COMMISSIONER OF INCOME TAX Vs. SINGARI BAI

JUDGEMENT

(1.) THIS is a reference by the Commissioner of Income-tax, Central and United Provinces, under Section 66(2), Income-tax Act (11 of 1922) and the question referred to this Court is:

(2.) THE facts that led to the reference, and as. they appear from the statement of the case submitted by the Income-tax Commissioner, are very simple. Shrimati Singari Bai, the assessee, a professional money-lender, regularly kept her accounts according to what is known as the "mercantile accountancy system" or the "book profits system of accountancy" or the "complete double entry book-keeping." Under this system the net profit or loss is calculated after taking into account all the income and all the expenditure relating to the period, whether such income has been actually received or not and, whether such expenditure has teen actually paid or not. That is to say, the profit computed under this system is the profit actually earned, though not necessarily realized in cash, or the loss computed under this system is the loss actually sustained, though not necessarily paid in cash. THE distinguishing feature of this method of accountancy is that it brings into credit what is due immediately it becomes legally due and before it is actually received; and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. THE "mercantile accountancy system" is the opposite of the "cash system of bookkeeping" under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. In actual business practice however the systems of book-keeping followed in many cases are such that they can be called neither the full "mercantile accountancy system" nor the cash basis of book-keeping. THEy are simply mixtures of the two systems and are styled as "pybrid systems of bookkeeping" : vide Book-keeping and Accounts by Rupram Gupta, pages 269 and 270.

(3.) THAT this section casts liability for the payment of income-tax and is, therefore, the charging section is clear from para. 1 of the judgment of their Lordships of the Privy Council in Raghunandan Prasad Singh v. Commissioner of Income-tax, Bihar and Orissa It provides for a rate of tax which may be varied from time to time. It enacts that, subject to, and in accordance with, the provisions of the Act, tax shall be charged on "all income, profits and gains" of the assessee. THAT is the general charge of tax. It makes the income, profits and gains of the year previous to the year of assessment the basis for ascertaining income, profits and gains. And, finally, it casts the income-tax net over associations of individuals and corporations as well as over individuals. Section 4, while not itself the primary or general charging section, is one of those provisions referred to in Section 3 "in accordance with and subject to" which, the general charge on all income, profits and gains is to operate. The relevant portion of Section 4 is as follows: