GIRDHARLAL GHELABHAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) TWO questions of law arise on this reference. One, which is relatively simple, raises the question as to whether an assessee can have two or more different statuses for the same assessment year. There are two decisions, one a decision of the Privy Council and the other a decision of the Madras High Court, which throw considerable light on this question and render it easy of solution. But the second question is one of some difficulty and no guidance to its solution is to be derived from any decided authority. That question turns on the true interpretation to be put upon the provisions of s. 17(1) of the IT Act, 1922. These questions which have been submitted to this Court by the Tribunal arise out of an assessment made on one Girdharlal Ghelabhai as an individual for the asst. yr 1956 57. The assessee had at the material time two sources of income namely, (1) property, and (2) business. The previous year in respect of the first source, namely, property, was the financial year ending 31st March, 1956, while in respect of the second source, namely, business, having regard to the accounting year adopted by the assessee for the maintenance of his accounts, the previous year was Samvat year 2011. The assessee left India on 12th August, 1954, and returned on 14th February, 1956, with the result that he was not in India at any time during the period covered by Samvat year 2011, namely 27th October, 1954, to 14th November, 1955, though during the period covered by the financial year ending 31st March, 1956, he was in India for a part of the period, namely 14th February, 1956, to 31st March, 1956. The assessee had maintained a dwelling house in India throughout the period of his absence but since he was not in India at any time during Samvat year 2011 he was treated as non resident in Samvat year 2011 under S. 4A(a) (ii) which was the relevant provision applicable to the case. In the financial year ending 31st March, 1956, however he was treated as resident under S. 4A(a)(ii) since he was in India during a part of that year. The income from property for the financial year ending 31st March, 1956, which was the previous year in respect of the source, property, was computed at Rs. 490 while the income from business for Samvat year 2011, which was the previous year in respect of the source, business, was computed at Rs. 5,545. The total income assessable to tax was thus determined at Rs. 6,035. Since the assessee was not resident in Samvat year 2011 which was one of the two previous years for the assessment year in question, the Revenue authorities applied S. 17(1) to the income from business in respect of which the assessee was treated as not resident and taxed it at the maximum rate. The result of the application of S. 17(1) was that the tax charged on the assessee amounted to Rs. 2,567.80nP. where as if S. 17(1) had not been applied, the tax charged would have come to only Rs. 253 13 3. To escape the application of S. 17(1) the assessee urged two contentions before the Revenue authorities. The first contention was that on a true construction of S. 4A(a) the word "year" in the section referred to a financial year and the tests of residence laid down in the section were, there fore to be applied with reference to a financial year and not with reference to a previous year, so that even though there might be for the same assessment year different previous years of an assessee in respect of his separate sources of income, an assessee could not have different statuses according to the different previous years but could have only one status according to the financial year and the financial year, according to the assessee, was the financial year immediately preceding the assessment year. This contention was advanced obviously because if it were correct, the assessee in the present case would be a resident and in that event S. 17(1) admittedly would not apply. The second contention which was urged in the alternative was that even if the tests laid down in S. 4A(a) were to be applied with reference to each different previous years which an assessee may have in respect of his seperate sources of income and an assesse could, therefore, have different statuses for the same assessment year according to the application of the tests with reference to different previous years, S. 17(1) could not be attracted unless an assessee was non resident in all the different previous years corresponding to the assessment year, that is, in respect of all sources of income. It was contended on behalf of the assessee that since in the present case he was not non resident in both the previous years but was resident in one of the two previous years, namely the financial year ending 31st March, 1956, S. 17(1) did not apply and he was not liable to be taxed on his business income at the rates specified in that section. Both these contentions were rejected by the Revenue authorities and on the matter being carried in appeal to the Tribunal, the Tribunal also negatived these contention. The assessee thereupon asked the Tribunal to state a case and to refer to this Court the question of law arising out of its order under S. 66(1) and the following questions of law namely :

(2.) SEC . 3 is the charging section and it imposes tax for each assessment year at the rate or rates prescribed in the Finance Act for the time being in force and such tax is charged on "the total income of the previous year". "Previous year" as defined in S. 2(11) may be either the financial year immediately preceding the assessment year or, at the option of the assessee, any other period of twelve months ending with such year for which he has made up his accounts. It was at one time held by the High Court of Bombay in CIT vs. Abubaker Abdul Rehman (1937) 5 ITR 233 (Bom), on a construction of S. 2(11) as it stood prior to its amendment in 1939, that an assessee could not have two different previous years for the same assessment year but that view was altered by the amendment effected by the IT (Amendment) Act, 1939, and it is now possible for an assessee to have different previous year for each separate source of income. The language of the opening part of S. 2(11) clearly shows that "previous year" is defined in reference to each separate source of income and consequently there can be different previous years for separate source of income. This position is very clear and in fact it was not disputed on behalf of the assessee. "Total income" is defined in S. 2(15) to mean total amount of income, profits and gains referred to in S. 4 (1) computed in the manner laid down in the Act. Sec. 4(1) prescribes the ambit of taxation and lays down what is the total income of the previous year of any person which, subject to the other provisions of the Act, is chargeable to tax under S. 3. It defines the extent of the total income with reference to the residence of the assessee. All assessees are divided into three categories : (a) resident and ordinarily resident; (b) resident but not ordinarily resident; and (c) not resident and the computation of the total income chargeable to tax is made dependent on a basis which differs according as the assessee belongs to one or the other of these three categories during the previous year for which the income falls to be assessed. If the assessee is resident and ordinarily resident during the previous year, all income accruing, arising or received or deemed to accrue, arise or be received in the taxable territories is liable to be taken into account in the computation of his total income. If the assessee is resident but not ordinarily resident during the previous year, his total income is liable to be computed in the same manner as in the case of an assessee resident and ordinarily resident with this difference that income accruing or arising without the taxable territories is not to be taken into account unless it is derived from a business controlled in or a profession or vocation set up in India or unless it is brought into or received in the taxable territories by the assessee. If the assessee is not resident during the previous year, his total income will comprise only income which accrues or arises or is deemeed to accrue or arise in the taxable territories or is received or deemed to be received in the taxable territories by or on his behalf. Since the computation of the total income of the previous year of an assessee depends on the factor of residence, the first inquiry that requires to be made in every case is as to the residential qualification of the assessee in the previous year of which the total income is to be computed. The tests of residence are to be found in S. 4A. We are concerned in this reference only with the provisions of S. 4A.

(3.) BEFORE we embark upon a discussion of the interpretation of s. 17(1), we may clear the ground by pointing out that in regard to the expression "total income" occurring in the section, the learned Advocate General, with the candour which we expect of him and which we always find with him, frankly conceded and in our opinion rightly that this expression, defined as it was in S. 2(15), comprehended the total income of all previous years from different sources in respect of the assessment year for which the assessee was being assessed, that is to say, the total income of the assessee chargeable to tax and could not be given a limited meaning so as to refer only to the total income of the particular previous year in which the assessee was not resident. But if that be the true meaning of the expression "total income" occurring in S. 17(1), the construction contended for by the learned Advocate General would involve this result, namely, that even if an assessee was not resident in the taxable territories only in respect of some source or sources of income and was resident in the taxable territories in respect of other sources of income, he would be liable to be charged to tax at the higher rate provided in S. 17(1) not only on his total income as a non resident but also in his total income as a resident, since the total income liable to bear the higher rate of tax under that section would be the total income of the assessee from all sources whether as a resident or as a non resident. The consequence which would arise from this interpretation would be that if an assessee had some income as a non resident, not only his income as a non resident but also his income as a resident would be liable to be taxed at the higher rate even though his income as a non resident might be very small compared to his income as a resident. The learned Advocate General agreed that such would be the consequence, but he pointed out that as a matter of practice in such cases the Department was not taxing at the higher rare provided in s. 17(1) the total income of the assessee chargeable to tax but only the income of the assessee as a non resident. The practice followed by the Department cannot, however, make the law. We have to determine the true interpretation of S. 17(1) irrespective of any practice which may be followed by the Department and quite uninfluenced by any such practice. If on a true construction S. 17(1) yields one and only one meaning, namely, that contended for by the learned Advocate General, we must place that meaning upon the section even if it produces hardship on the assessee. If the meaning of legislative provision interpreted according to the recognised canons of construction is reasonably clear, then even if it involves harsh consequences, we have no jurisdiction to mitigate such harshness. The assessee in such a case cannot complain to us; his remedy would lie elsewhere. But the question is, does S. 17(1) on a plain grammatical construction involve this result ? We would certainly be disinclined to put a construction which would lead to this result unless, of course, as already pointed out by us, the language of the section is such that it must necessarily bear that construction and no other. We are of the view that the construction suggested by the learned Advocate General far from being the only construction which can be placed upon the section is not even a construction which the language of the section can reasonably bear. The section on its plain terms applies where a person is not resident in the taxable territories. Can an assessee who has different previous years in respect of separate sources of income and who is resident in the taxable territories in one of such previous years be said to be not resident in the taxable territories within the meaning of the section for the purpose of his assessment for the particular assessment year ? The assessment year being one and single, can it be said while making the assessment for the assessment year that an assessee who is in fact resident in the taxable territories in respect of at least a portion of his income is not resident in the taxable territories ? The section according to its plain and natural meaning applies only to a case where an assessee is not resident in the taxable territories in respect of all sources of income so that it can be said of him when making the assessment for the assessment year that he is not resident in the taxable territories. So long as an assessee is resident in the taxable territories in respect of any source of income, it would be inappropriate to describe him as not resident in those taxable territories generally without any limitation as to source of income which is the only sense in which an assessee must be non resident in the taxable territories in order to attract the applicability of the section. The legislative intent is very clear and it is that where an assessee is not resident in the taxable territories in respect of all sources of income in a particular assessment year so that his total income chargeable to tax for that assessment year is derived wholly as a non resident, he shall be liable to pay tax on such total income at the higher rate of taxation provided in the section. This construction would render the higher rate of taxation provided in the section applicable only to income derived by an assessee as a non resident and would not subject the income derived by him as a resident to such higher rate of taxation which the construction contended for by the learned Advocate General would have the effect of doing. But apart from this consideration, there is one other consideration which also throws some light on the intention of the legislature and inclines us to this view. The section provides that where a person is not resident in the taxable territories, the super tax payable by him or on his behalf on his total income shall be an amount equal to the super tax which would be payable on his total income at the rate of nineteen per cent. or the super tax which would be payable on his total income if it were the total income of a parson resident in the taxable territories, whichever is greater. This provision contrasts the total income of a person not resident in the taxable territories with the total income of a person resident in the taxable territories.