V VERGHESE Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY an order dt. 25th June, 1993, a Division Bench of this Court consisting of K. Shivashankar Bhat and R.V. Vasanthakumar, JJ., has referred the following questions for decision of the Full Bench.

(2.) IN order to appreciate the scope of the aforesaid questions, it is necessary to note a few relevant facts leading to these proceedings. The writ petitioner in W.P. No. 18136/89 is an individual, while the writ petitioner in W.P. No. 18137/89 is a partnership firm. Both of them carry on a business of producing feature films in Kannada. The petitioner firm in the second petition is also carrying on exhibition of cinematography films. Petitioners have been employing a regular system of accounting that is, mercantile system of accounting. Petitioner firm came into existence for the asst. yr. 1984-85 and for the first time during the asst. yr. 1986-87 the second petitioner firm produced a feature film. For the asst. yrs. 1977-78 to 1983-84, in the case of the individual petitioner assessee, the ITO accepted the method of accounting employed by the said petitioner and the income or loss of the petitioner assessee was computed on the basis of the accounts maintained by the petitioner. For the asst. yr. 1984-85 corresponding accounting year being 1983-84 wherein the year ended on 31st Dec., 1983, for the petitioner assessee who is an individual, the ITO being Dy. CIT, resorted to r. 9A of the IT Rules, 1962 framed by the CBDT, in exercise of powers conferred on it under S. 295 of the IT Act, 1961. So far as the petitioner firm is concerned, for the asst. yr. 1986-87 for which corresponding accounting year was 1985-86 wherein accounting year ended on 31st Dec., 1985, the Dy. CIT (Asst.) computed the income of the petitioner firm by resorting to aforesaid r. 9A of the Rules. The concerned ITO, made the assessments for both these petitioners accordingly and gave limited relief to the petitioners under S. 37(1) of the IT Act, 1961 in view of the limits laid down by the aforesaid rules. These assessment orders are challenged by the concerned petitioners by filing the aforesaid writ petitions.

(3.) SEC. 4 of the IT Act, 1961 deals with charge of income-tax and provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions including provisions for the levy of additional income-tax under this Act in respect of the total income of the previous year of every person. SEC. 5 deals with scope of total income. Sub-s.(1) lays down that, subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year.... SEC. 9 deals with income that is deemed to accrue or arise in India. Sub-s. (1) thereof provides that the following incomes shall be deemed to accrue or arise in India--