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PETITIONER: COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: K. SRINIVASAN AND K. GOPALAN.

DATE OF JUDGMENT: 22/12/1952

BENCH: DAS, SUDHI RANJAN BENCH: DAS, SUDHI RANJAN MAHAJAN, MEHR CHAND BHAGWATI, NATWARLAL H.

CITATION:  1953 AIR  118            1953 SCR  463  CITATOR INFO :  F          1956 SC 367  (12)  RF         1961 SC1633  (10,25)  F          1969 SC1068  (6)

ACT: Indian Income-tax Act (XI of 1922), ss. 2 (1), 25 (3) & (4), 26  (2)  -Firm  charged under Act  of  1918-Accounting  year ending  on 30th June each year- Transfer of business on  1st March,  1940 -Exemption from tax under s. 25 (4)-Period  for which  exemption  can  be granted-"End  of  Previous  year", meaning of-Interpretation -Directions in Income -tax Manual, value of.

HEADNOTE: Two  brothers  who  had been carrying on  in  partnership  a business,  which had been assessed to income-tax  under  the Indian  Income-tax  Act of 1918 and the accounting  year  of which was a period of 12 months ending on the 30th June each year,  transferred the business to a limited company on  the 1st March, 1940, and claimed in the assessment for the  year 1940-41  that under s. 25 (4) of the Income-tax  Act,  1922, they  were  not liable to pay income-tax on  the  income  of their  business  from 1st July, 1938, up to  29th  February, 1940,  a  period of 20 months.  The  Income-tax  authorities were of the view that exemption could be claimed only 487 for the period from 1st July, 1939, to 29th February,  1940, a period of 8 months: Held, that the expression "end of the previous year" in sub- ss.  (3)  and  (4) of s. 25 in the  context  of  those  sub- sections  means the end of the accounting year (a period  of full  12 months) expiring immediately preceding the date  of discontinuance  or  succession  and the  assessee  firm  was entitled to claim exemption from tax only in respect of  the period from the 1st July, 1939, to the 29th ’February,1940, On  a  true construction of ss. 25 and  26,  the  Income-tax Officer  is not empowered to make an accelerated  assessment in  the  year in which succession occurs on the  profits  of that year and prematurely assess the successor so that he  , may  be  able to give relief to the person  succeeded.   The exemption  provided for in s. 25 (4) and  the  apportionment

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mentioned  in  s. 26 (2) have to be made in  the  assessment year in which the profits of the year of succession fall  to be assessed under s. 3 of the Act. For the purposes of the charging sections of the Act the ex- pression  "previous  year"  is  co-related  to  a  year   of assessment   immediately  following  it,  but  it   is   not necessarily wedded to an assessment year in all cases and it cannot  be said that the expression "previous year"  has  no meaning  unless it is used in relation to a financial  year. In a certain context it may well mean a completed accounting year immediately preceding the happening of a contingency.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 9  of  1952. Appeal from the Judgment and Order dated 2nd January,  1950, of the High Court of Judicature at Madras (Satyanarayana Rao and Viswanatha Sastri JJ.) in Case Referred No. 68 of 1946. M.   C. Setalvad, Attorney-General for India, (P. A.  Mehta, with him) for the appellant. K.   S.  Krishnaswami  Aiyangar (M.  Subbaraya  Aiyar,  with him) for the respondents. 1952.  December 22.  The Judgment of the Court was delivered by MAHAJAN  J.-This is an appeal from,the judgment of the  High Court  of Judicature at ’Madras in a reference made  by  the Income-tax  Appellate Tribunal under section 66 (1)  of  the Indian Income-tax Act, XI of 1922. 488 For  several  years prior to 1939-40 the  respondents,  .who are.  brothers,  had  been carrying on  in  partnership  the business of " The Hindu," a daily newspaper of Madras.   The profits  of this business had been charged to income-tax  in the hands of the respondents under the Indian Income-tax Act of 1918.  The firm’s year  of account was a period of twelve months  ending with 30th June each year.  In respect of  the profits  of  the  year of account ending  30th  June,  1938, assessment  was made in the year 1939  40 and the  firm  was charged  to  income-tax for that assessment  year.   On  1st March, 1940, the respondents transferred their business as a going concern to a private limited company called "  Kasturi and Co. Ltd." - For the assessment year 1940-41 the respondents claimed that the firm was not liable to pay any income-tax on the  income of  its business from the end of the accounting year  ending 30th  June, 1938, to 29th February, 1940, the date on  which the  limited company succeeded to the business of  the  firm (i.e.,  for a period of 20 months) under section 25  (4)  of the Act, as it had been assessed under the Indian  Incometax Act, 1918.  The Income-tax Officer disallowed the claim  and held that since the assessment pertained to the year 1940-41 the previous year with reference to that assessment would be the  year ending 30th June, 1939, and the period  for  which exemption  could be claimed under section 25(4) of  the  Act was  the interval from the end of that previous year,  i.e., 1st  July, 1939, upto to the date of succession, i.e.,  29th February,  1940, i.e, a period of eight months.  This  order was   confirmed  on  appeal  by  the   Appellate   Assistant Commissioner.  On further appeal the Tribunal held that on a proper construction of section 25(4) of the Act, tax was not payable  by the firm in respect of the profits and  accounts of  the business for the whole of the period from 1st  July, 1938,  to 29th February, 1940, (a period of 20 months).   At the   instance  of  the  Commissioner  of  Income-tax   (the

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appellant) the Tribunal stated a case to the High Court  and referred to it the following question for its opinion:- 489 " Whether on the facts of this case, the Appellate  Tribunal was  right in holding that the period the profits  of  which were  entitled  to exemption from the payment of  tax  under section 25(4). of the Indian .Income-tax Act, 1939, was  the period commencing from 1st July, 1938, and ending.With  29th February, 1940." The reference was heard by Satyanarayana Rao and  Viswanatha Sastri  JJ.  and they delivered divergent  opinions  on  the question  referred.   Satyanarayana Rao J. agreed  with  the conclusion of the Tribunal and answered the question in  the affirmative,   while  Viswanatha  Sastri  J.  answered   the question  in  the negative, with the result that  under  the provisions of the law the Tribunal’s order was confirmed, it being in accordance with the opinion delivered by the senior Judge.   Leave to appeal to this Court was granted and  this appeal  is  before  us on a certificate given  by  the  High Court. The  principal question to decide in this appeal is  whether on  a true construction of section 25(4) of the Act, and  on the  facts  stated  the period the  profits  of  which  were entitled to exemption from the payment of tax is the  period between 1st July, 1939, to 29th February, 1940, (a period of eight months) or the period commencing from 1st July,  1938, and ending with 29th February, 1940 (a period of 20 months). To  decide  this  question it is necessary to  set  out  the relevant  provisions  of  the  Act.   Section  2(11),  which defines  " previous year " in so far as it is  relevant  for purposes of this appeal is :- " (11) (a) the twelve months ending on the 31st day of March next  preceding-the year for which the assessment is  to  be made, or, if the accounts of the assessee have been made  up to a date within the said twelve months in respect of a year ending  on any date other than the said 31st day  of  March, then  at the option of the assessee the year ending  on  the day, to which his accounts have so been made up." 490 Section 3 of the Act provides:- Where  any  Central  Act enacts  that  income-tax  shall  be charged for any year at any rate or rates, tax at that  rate or those rates shall be charged for that year in  accordance with, and subject to the provisions of, this Act in  respect of   the  total  income  of  the  previous  year  of   every individual,  Hindu  undivided  family,  company  and   local authority,  and  of  every firm  and  other  association  of persons  or the partners of the firm or the members  of  the association individually." This  is the charging section.  Section 25 of the Act  makes different provisions to cover some special cases.  The parts of the section relevant to this appeal pro- vide as follows:- (1)Where any business, profession or vocation to which- sub- section (3) is not applicable, is discontinued in any  year, an  assessment may be made in that year on the basis of  the income,  profits or gains of the period between the  end  of the  previous  year and the date of such  discontinuance  in addition to the assessment, if any, made on the basis of the income, profits or gains of the previous year. (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

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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 491 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 times charged under the provisions  of  the Indian Incometax 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  and gains  of the previous year exceeding the amount payable  on the basis of such assessment, a refund shall be given of the difference. (6)  Where an assessment is to be made under subsection (1), sub-section  (3), or sub-section (4) the Income-tax  Officer may serve on the person whose income, profits and gains  are to be assessed, or, in the case of a firm, on any person who was a member of such firm at the time of its discontinuance, or,  in  the  case of a company, on  the  principal  officer thereof, a notice containing all or any of the  requirements which  may be included in a notice under sub-section (2)  of section 22, and the provisions of this Act shall, so far  as may  be,  apply accordingly as if the notice were  a  notice issued under that sub-section." For a proper construction of section 25 it is also necessary to set out the history and object of this enactment. Under the Act of 1918 income-tax was levied on the income of the current year, i.e., the year of 492 assessment  but  as  the income of that year  could  not  be known till after the expiry of the year, the assessment  was made on the basis of the income of the " previous year"  but after  the close of the assessment year an ,adjustment  used to  be  made on the basis of the income  of  the  assessment year.  The Act of 1922 introduced a change in this  respect. Under section 3 of the Act, ’the income of the previous year is  made the subject of the charge and tax is levied on  the income  of  the  previous year though it is a  tax  for  the assessment  year.   On the passing of the Act of  1922,  the previous  system of assessment was kept alive for one  year. The  result  was that for the year 1922-23, there  were  two assessments,  one  under the Act of 1922 on  the  income  of 1921-22 and another under the old system byway of assessment on the income of the same year 1921-22.  In other words, the income  of the year 1921-22 was assessed twice,  once  under

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the Act of 1918, and again under the Act of 1922.  To remove this anomaly and in order to make the number of  assessments tally  with  the number of years during which  the  business existed,  section  25(3)  of the Act  of  1922  was  enacted exempting  from tax the profits for the period  between  the end  of the previous year and the date of discontinuance  in the  case of a business whose profits had been  assessed  to tax  under  the  Act of 1918.  There  was  no  provision  in section 25 as enacted in 1922 for giving any relief in cases of succession to a business which was taxed under the Act of 1918.  In 1939 a provision was made to extend similar relief to cases of succession and with this object section 26(2) of the  Act  was  amended and section 25(4) was  added  by  the amending  Act  of  1939.  The result  of  the  amendment  of section  26(2)  and the insertion of section 25(4)  is  that upon a transfer of business the transferor, i.e., the person who was succeeded in the business, would get the same relief as if the business had been discontinued by him. The scheme of the Act is that by the charging section, i.e., section 3, income-tax is levied for a financial year at  the rate prescribed by the annual Finance Act 493 on  the  total  income of the previous  year  of  every  in- dividual, etc.  Each previous year’s income is the,  subject of  separate  assessment in the  relative  assessment  year. Though  the  year of assessment is the financial  year,  the previous  year  of an assessee need not necessarily  be  the previous  financial  year,  for this  expression  is  to  be understood as defined by section# 2(11) (a) of the Act. The  respondents were duly assessed to tax for the  year  of assessment,  i.e. the financial year 1939-40, on the  income of  the  previous  year ending on 30th  June,  1938.   Their income of the accounting year ending 30th June, 1939,  would in  the  ordinary  course be liable  to  assessment  in  the financial  year 1940-41, and the profits of the year  ending 30th  June, 1940, would be assessable in the financial  year 1941-42.  Succession took place in the accounting year 1939- 40.  Under sub-section (2) of section 26, as it stood before its  amendment in 1939, the person succeeding to a  business was  liable to tax for the year of succession, as if he  had been  carrying  on  business throughout that  year  and  had received  the  profits  of the whole  of  that  year.   Thus Kasturi  and  Company Limited would have been liable  to  be assessed  on the profits earned during the year ending  30th June,  1940,  irrespective of the fact  that  actually  they would  have only received profits in that year for a  period of four months.  After the amendment in 1939 sub-section (2) of  section  26 provides that the person succeeded  and  the person  succeeding  "  each be assessed in  respect  of  his actual  share, if any, of the income, profits and  gains  of that  year."  Thus  the profits of the  year  in  which  the succession   occurs  are  to  be  apportioned  between   the predecessor and the successor according to the actual  share of  each  in  the year’s profits, the  predecessor  and  the successor  are each liable to tax at the rate applicable  to each and the profits of each have to be computed  separately in  accordance with the provisions of section 10  and  other sections  and  each  has to be granted  the  deductions  and allowances appropriate to his case, and 494 assessment on each has to be separate and distinct.  If  the business  was charged under the Indian Incometax Act,  1918, and the person succeeded is exempt from tax under section 25 (4)  he would not charged in respect of the profits  of  the period  from the end of the previous year up to the date  of

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succession,  while  the person succeeding  would  be  liable under  sub-section  (2)  of section 26  in  respect  of  the profits  earned  by him after the date of  succession.   The proviso  to sub-section (2) lays down two exceptions to  the general  rule  that the successor is not liable  to  tax  in respect  of the profits of the period prior to the  date  of succession.  In two cages, namely, (1) when the  predecessor cannot  be  found,  or  (2) when the  tax  assessed  on  the predecessor  cannot be recovered from him, the successor  is liable to pay the tax in respect of the profits of the  year in  which  the  succession  took place up  to  the  date  of succession as well and further for the profits earned during the  year  preceding that year.  In this case if  either  of those contingencies arose, Kasturi and Company Limited would have  been  liable  to  pay tax  on  profits  of  the  whole accounting  year ending 30th June, 1939, as well as  of  the whole of the accounting year ending 30th June, 1940, and end of  the preceding year in this context would be  30th  June, 1939.  It is a question whether in this situation they would be entitled to the relief provided in section 25(4). On  behalf  of the Commissioner of Income-tax,  Madras,  the learned  Attorney- General contended that Satyanarayana  Rao J.  was in error in granting exemption to the firm from  tax in  respect  of  the profits earned during a  period  of  20 months and that under section 25, sub-section (4), the  only relief  permissible was in respect of profits earned  during the  period of 8 months from 1st July, 1939, to  1st  March, 1940.   It  was  said  that  the  profits  of  the  year  of succession were liable to assessment in the usual course  in the financial year 1941-42 and the Income-tax Officer had no power  to  make an accelerated assessment in order  to  give relief to the persons succeeded in the business 495 and  that  being  so,  it was not right  to  hold  that  the expression " previous year" in section 25, sub-section  (4), was co-related to the assessment year 1939-40, i.e the  year in which,the succession took place or to the assessment year 1941-42 in which in the ordinary course assessment for those profits would have been made but that on a true construction of this sub- section and having regard to the history of its enactment  and  the  object for which  it  was  inserted  in section 25, the assessee firm was entitled to exemption from the  payment of tax, only for the period between  1st  July, 1939, and 29th February, 1940, and to no more.  It seems  to us  that there is force in this contention, Section  25  (4) was inserted in the Act of 1922 in the year 1939 at the same time  as section 26(2) was amended.  On a plain  reading  of these  two  sections together, it is quite  clear  that  the Income-tax  Officer is not empowered to make an  accelerated assessment  in the year in which succession occurs  on  the’ profits  of  that year, and prematurely  assess  the  person succeeding to a business so that he may able to give’ relief to  the  person succeeded.  The exemption provided  for  its section 25 (4) and the apportionment mentioned in section 26 (2)  have  to be made in the assessment year  in  which  the profits of the year of succession fall to be assessed  under sections  of the Act, and in this situation the end  of  the ’previous year in this case can, in no circumstance, be  the end of the accounting year beginning 1st of July, 1937,  and ending  30th of June, 1938, because the income, profits  and gains  of  the  accounting year of  succession  (i.e.,  year beginning 1st July, 1939, and ending 30th June, 1940)  which have to be apportioned between the predecessor and successor of  the  business  under section 26(2)  and  for  which  the successor  becomes liable in case the predecessor commits  a

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default, could only be assessed in the assessment year 1941- 42.   The income,’ profits and gains of the accounting  year beginning  1st July, 1938, and ending 30th June,  1939,  for which the predecessor alone is liable in the first  instance to 496 tax fall for assessment in the assessment year  1940-41. The successor   in   business,  in  case  of  default   by   the predecessor, is also liable to pay the tax on the profits of that  year  as  well.  What subjection  (4)  of  section  25 provides is that when the profits of the year of  succession fall to be assessed, the predecessor of a business can claim exemption  from  liability to pay tax on the  profit  earned from the end of the previous year to the date of succession, the  "Previous year" here meaning the  completed  accounting year  immediately preceding the date of succession (in  this case  year  ending 30th June, 1939).  He can  further  claim that  the  profits earned between 1st July,  1939,  to  29th February, 1940, be deemed the profits of the accounting year 1st July, 1938, to 30th June, 1939, and if on those  profits in  assessment  year  1940-41  tax  in  excess  of  what  is chargeable  on  the profits of this broken period  has  been paid,  be given refund for the excess.  Truly speaking,  the firm  was  entitled to the relief provided for  in-  section 25(4)  in  the assessment year 1941-42  but  the  Income-tax Officer was prepared to give him that in the assessment year 1940-41,and   on  that  score  the  assessee  can  have   no grievance. Satyanarayana  Rao J. held that the words " previous year  " in  sub  . section (1) of section 25 refer to  the  year  of account  relevant  to the year of assessment  in  which  the discontinuance  occurs,  that  the  section  authorises  the Income-tax  Officer  to  make  a  cumulative  assessment  in respect of the profits of the period between the end of  the last accounting year of which the profits have been assessed before the date of discontinuance and that date, that " sub- section  (3)  of section 25 is an exception to  the  general rule contained in sub-section (1) of that section, and that, though  the  language employed in sub-section (3)  does  not correspond  to  the  language employed  in  sub-section  (1) indicating that in this Sub-section also the assessment year should  be taken to be the year in which the  discontinuance occurs, all the same there is no reason 497 to  depart  and to place a different interpretation  on  the expression ’previous year’ in this sub-section$ from the one placed  on sub-section (1)." On the same line  of  reasoning the learned Judge gave the same meaning to the expression  " previous  year  " in subsection (4) of section 25 and  as  a result  held that the firm was ’entitled to  exemption  from tax for profits earned between the 1st July, 1938, and  29th February, 1940, a period of 20 months. Mr. Krishnaswami Aiyangar appearing for the respondents, was not  prepared  to  support the whole  of  the  reasoning  of Satyanarayana  Rao J. but he contended strenuously that  the conclusion  reached  by the learned Judge was the  only  one that  could  be  reached  on  a  true  construction  of  the phraseology employed in the various sub-sections of  section 25.   In  short, his argument was that  sub-section  (1)  of section  25 confers an option on the Income-tax Officer,  in case of discontinuance of a business which was not  assessed under the Act of 1918, to make an accelerated assessment  in the year of discontinuance itself on the income, profits and gains  earned  up to the period of  discontinuance  and  not assessed  before in any preceding assessment year; that  the

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expression " previous year" in the context of this  sub-sec- tion  means  the end of the accounting year the  profits  of which  have  been last assessed to tax, which in  this  case means  the  year ending 30 th June, 1938.   It  was  further contended that any other meaning given to these words  would create  a  hiatus and would lead to the result that  on  the date  of  discontinuance  the Income-tax  Officer  would  be entitled to assess the profits of the broken period  without being  entitled  to assess the profits of a  whole  previous year  that  had expired, the profits of which in  the  usual course  could not be assessed in the year of  discontinuance -and that such a construction would defeat the very  purpose of  the  power  given by the sub-section.  On  a  parity  of reasoning  it was suggested that the words "between the  end of the previous year and the date of such discontinuance" in subsections (3) and (4) 498 should be given -the same meaning as in sub-section (1), and that  the assessee should be given exemption in  respect  of profits  earned  between  the  1st  July,  1938,  and   29th February,  1940.  It was said that the two  terminals  fixed for the purposes of assessment under section 25(1) were  the terminals fixed for exemption from tax in section 25(3)  and (4) and it would be wrong to hold that the assessment  under section 25(1) could be made for a period different from that for  which  relief could be given under section 25  (3)  and (4).   It was urged that the scope of the charge  authorised by  section 25 (1) was co-extensive with the extent  of  the relief provided for in subsections (3) and (4). Before  proceeding  further it is convenient to make  a  few observations    regarding   the   proposition   stated    by Satyanarayaua  Rao  J.  that section  25  (1)  provides  for cumulative   assessment  in  cases  of   discontinuance   of business.   The  words of the section do  not  justify  this conclusion.   They do not empower the Incometax  Officer  to make a cumulative assessment in respect of profits earned in two different accounting periods or entitle him to merge the profits  of two years into one total sum and apply  to  them the  rate  of  one of the financial  years.   All  that  the section  authorises the Income-tax Officer to do is that  it gives  him an option to make a premature assessment  on  the profits earned up to the date of discontinuance in the  year of  discontinuance itself instead of in the usual  financial year.  This assessment he is entitled to make in addition to the   normal   assessment   for  the   financial   year   of discontinuance.  Mr. Aiyangar very rightly conceded that the construction placed on subsection(1)    of section 25 by the learned Judge in this respect was  not right. As regards the main contention of Mr. Aiyangar based on  the analogy  of  the  language employed in  sub-section  (1)  of section  25, we are of the opinion that this  contention  is based  on  a  fallacy and cannot  be  sustained.   As  above pointed  out, sub-section (1) of section 25 merely  empowers the Income-tax Officer, 499 if he so chooses to do, to make an accelerated assessment in case   of  discontinuance  of  business  at  the   time   of discontinuance to save loss of revenue by the  disappearance of  an assessee.  In other words, the subsection  imposes  a liability  of  premature  assessment on  the  assessee.   It confers  no  benefit on him.  Sub-sections (3)  and  (4)  of section 25 have a different end in’ view and are not in pari materia  with  sub-section (1).  They are in the  nature  of substantive  provisions  intended to give  relief  from  tax charged  in certain cases.  The mere circumstance  of  their

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being  grouped together with sub-section (1) in  section  25 cannot  lead to the conclusion that the  provisions  therein contained are of the same nature and character as the provi- sions  contained in sub-section (1).  Satyanarayana  Rao  J. was clearly in error when he held these two subsections were in  the nature of exceptions to the rule laid down  in  sub- section(1).   The  truth of the matter is that  it  is  sub- section(1) itself which is an exception to the general  rule laid  down  in  the charging section  of  the  Act,  namely, section  3.  The object of sub-sections (3) and  (4)  is  to provide  relief  to  a business for  the  double  assessment suffered  by  it  in the financial year 1922-23  and  it  is entitled  to this relief in the year of assessment in  which the  income  and profits of the accounting period  in  which discontinuance   or  succession  takes  place  fall  to   be assessed.   The  Income-tax  Officer is  not  authorised  to accelerate  the relief by making a premature  assessment  on these  profits.  Not only is the language of these two  sub- sections different from the language of sub-section (1), but they deal with two different categories of assessees.   Sub- ’section  (1)  deals with a category of assessees  who  were never  subjected to double tax, while sub-sections  (3)  and (4)  deal with that class who suffered assessment under  the Act  of  191.8  and  paid double  tax.   The  liability  for premature  assessment  imposed under section 25 (1)  on  the former class of assessees has feed imposed on considerations entirely  different from those on which provision  has  been made for exemption to tax in sub-sections 65 500 (3)   and   (4)   for   the   other   class.    In,    these circumstances, such relief cannot be said to be co-extensive with the liability imposed.  Moreover, the provisions of the Income-tax  Act  in  respect to  exemptions  and  deductions cannot  be  construed  on the  ’analogy  of  the  provisions contained  in the charging sections of the Act even  if  the language  of  these provisions is similar.   Mr.  Aiyangar’s contention  that sub-section (1) crystallizes the rights  of the assessee on the date of discontinuance and that not only does  it  relieve  him from being taxed after  the  date  of discontinuance,  but that it entitles him to further  relief provided  for in sub-section (3) does not seem to  be  well- founded.  Sub-section (1) of section 25 confers no right  of any kind on an assessee which can crystallize on the date of discontinuance  and which cannot be varied  subsequently  to his  disadvantage.   On the other hand, as already  said  it imposes  a  premature burden on the assessee which  but  for this  sub-section he could not be called upon to  bear  till the appropriate year of assessment was reached. The learned Attorney-General was not prepared to accept  the construction placed on Sub-section (1) of section 25 by  Mr. Aiyangar  and contended that sub-section did  not  authorise the Income-tax Officer to make an assessment in the year  of discontinuance  on the profits of an accounting  year  which had  come to a close before the date of discontinuance,  and that  those profits had to be assessed in the usual  way  in the appropriate financial year, and that authority given  to make  an accelerated assessment only related to  the  broken period  beginning with the end of the  completed  accounting year  immediately preceding the date of  discontinuance  and ending with the date of discontinuance.  In our opinion,  it is  not necessary for the purposes of deciding this case  to finally  express  an opinion as to the true meaning  of  the words " between the end of the previous year to the date  of discontinuance " used in section 25 (1) of the Act.

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After a careful consideration of the different provisions of the Act relevant to this enquiry, we have 501 reached  the  conclusion  that the expression  "end  of  the previous year " in sub-sections (3) and (4) of section 25 in the  context  of  those sub-sections means  the  end  of  an accounting  year  (a  period of  full  12  months)  expiring immediately   preceding  the  date  of   discontinuance   or succession,  (in  this  case 30th.   June,  1939).   We  are satisfied that Viswanatha Sastri J.". was right when he held that  having  regard  to the object of  the  legislature  in enacting  sub-sections (3) and (4) of section 25 and  having regard  to  the plain language of  these  sub-sections,  the assessee’s  contentions  could  not  be  upheld.   We   are, however,  unable to subscribe to the conclusion  reached  by the  learned Judge that the expression " previous year "  in subsections (3) and (4) of section 25 was co-related to  the year  of  assessment 1940-41.  The profits of  the  year  of discontinuance  could  not, according to the scheme  of  the Act,  be  taxed  till the financial  year  1941-42  and  the previous  year co-related to that assessment year  would  be the  accounting year ending 30th June, 1940.  It is  obvious that the ’end of the accounting year falling after the  date of discontinuance could not appositely be said to be the end of  the previous year preceding that date.   The  expression ((previous  year"  substantially means  an  accounting  year comprised  of  a full period of twelve  months  and  usually corresponding  to a financial year preceding  the  financial year  of  assessment.   It also  means  an  accounting  year comprised  of a full period of twelve months adopted by  the assessee for maintaining his accounts but different from the financial year and preceding a financial year.  For purposes of  the  charging  sections  of  the  Act  unless  otherwise provided  for  it  is co-related to  a  year  of  assessment immediately  following it, but it is not necessarily  wedded to  an  assessment year in all cases and it cannot  be  said that the expression "previous year" has no meaning unless it is  used  in  relation to a financial year.   In  a  certain context  it  may  well  mean  a  completed  accounting  year immediately  preceding the happening of a contingency.   The construction we have placed on 502 this expression in sub-sections (3) and (4) of section 25 is in  accord  with the substance of the  definition  given  in section  2 (1 1) of the Act.  Any other construction of  the section is bound to lead to a number of anomalies, the  most glaring being that in case of persons whose year of  account is  the financial year, exemption from tax under section  25 (3)  or (4) could never be given for a period of  more  than twelve months, while in case of persons who adopt  different accounting  year,  exemption would become  available  for  a period  extending  up to 24 months.  Such could  never  have been the intention of the framers of the Act. That the "previous year" in the context of section 25(3) and (4) means a completed accounting year immediately  preceding the  discontinuance  or  succession  is  borne  out  by  the provisions  as regards nonliability for tax for  the  broken period  and the ’claim to be made by the assessee  that  the income,  profits  and gains of the previous  year  shall  be deemed  to  have been the income, profits or  gains  of  the broken  period.  The intention of the legislature  being  to give relief against double assessment for the year  1922-23, the  assessee  in the case of discontinuance  or  succession would be entitled to claim exemption from payment of tax for the broken period and also claim that the income, profits or

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gains  of  the previous year, i.e.) the year  preceding  the broken  period, should be treated as the income, profits  or gains of the broken period. Reference was made in the judgment of the Appellate Tribunal to  the  views of the Select Committee when  clause  (1)  of section 25 was considered at the time of the draft Bill  No. XXVI  of  1921  in support of its  conclusion,  but  it  was rightly held by the High Court that it was not a permissible consideration in interpreting a statute and Mr. Aiyangar did not  seriously  press this matter before us.   He,  however, drew  our  attention  to the  directions  contained  in  the Income-tax  Manual  in  force  for a  number  of  years  and contended that the department itself placed on  sub-sections (3)  and (4) of section 25 the same construction as was 503 placed  on  them by the senior Judge in the High  Court  and that  was the true construction of these  two  sub-sections. This  argument,  in  our opinion,  has  no’  validity.   The department  changed  its view subsequently and  amended  the manual.   The  interpretation placed by  the  department  on these sub-sections cannot be considered to be a proper guide in a matter like this when the construction of a statute  is involved. The  result  is that we allow the appeal and hold  that  the answer  given by the senior Judge to the  question  referred was wrong and that the answer given by Viswanatha Sastri  J. was  the correct one.  In the circumstances of this case  we would make no order as to costs throughout. Appeal allowed. Agent for the appellant: G. H. Rajadhyaksha. Agent for the respondent : M. S. K. Aiyangar.