CHANDULAL SURAJMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following four questions of law have been referred by the Income-tax Appellate Tribunal for our opinion :

(2.) THE Tribunal in the statement of the case has summarised the relevant findings of fact recorded at the time of the decision of the appeal and has numbered those findings of fact which has been very convenient to us in deciding this reference. On the first question the findings recorded by the Tribunal were : (1) that there was a partial partition of the business between the members of the family; (2) that the coparcenary business had ceased to exist with effect from the date of the partial partition, viz., July 15, 1942, and (3) that subsequent to that date the business was being carried on by a firm consisting of all the members of the family. THE materials on which these findings of fact were recorded by the Tribunal are also mentioned in the statement of the case and it has not been possible for Mr. Pathak appearing on behalf of the assessee to show that any of these findings of fact were recorded without any material or suffered from any other legal defect. THE findings of fact mentioned above clearly show that the business which was previously carried on by the Hindu undivided family ceased to be carried on by it with effect from July 16, 1942, after there was a partition of the coparcenary business on July 15, 1942. THEre is the further finding that with effect from July 16, 1942, the business was being carried on by a firm consisting of all the members of the family. This last finding is really in itself an answer to the first question. THE order of the Tribunal shows that this finding is based on the statement given on behalf of the assessee firm itself, particularly the statement of Dwarka Das which has been made an annexure to the statement of the case. In that statement, Dwarka Das had stated that the business of the Hindu undivided family was carried on after July 15, 1942, in the status of a partnership in which five members had equal shares. This clear statement made by Dwarka Das fully supports the findings recorded by the Tribunal and therefore, the first question is answered in the affirmative.

(3.) SO far as the 3rd and 4th questions are concerned, we have felt some difficulty in answering them in this case as in both the questions the Tribunal has asked for answers with reference to the provisions of section 2 (11) (i) (c) of the Act. The reference relates to the assessment year 1944-45 which was a year prior to the amendment of section 2 (11) by the amending Act of 1952. It was only after the amendment of 1952 that this provision of law came to have a provision which could be described as section 2 (11) (i) (c) of the Act. Prior to the amendment in 1952 section 2 (11) had three clauses (a), (b) and (c). After the amendment of 1952 section 2 (11) came to have two sub-clauses (i) and (ii) and sub-clause (i) has three sub-clauses (a), (b) and (c). It appears, therefore, that the Tribunal in deciding the appeal, in preparing the statement of the case and in framing the questions for reference to us, referred to section 2 (11) as it stood after the amendment of 1952. This was clearly incorrect as the amended section could not apply to this case where the proceedings related to the assessment year 1944-45. If these questions referred to us by the Tribunal are to be answered in the form in which they have been framed, it is quite clear that they would have to be answered against the assessee as section 2 (11) (i) (c) of the Act as it now stands makes it clear that the assessee had the option to elect the period from July 16, 1942, to July 4, 1943, as the previous year and it would be the previous year for the assessment year 1944-45. Under the amended Act, if a business is newly set up in a financial year preceding the year for which assessment is to be made, it is the option of the assessee to choose as his previous year the period beginning on the date when the business was newly set up and up to the date up to which the accounts are made up, but under the proviso this period would not be the previous year for that assessment year in case the previous year ends on a date which falls after the 31st of March next succeeding the date of setting up of the business and on the other hand it would be the previous year for the succeeding assessment year. In the present case the business was set up on July 4, 1942, which fell in the financial year preceding the year of assessment 1943-44. The accounts were made up up to July 4, 1943, which is a date falling after March 31, 1943. On application of sub-clause (c) together with the proviso the assessee could exercise the option of treating the period from July 16, 1942, to July 4, 1943, as his previous year but it would not be the previous year for assessment year 1943-44 and would be the previous year for the assessment year 1944-45. This is exactly what the Tribunal has held and consequently, on both the questions the answer would be against the assessee.