Act 
There was a disruption of the joint family status on June 2 1938 and thereafter the members of the family continued the business as partners
In the course of the assessment for the year 1939 40 it was claimed by Meyyappa Chettiar one of the members of the family that having regard to the severance of joint family status the income of the family from April 13 1938 to June 2 1938 was not liable to be taxed by reason of the provisions of section 253  4
The Income tax Officer accepted the fact of partition amongst the members of the family but rejected the contention that the family was not liable to pay tax on the profits for the said period
The High Court ultimately called for a reference on the following question Whether the income of the family from 13th April 1938 to 2nd June 1938 is not liable to be taxed by virtue of Section 253 of the Indian Income tax Act After receipt of the reference the High Court held that there was no discontinuance of the business within the meaning of section 253
The view taken by the High Court was that when a Hindu undivided 907 family carrying on a business which was taxed under the 1918 Act became disrupted and the members continued the business there
after as partners there could be no discontinuance but only succession by the firm of the business of the family
It was held in that case that it was the assesse firm which took over the business of the Hindu undivided family
The firm was dissolved on March 2 1952
In the assessment for the year 1952 53 the assessee applied for relief under section 253 of the 1922 Act
The claim was rejected by the Income tax Officer on March 7 1956
The assessee preferred an appeal to the Appellate Assistant Commissioner who dismissed the appeal holding that in the case of business carried on in foreign territory the business as such is not assessed under section 3 of the 1918 Act but only receipt of the income in British India is assessed and it cannot therefore be held that the foreign business of the appellant was charged to tax under the 1918 Act
The assessee took the matter in further appeal to the appellate Tribunal which considered that the assessee was entitled to relief under section 25 3 of the 1922 Act except for the income received from the house properties in Malaya
The appellate Tribunal accordingly allowed the appeal of the assessee in part
Both the assessee and the Department applied to the appellate Tribunal for reference of the questions of law to the High Court
The appellate Tribunal allowed the applications and stated a case to the High Court on the following questions of law i Whether the assessee is entitled to both the parts of the relief contemplated under section 253 of the Act in respect of foreign business at Penang Ipoh and Kambar  iiWhether the applicant is also entitled to relief under section 25 3 of the Act with regard to rental income from house properties owned by the foreign firm which was discontinued in the year of assessment
 The appellate Tribunal also referred another question for the opinion of the High Court but it is not the subject matter of the present appeal
The High Court held that the assessee was not entitled to relief under section 253 of the 1922 Act and accordingly answered both the questions in favour of the Department
The view taken by the High Court was that the foreign business of the assessee cannot be deemed to have been charged under the provisions of the 1918 Act because the assessee was only taxed on remittances received from the profits of the foreign business and there was no tax on the foreign business itself under the 1918 Act
The High Court accordingly reached the conclusion that the assessee was not entitled to relief under section 25 3 of the 1922 Act
908 Section 25 3 of the 1922 Act is to the following effect 25
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
 Under this section exemption from liability to pay tax in respect of the income profits and gains may be claimed by an assessee if the business is one in respect of which tax was charged at any time under the 1918 Act and the business is discontinued there being no succession by virtue of which the provisions of subsection 4 of section 25 have been rendered applicable
Section 253 however applies even if the person assessed under the 1918 Act was different from the person who claims relief under that section provided the former was the predecessor in interest of such person in relation to the business
The reason for enacting section 253 was that under the 1918 Act income tax was levied by virtue of section 142 of the 1918
Act on the income of the year of assessment
Tax was therefore levied in the financial year 1921 22 on the income of that year
By the 1922 Act the basis of taxation was altered and by section 3 of that Act charge for tax was imposed upon the income of the previous year
When the 1922 Act was brought into force on April 1 1922 two assessments in respect of the same income for the year 1921 22 had to be made
The income for 1921 22 was accordingly charged to tax twice it was charged under the 1918 Act and it was also charged to tax under section 3 of the 1922 Act read with the appropriate Finance Act resulting in double taxation in respect of the income for that year
But with a view to make the number of assessments equal to the number of years during which the business was carried on the legislature enacted the exemption prescribed by section 253
This benefit was however restricted only to the income profits and gains of business profession or vocation on which tax had been charged under the provisions of the 1918 Act
By enacting section 253 the legislature intended to exempt the income profits and 909 gains resulting from the activity styled business profession or vocation from tax when the business profession or vocation is discontinued if tax was charged in respect thereof under the 1918 Act
The first question to be considered in this appeal is whether the assessee is entitled to both parts of relief contemplated under section 253 of the 1922 Act in respect of the foreign business at Penang lpoh and Kambar
The controversy between the parties turns on the question whether the foreign business of the assessee was at any time charged under the provisions of the 1918 Act
It has been found by the appellate Tribunal that the assessee was taxed on remittances received from and out of the profits of the foreign business
The finding of the Appellate Assistant Commissioner is stated in these terms The entire profits of the foreign business came to be assessed in the hands of the appellant under the 1918 Act not because it was a business income but because such income had been remitted into British India
Therefore in fact also it is not the foreign profits of a business that has been charged to tax but only the remittance which in the particular case was not less than the profits of the year
 We have therefore to proceed on the footing that the assessee received the entire profits of the foreign business in British India and the entire profits were assessed to income tax in the hands of the assessee under the 1918 Act
It is necessary at this stage to set out the relevant provisions of the 1918 Act
Section 3 the charging section stated as follows 3
1 Save as hereinafter provided this Act shall apply to all income from whatever source it is derived if it accrues or arises or is received in British India or is under the provisions of this Act deemed to accrue or arise or to be received in British India
Section 5 mentioned the classes of income chargeable to income tax and reads as follows 5
Save as otherwise provided by this Act the following classes of income shall be chargeable to income tax in the manner hereinafter appearing namely i Salaries
ii Interest on securities
iiiIncome derived from house property
iv Income derived from business
910 v Professional earnings
vi Income derived from other sources
 Section 9 of the 1918 Act enumerated the permissible deductions in the computation of the profits of the business
The question for determination is whether the foreign business of the assessee was at any time charged under the provisions of section 3 of the 1918 Act
It has been found in this case that the entire income of the foreign business was remitted to the assessee and tax imposed on that income under the 1918 Act
We are of the opinion that in the context of these facts the foreign business of the assessee must be held to be charged under the provisions of the 1918 Act within the meaning of section 253 of the 1922 Act
It is manifest that by section 3 of the 1918 Act the charge was made on the receipt of income in British India and as the income received by the assessee was derived from the foreign business and was in relation to the foreign business it must be taken that there was an assessment to tax on the foreign business within the meaning of section 253 of the 1922 Act
In other words the tax under the 1918 Act was charged upon the assessee in respect of his activity styled foreign business  and in relation to it and it must hence be taken upon the facts found by the appellate Tribunal in this case that the foreign business of the assessee was charged under the 1918 Act within the meaning of section 253 of the 1922 Act
The High Court has taken the view that the foreign business of the assessee was not charged under the 1918 Act because what was taxed was the remittances received by the assessee from the foreign business and not the foreign business itself
In taking this view the High Court has followed its previous decision in Commissioner of Income tax Madras vs section VRM Palaniappa Chettiar and Others1 in which it was held that the words on which in section 254 of the 1922 Act cannot be interpreted as meaning with reference to which and that in order to claim and avail the benefit under section 254 the tax clearly should be charged on the business as such under the 1918 Act
At page 173 of the Report Satyanarayana Rao J stated as follows The relief under sub clause 4 is permissible only if the tax on the business was charged under the provisions of the Indian Income tax Act 1918
If the foreign business at Muor was not and could not have been charged under the Act and the share in the profits of the family from that foreign business was charged under section 3 only on the receipt in British India can it be said that the charge so made was a charge of a tax on the foreign business
The income received by the joint family could not have been charged under the head income derived from business  but only as a receipt under section 3
The argument however on behalf 1 911 of the assessee by his learned Advocate Mr Rajah Iyer was that the words on which tax was at any time charged should be construed as meaning with reference to which tax was at any time charged
 In other words the conten tion is that the income derived by the assessee was in relation to a business and therefore the assessment of the income must be treated as an assessment of the business
No doubt under the provisions of the Income tax Act the tax is payable by an assessee but the assessment of the tax is on the basis of various heads of income derived by the assessee one of which is business
It cannot therefore be said that because tax was payable by the assessee on the profits rec eived from a business in a foreign territory such assessment is an assessment of the business
 In our opinion the view adopted by the High Court in Commissioner of Income tax Madras vs section VRM Palaniappa Chettiar and Others  must be taken to be impliedly over ruled by the recent decision of this Court in Commissioner of Income tax
Bombay City 1 vs Chugandas  Co2 in which the question was whether the interest on securities formed part of the assessee s business income for the purpose of the exemption from tax under section 253 of the 1922 Act
It was held by this Court that the assessee was entitled to exemption under section 253 in respect of interest on securities as well and there was no reason to restrict the condition of the applicability of the exemption under section 253 only to income on which the tax was payable under the head Profits and gains of business profession or vocation
It was further observed in that case that tax is charged under the Income tax Acts on specific units such as individuals Hindu undivided families companies local authorities firms and associations of persons etc
and business profession or vocation is not a unit of assessment
When therefore section 253 enacts that tax was charged at any time on any business it is intended that the tax was at any time charged on the owner of any business
If that condition be fulfilled in respect of the income of the business under the 1918 Act the owner or his successor in interest in relation to the business will be entitled to get the benefit of the exemption under it if the business is discontinued
We are accordingly of the opinion that the High Court was in error in holding that the foreign business of the assessee was not charged under the provisions of the 1918 Act
The first question must therefore be answered in favour of the assessee and it must be held that the assessee is entitled to both parts of relief contemplated under section 253 of the 1922 Act in respect of the foreign business at Penang lpoh and Kambar
1 2 912 The second question of law arising in this appeal is whether the assessee was entitled to relief under section 253 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 Bombay City  vs Chugandas and Company1 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 the 1918 Act in respect of business
It received Rs 413992 and Rs 101229 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 the exemption from tax under section 253 of the 1922 Act
It was held by this Court that the assessee was entitled to exemption under section 253 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 253 only to income on which the tax was payable under the head Profits and gains of business profession or volcation
The exemption under section 253 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 purposes of computation in sections 7 to IO and 12 12A 12AA and 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 Incometax Act for computation
The ratio of this decision applies to the present case and it must accordingly be held that the assessee is entitled to relief under section 253 of the 1922 Act with regard to the rental income from the house properties owned by the foreign firm which was discontinued in the year of account
For these reasons the judgment of the Madras High Court is set aside and this appeal must be allowed with costs
RKPS 1  Appeal allowed


Summary:
Prior to the constitution of the assessee firm its partners were members of a Hindu undivided family which carried on money lending business in India and in Malaya and which was assessed to tax under the Income Tax Act 1918
There was a partition in the family on June 2 1938 and thereafter its members continued the business as partners in the assessee firm
The firm was dissolved on March 2 1952
In the assessment for the year 1952 53 the assessee applied for relief under section 253 of the Income Tax Act 1922
This claim was rejected by the Income Tax Officer and an appeal to the Appellate Assistant Commissioner was dismissed on the view that in the case of business carried on in foreign territory the business as such was not assessed under section 3 of the 1918 Act and only income received in India was so assessed consequently no relief could be claimed under section 253 of the 1922 Act
A further appeal to the Appellate Tribunal was partly allowed as the Tribunal considered that the assessee was entitled to relief under section 253 except in respect of the income received by the assessee firm from certain house properties in Malaya
The High Court upon a reference disagreed with the Tribunal and held in favour of the department
On appeal to this Court HELD  1 The High Court was in error in holding that the foreign business of the assessee was not charged under the provisions of the 1918 Act
The assessee was therefore entitled to relief under section 253
When section 253 refers to tax charged on any business it is intended to refer to tax charged on the owner of any business
If tax is shown to have been charged in respect of the income of the business under the 1918 Act the owner or successor in interest in relation to the business will be entitled to get the benefit of the exemption under section 253 if the business is discontinued
In the context of the finding by the lower courts that the entire income of the foreign business was remitted to the assessee and tax imposed on that income under the 1918 Act the foreign business of the assessee must be held to have been charged under the provisions of the 1918 Act within the meaning of section 253 of the 1922 Act
911 F H iiThe assessee was also entitled to relief under section 253 on the rental income from the house properties owned by the foreign firm which was discontinued in the year of account
M17Sup CI66 12 906 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
912 E F Commissioner of Income tax Madras vs SVRM Palaniappa Chettiar A Others  disapproved Commissioner of Income tax Bombay city 1 vs Chugandas  Co   referred to