COMMISSIONER OF INCOME TAX MADRAS Vs. K SRINIVASAN

JUDGEMENT

(1.) 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 S. 66 (1), Income-tax Act of 1922.

(2.) 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 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 1-3-1940 the respondents transferred their business as a going concern to a private limited company called "Kasturi and Co. Ltd."

(3.) For the assessment year 1940-4l 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 30-6-1938 to 29-2-1940, the date on which the limited company succeeded to the business of the firm (i. e., for a period of 20 months) under- S. 25 (4) of the Act, as it had been assessed under the Income-tax 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 -30-6-1939 and the period for which exemption could be claimed under S. 25 (4) of the Act was the interval from the end of that previous year i.e., 1-7-1939 upto the date of succession, i.e., 29-2-1940, 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 S. 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 1-7-38 to 29-2-40 (a period of 20 months). At the instance of the Commissioner of Income-tax (the appellant) the Tribunal stated a case to the High Court and referred to it the following question for its opinion: