Case: Commissioner Of Income-Tax, Mysore Vs. Bangalore Transport Co. Ltd

1. The Bangalore Transport Company Ltd. hereinafter called the Company- operated a public motor transport service in the town of Bangalore for several years. The Legislature of the State of Mysore enacted the Bangalore Road Transport Service Act, 1956 (Mysore Act 8 of 1956) with a view to provide for the acquisition of the undertaking of the Company. By virtue of Section 3 of the Act the undertaking, assets and documents of the Company vested in the Government of Mysore, on October 1, 1956, and the Company was paid Rs. 15,50,000 as compensation for loss of its undertaking assets and documents.2. In respect of the previous year ending March 31, 1957, the Company submitted a return under the Income-tax Act claiming that it had earned no income from its business since its undertaking and business was taken over by the Government of Mysore on October 1, 1966 The Income-tax Officer, Urban Circle, Bangalore, brought to tax Rs. 4,01,954 disclosed by the Companys audited accounts as its taxable business income. This order was confirmed by the Appellate Assistant Commissioner in appeal. The Income-tax Appellate Tribunal modified the order of assessment and allowed Rs. 97,208 as development rebate for the previous year and after making certain adjustments brought to tax an amount of Rs. 3,16,439 a taxable income of the Company in the previous year.3. At the instance of the Company, the following question was submitted by the Appellate Tribunal to the High Court of Mysore under Section 66 (1) of the Income-tax Act, 1922the sum of Rs. 3,16,439 was income and liable to tax on the assessee for the yearHigh Court answered the question in the negative. Against that order this appeal is preferred with special leave.

Reasoning: 6. There is no warrant for this argument in the scheme of the Income-tax Act. Under Section 10 (1) of the Income-tax Act, 1922, tax is payable by an assessee under the head "Profits and gains of business, profession or vocation" in respect of the profit or gains of any business, profession or vocation carried on by him. There is nothing in the Act which supports the argument that for profits of the business to be taxable, the business must be actively carried on for the whole of the previous year, or till the end of the previous year. Under the scheme of the Income-tax Act whenever an assessee receives in the course of his business money or moneys worth, income embedded therein accrues or arises to him, and becomes subject to an ambulatory charge. If at the end of the previous year, on making up accounts there is no overall income the charge does not crystallise because there is no income on which the charge of tax may settle.The Company carried on the business of a transport operator between April 1, 1956 and September 30, 1956 and the audited accounts of the Company disclosed that embedded in the gross receipts was a net profit of Rs. 4,01,954 during that period. That profit reduced by outgoings properly allowable in the computation of the total taxable income became subject to a charge to tax. The total taxable profits may under the scheme of the Act be determined at the end of the previous year but it does not follow therefrom that to profits earned during the year, the charge of tax does not attach. Assuming that the business of the Company was closed on October 1, 1956 when its undertaking and assets were taken over by the Government of Mysore, it was, for reasons stated earlier, still liable to be taxed in respect of its profits which accrued or were received by the Company prior to the date of the closure of thethat case lays down no such proposition. Under an agreement of partnership, the manager of a Hindu undivided family who was a partner was to receive a share in the profits of the firm. The accounts of the firm were to be adjusted at the end of every calendaris clear on a bare perusal of the statement of facts of that case that no income or profits had accrued to the Hindu undivided family at any time in the year of account prior to the date ofHindu undivided family became entitled to a share in the profits of the firm only at the end of every calendar year, and not before. If before that date the right of the family to a share in the profits was divested, no income accrued or arose to the family. In the present case the profits directly arose to the Company de die in diem, and could be ascertained by the method of accounting adopted by the Company at the end of the year or when the business washas also not contended before us that for the profits received by the Company the State of Mysore is, by virtue of Section 26 (2) of the Income-tax Act, liable to be taxed.10. The answer recorded by the High Court will therefore be discharged and there will be an answer in theour judgment the High Court erred in assuming that the character of the compensation received by the Company was determinative of the question submitted by the Tribunal. It was the claim of the Revenue that in the previous year the Company had earned taxable profit amounting to Rs. 3,16,439 and that profit was subject to tax in the hands of the Company. The department was not seeking to taxle or any part of the compensation received by the Company and the discussion as to what the compensation received by the Company was intended to replace was not relevant in determiningts which accrued or arose to the Company during the period April 1, 1956 to September 30, 1956 were taxable.