High Court Of Andhra Pradesh
CIT vs. R.V. Singara Mudaliar
A. Raghuvir & Y.V. Anjaneyulu, JJ.
Refd. Case No. 43 of 1983
26th November, 1987
M. Suryanarayana Murthy, for the Revenue : M.J. Swamy, for the Assessee
Y.V. ANJANEYULU, J.:
The assessee in this case carries on a business in the purchase and sale of yarn. For the income-tax asst. yr. 1978- 79, he filed a return declaring his income from the aforesaid business for which accounts were maintained. Accounts were maintained for the Pongal year ending on January 13, 1978. The assessee has also shares in two partnership firms, accounts relating to which were closed on December 31, 1977. The assessee’s income from these two firms was duly declared in the return filed. There is yet another firm known as R. Y. Singaram Mudaliar & Co., Ekambarakuppam, accounts relating to which were closed on March 31, 1978. The assessee did not declare the share income from this partnership firm on the ground that his own account books were closed on January 13, 1978, and the accounts of the partnership firm were closed subsequent to that date. According to the assessee, the share income arising from the last-mentioned partnership firm falls for consideration for the subsequent asst. yr. 1979-80. Similarly, for the asst. yr. 1979-80, the assessee in his return included income from his own business for the year ending January 13, 1979, and income from two partnership firms, accounts relating to which were closed on December 31, 1978. The assessee had also included the share income from the firm, R. Y. Singaram Mudaliar & Co., for the period up to March 31, 1978.
The short contention of the Revenue is that in so far as the share income from R. Y. Singaram Mudaliar & Co. is concerned, the assessee was bound to declare the income treating the previous year of the firm as his own previous year as required by s. 3(1)(f) of the IT Act (for short ” the Act “). In that view, the assessee’s income for the year ended on March 31, 1978, from the firm was included in the total income for the asst. yr. 1978-79 ; the assessee’s share income for the year ended March 31, 1979, was included in the total income for the asst. yr. 1979-80.
The assessee resisted the aforesaid view of the Revenue. According to him, the previous year in this case has to be determined under s. 3(1)(b) of the Act, which provides that if the assessee’s accounts have been made up to a date within the financial year, then, at his option the 12 months ending on such date. According to the assessee, inasmuch as account books are maintained and he chose to close the accounts within the financial year, what is crucial is the date on which he closed his accounts and not the date which falls outside the date on which the accounts were closed. The Revenue rejected the aforesaid contention. Consequently, the matter was carried in appeal. The first appellate authority confirmed the mode of assessment of the ITO. On second appeal, however, the Tribunal accepted the assessee’s contention and modified the assessments accordingly.
Aggrieved by the order of the Tribunal, the Revenue asked for and obtained this reference under s. 256(1) of the Act. The Tribunal referred the following question of law for the consideration of this Court “Whether, on the facts and in the circumstances of the case, where the assessee was maintaining regular books of account which were closed as at the end of each Sankranti year, i.e., January 13, 1978, relating to the asst. yr. 1978-79 and January 13, 1979, relating to the asst. yr. 1979-80, the Tribunal was right in holding that the provisions of s. 3(1)(b) of the IT Act, 1961, applied and, therefore, the share income from the firm of R. Y. Singaram Mudaliar & Co. which had as its previous year the financial year should be taken as on March 31, 1977, for the asst. yr. 1978-79 and as on March 31, 1978, for the asst. yr. 1979-80 and that the provisions of s. 3(1)(f) of the IT Act, were not applicable on the facts ? “
Before we consider the facts, we must point out that the question as formulated by the Tribunal is too cumbersome and unwieldy and does ot really focus attention on the matter requiring attention. It would greatly facilitate matters if the questions formulated by the Tribunal were short and brief so that it will be possible to comprehend the scope of the question. We may mention that the question as formulated by the Tribunal takes in its sweep a number of facts which are unnecessary for the purpose of answering the question in this case. There can be no exception to the contention raised by the assessee and accepted by the Tribunal in the present case. Sec. 3 of the IT Act provides different previous years under different circumstances. In a case where an assessee maintains books of account and closes accounts to any period within 12 months ending on March 31, the statute prescribes that the period for which the accounts were closed by the assessee at his option should be regarded as the previous year for the purpose of assessment. In the books maintained by the assessee, not only income from his own business, but also income received from the partnership firms, joint ventures and other transactions are recorded. It cannot be said that the account books relate only to the own business carried on by the assessee and did not have reference to the partnership business carried on. In the present case, for the asst. yr. 1978-79, the assessee’s accounts were closed on January 13, 1978, and it is inconceivable that the assessee could include in his books the share income arising from the partnership firm for the year ending March 31, 1978. Similarly, for the asst. yr. 1979-80, the books were closed for the accounting year which ended on January 13, 1979. The assessee could not possibly be expected to include the share income arising to him after that date and ascertained on March 31, 1979. On these facts, the assessee was right in not declaring any share income for the asst. yr. 1978-79 and declaring the share income from the partnership firm for the year ended March 31, 1978, in the asst. yr. 1979-80. The Revenue has not applied the provisions of s. 3 properly and fell into an error in thinking that under all circumstances, the previous year of an assessee in respect of his share income must necessarily be the previous year of the partnership firm of which he is a partner. This error was correctly noticed and rectified by the Tribunal. We accordingly uphold the Tribunal’s order and answer the question referred in the affirmative, that is, in favour of the assessee and against the Revenue.
[Citation : 172 ITR 608]Â