COMMISSIONER OF INCOME-TAX, MADHYA PRADESH vs. LADY KANCHANBAI

CIVIL APPEAL No. 19/1969Supreme Court[1970] 3 S.C.R. 32316 December 1969Bench: 2 JudgesAuthor: J.C. SHAH, K.S. HEGDE B5 pages
AI SummaryDismissed

What were the facts?

The assessee, a Hindu Undivided Family, was assessed as a non-resident prior to assessment year 1950-51. Income from its business in the Indian State of Madhya Bharat was not taxed but considered for "world income" to determine the tax rate. Following the Finance Act, 1950, Madhya Bharat became part of "taxable territories", making the assessee liable for tax on its Madhya Bharat income for AY 1950-51. Previously, the assessee used Diwali as its account year-end. For AY 1950-51, it opted for the financial year ending March 31, 1950, as the previous year for its Madhya Bharat business income. The Income Tax Officer and Appellate Assistant Commissioner rejected this choice. The Income Tax Appellate Tribunal reversed their decision, and the High Court, on reference, agreed with the Tribunal.

What did the Supreme Court hold?

The Tribunal, agreeing with the High Court, held in favour of the assessee. It clarified that Section 2(11)(i)(a) allows for different "previous years" for "separate sources of income, profits and gains." The business in Madhya Bharat was considered a separate source. Crucially, the Tribunal interpreted the proviso to Section 2(11)(i)(a) to mean that income must have been "brought to tax" or "subject to levy or imposition of tax" under the Act for the restriction to apply. Income considered only for determining the "world income" for rate purposes, without being taxed, did not constitute a previous assessment for the purpose of the proviso. Therefore, the assessee was entitled to choose the financial year ending March 31, 1950, as the previous year for its Madhya Bharat business income. The appeal was dismissed.

What were the issues?

1. Whether, under Section 2(11)(i)(a) of the Income Tax Act, 1922, the assessee is entitled to take the year ended March 31, 1950, as the "previous year" relevant to assessment year 1950-51 in respect of its sources of income arising outside the 'taxable territory'? Assessee's contentions: The assessee argued that it had the right to choose the financial year ending March 31, 1950, as the previous year for its Madhya Bharat business income, as this constituted a separate source of income and had not been previously assessed to tax under the Act. Revenue's contentions: The revenue contended that the assessee could not change its previous year for the Madhya Bharat business income because it had been considered for the purpose of computing "world income" in prior years, implying it had been "assessed" in some capacity. They relied on the proviso to Section 2(11)(i)(a).

Which sections of the Income-tax Act were involved?

Section 2(11)(i)(a),Section 66(1)

AI-generated summary — verify with the full judgment below

A B c D E F 0 H a23 COMMISSIONER OF INCOME-TAX, MADHYA PRADESH i·. LADY KANCHANBAI December 16, 1969 [J. C. SHAH AND K. S. HEGDE, JJ.j Income-tax Act, 1922-S. 2(1l)(i)(a) and proviso-Previous year relevant to assess111ent year 1950-51 in respect o/ sources of income out- side "taxable" territory-'Assessee', 'assesse~·, meaning of.

Prior to the assessment year 1950-51 the assessee was assessed under the Indian Income-tax Act, 1922 in the status of a non-resident Hindu Undivided Family.

The income received by the assessee in the former Indian State of Madhya Bharat was not subject to tax under the Act but was taken into consideration in computing its "world incorile" for the purpose of determining the rate. After the Constitution calne into force the present definition of "taxable territories" was incorpo,.ted into the Income-tax Act by the Finance Act, 1950 and the areas' in which the assessee was carrying on business with which this appeal is concerned were included therein with the result that for the assessment year 1950- 51 the assessee who was a resident of Madhya Bharat was deemed to be a resident in the "taxable territories" during the "previous

The order continues below.

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