Case: O. Rm. M. Sp. Sv. Firm Vs. The Commissioner Of Income-Tax-Madras

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 S. 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 S. 3. The argument, however, on behalf 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 contention 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 received 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 1951-20 ITR 170 : (AIR 1952 Mad 92 ), must be taken to be impliedly overruled by the recent decision of this Court in Commissioner of Income-tax. Bombay, City 1 v. Chugandas and Co., 1965-55 ITR 17 : (AIR 1965 SC 568 ), in Which the question was whether the interest on securities formed part of the assessees business income for the purpose of the exemption from tax under S. 25 (3) of the 1922 Act. It was held by this Court that the assessee was entitled to exemption under S. 25 (3) in respect of interest on securities as well, and there was no reason to restrict the condition of the applicability of the exemption under S. 25 (3) 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 or 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, S. 25 (3) 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 19l8 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 S. 25 (3) of the 1922 Act in respect of the foreign business at Penang, Ipoh and Kambar.6. The second question of law arising in this appeal is whether the assessee was entitled to relief under S. 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 1965-55 ITR 17 : (AIR l965 SC 568), 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. 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 assessees business income for the purpose of the exemption from tax under S. 25 (3) of the 1922 Act. It was held by this Court that the assessee was entitled to exemption under S. 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 S. 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 S. 25 (3) is general. It was explained by this Court that the heads of income described in S. 6 of the 1922 Act, and further elaborated for the purposes of computation in Ss. 7 to 10 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 Income-tax Act for computation. The ratio of this decision applies to the present case and if must accordingly be held that the assessee is entitled to relief under S. 25 (3) 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.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]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 S. 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 S. 25 (3) of the l922 Act. It is manifest that by S. 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 S. 25 (3) 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 S. 25 (3) 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 businessour opinion, the view adopted by the High Court in 1951-20 ITR 170  : (AIR 1952 Mad 92  ), must be taken to be impliedly overruled by the recent decision of this Court in Commissioner of Income-tax. Bombay, City 1 v. Chugandas and Co., 1965-55 ITR 17  : (AIR 1965 SC 568  ), in Which the question was whether the interest on securities formed part of the assessees business income for the purpose of the exemption from tax under S. 25 (3) of the 1922 Act. It was held by this Court that the assessee was entitled to exemption under S. 25 (3) in respect of interest on securities as well, and there was no reason to restrict the condition of the applicability of the exemption under S. 25 (3) 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 or 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, S. 25 (3) 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 19l8 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 S. 25 (3) of the 1922 Act in respect of the foreign business at Penang, Ipoh andwas pointed out that there was no reason to restrict the condition of the applicability of the exemption under S. 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 S. 25 (3) is general. It was explained by this Court that the heads of income described in S. 6 of the 1922 Act, and further elaborated for the purposes of computation in Ss. 7 to 10 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 Income-tax Act for computation. The ratio of this decision applies to the present case and if must accordingly be held that the assessee is entitled to relief under S. 25 (3) 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 ofhave, 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 toin 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.