COMMISSIONER OF INCOME TAX Vs. MCKENZIES LIMITED

JUDGEMENT

(1.) THE assessee derived income from various sources in the previous year which commenced from 1st of August, 1960, and ended on 31st of July, 1961. The relevant assessment year for this previous year was 1962 63. The assessee was also a partner in the firm of "M/s McKenzies Ltd. & Oriental Timber Trading Corporation (P) Ltd." The previous year of the partnership firm was 1st September, 1960, to 31st August, 1961, and in the relevant asst. year 1962 63, after the income of the firm was assessed to tax, the assessee's share income from the firm for the said previous year, that is, 1st September, 1960, to 31st August, 1961, worked out to Rs. 1,47,378. In the assessment proceedings before the ITO, the assessee had contended that the share income from the firm accrued on 31st August, 1961, that is, after the close of the relevant accounting year of the assessee, on 31st July, 1961. Therefore, according to the assessee, the share income should be included in the assessment for the asst. year 1963 64 and not 1962 63. This contention was rejected by the ITO.

(2.) IN appeal, the AAC taking the view that the facts in the case of the assessee being similar to the facts in the decision in CIT vs. M. S. Sheik Rowther (1962) 46 ITR 259 (Ker), held that the share income had to be assessed in the asst. year 1963 64 and not in 1962 63. The ITO challenged this order of the AAC by an appeal before the Tribunal. The Tribunal seems to have taken the view that the previous year in respect of other sources of income of the assessee ended on 31st July,1961, and since the previous year in respect of the share income from the firm was 1st September, 1960, to 31st August, 1961, the share income cannot be said to have accrued or arisen to the assessee within the previous year adopted by it for the purposes of assessment. The Tribunal also took the view that the decision in Rowther's case (supra) would govern the case of the assessee and, therefore, the share income of the assessee from the firm was assessable in the hands of the assessee in the asst. year 1963 64. Arising out of this order of the Tribunal, the following question has now been referred to this Court under S. 256(1) of the IT Act, 1961, at the instance of the Revenue :

(3.) SO far as the assessee company was concerned, the previous year, as already pointed out, would be 1st August, 1960, to 31st July, 1961, and the relevant assessment year in respect of this previous year, it is not disputed, would be the asst. year 1962 63. Clause (f) of S. 3(1) deals with the previous year in the case of an assessee who is a partner in a firm and cl. (f) states that "previous year" means, where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee's share in the income of the firm, the period determined as the previous year for the assessment of the income of the firm. The effect of cl. (f) is that whatever is the previous year for the assessment of the income of the firm, is statutorily made the previous year of the partner in respect of his share in the income of the firm. Thus, if an assessee has income from other sources, he may have a different previous year. But if he is a partner in a firm whose income has been determined, then so far as the share income is concerned, the assessment year in respect of such income will be the same as the assessment year of the firm. The question is, where such is the position, that is, where an assessee has a different previous year in respect of his other income and the previous year in respect of his share income from the firm is the same as the previous year of the firm, must the income of the assessee by way of his share in the income of the firm be brought to tax in a later assessment year if the previous year in respect of the firm income ends after the previous year in respect of his other sources ?