Commissioner of Income Tax v. Rashmi Kamdar — 1995 DIGILAW 393 (MAD)

Judgment :- MISHRA J. Pursuant to a direction of this court, at the instance of the Revenue, the Income-tax Appellate Tribunal, Madras "D" Bench, has referred to this court the question : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's view that the sum of Rs. 42, 383 being the income from race winnings cannot be considered in the previous year ended on June 30, 1972, relevant for the assessment year 1973-74 is valid and sustainable in law ?" * The assessee had adopted the year ended on June 30, 1972. He filed the return of income for the assessment year 1973-74 and indicated that the relevant previous year ended on June 30, 1972. While submitting the return, showing a net income of Rs. 1, 600 only in Part III thereof, he included the above sum of Rs. 42, 383 as income from race winnings, viz., jackpot on February 28, 1972. According to him, it constituted a source of income assessable under the head "Other sources" and pertained to the previous year ended March 31, 1972, since, according to him, the winnings from races became assessable to tax for the first time only in the assessment year 1973-74, the assessee was not liable to tax on the above amount. The assessee maintained a cash book and ledger for the period from July 1, 1971, to June 30, 1972, and the race account in the ledger showed the cash investment of Rs. 4, 302 and the jackpot winnings. The race account surplus of Rs. 38, 063 was shown as a credit in the assessee's capital account on March 12, 1972. The Income-tax Officer accepted the case of the assessee and assessed him accordingly on the net income Of Rs. 1, 600 only. The Commissioner, however, exercised his revisional power and took the view that the previous year would be the year ended on June 30, 1972, and, therefore, the race winnings would be taxable. The assessee appealed. The Tribunal after hearing the parties, held as under "'Previous year' is defined in section 3 of the Income-tax Act, 1961. Under section 3(1)(a), the normal previous year has to be the financial year immediately preceding the assessment year. The assessee appealed. The Tribunal after hearing the parties, held as under "'Previous year' is defined in section 3 of the Income-tax Act, 1961. Under section 3(1)(a), the normal previous year has to be the financial year immediately preceding the assessment year. Under section 3(1)(b) an assessee can have a different previous year at the option of the assessee if the accounts of the assessee have been made up to a date within the said financial year. Here, no doubt the accounts of the assessee have been made for a period ending on June 30, 1972, which falls within the 12 months ending with the financial year March 31, 1973. The question, therefore, which survives is whether it could be construed that the assessee had further exercised the option to have the previous year ended on June 30, 1972, for the income from race winnings. We have already mentioned' the fact that in the return of income which was filed the assessee showed the net race winnings of Rs. 38, 063 in Part III which part contained the legend 'Other sources not included in total income' and claimed to be not taxable. Though the amount of Rs. 38, 063 appeared in the return it was in the part by which the assessee claimed that it was not includible in the total income. The previous year for which the return was filed has reference to all income which the assessee showed as includible in the total income and not amounts which the assessee claims as not includible in the total income and not taxable. This is not a case where the assessee had shown the figures in the return as income, as it happened in the Gujarat case relied on by the learned Departmental Representative (Taxation, Vol. 46, section 1, page 4). We would also state that we have gone through the records very carefully, but we do not find any statement accompanying the return which showed race income as relating to the accounting year ended June 30, 1972, as has been mentioned in paragraph 11 of the order of the Commissioner. The assessment in question was made on October 14, 1975. We would also state that we have gone through the records very carefully, but we do not find any statement accompanying the return which showed race income as relating to the accounting year ended June 30, 1972, as has been mentioned in paragraph 11 of the order of the Commissioner. The assessment in question was made on October 14, 1975. We, therefore, come to the conclusion that no option was exercised by the assessee to have as the accounting period the period ended June 30, 1972, for the income from race winnings and in the absence of such option the only previous year can be the previous year ended March 31, 1972, which would be relevant to the assessment year 1972-73. For the assessment year 1972-73, income from race winnings was not taxable and, therefore, the question of the assessment order for the assessment year 1973-74 being prejudicial to the Revenue could not arise. The order passed by the Commissioner under section 263 is accordingly vacatedIt is almost preliminary, but before we proceed further in this case, we may remind ourselves that the income-tax is charged in respect of the total income of the previous year or previous years, as the case may be, of every person at any rate or rates for any assessment year in accordance with the Central Act in that particular assessment year. "Previous year" is defined under section 3 of the Act to mean, -- (a) the financial year immediately preceding the assessment year or (b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date ; or (c) in the case of any person or business or class of persons or business not falling within clause (a) or clause (b), such period as may be determined by the Board or by any authority authorised by the Board in this behalf ; or (d) in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession, and-- (i) ending with the said financial year, or (ii) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, ending on that date, or (iii) ending with the period, if any, determined under clause (c), as the case may be ; or (e) in the case of a business or profession newly set up in the twelve months immediately preceding the said financial year-- (i) if the accounts of the assessee have been made up to a date within the said financial year and the period from the date of the setting up of the business or profession to such date does not exceed twelve months, then, at the option of the assessee, such period, or(ii) if any period has been determined under clause (c), then the period beginning with the date of the setting up of the business or profession and ending with that period as the case may be ; or (f) 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 ; or (g) in respect of profits and gains from life insurance business, the year immediately preceding the assessment year for which annual accounts are required to be prepared under the Insurance Act, 1938 (4 of 1938), or under that Act read with section 43 of the Life Insurance Corporation Act, 1956 (31 of 1956)." * Every person, whose total income or the total income of any other person in respect of which he is assessable for the income-tax during the previous year, if his total income exceeded the maximum amount which is not chargeable to tax is required to furnish a return of his income or the income of such other persons during the previous year in the prescribed form and verified in the prescribed manner and set forth such other particulars as may be prescribed-- (a) in the case of every person whose total income or the total income of any other person in respect of which he is assessable under the Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expires last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later ; (b) in the case of every other person, before the 30th day of June of the assessment year provided that on application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provision of sub-section (8) of section 139 of the ActThe Finance Act 16 of 1972 prescribed under section 2(l) thereof subject to the provision of sub-sections (2) and (3), for the assessment year commencing on the first day of April, 1972, that income-tax would be charged at the rates specified in Part I of the First Schedule. Chapter III of the said Act introduced in section 2 of the Income-tax Act with effect from the first day of April, 1972, contains items of property including the additional sub-clause (ix) in clause (24) in these words "(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever ;" * There is no dispute as to the facts : (i) the assessee had chosen his own accounting year and closed his accounts for 1971-72 on June 30, 1972, which ended on a date within the financial year 1972-73, and at his option he thus was entitled to treat his financial year ending on June 30, 1972. The corresponding assessment year 1973-74 of the regular financial year 1972-73, for the assessee thus was/is to be calculated from April 1, 1972, to June 30, 1973 ; and (ii) jackpot he had won on February 28, 1972, and submitted his return accordingly in the assessment year April, 1972, to March 31, 1973. The Finance Act 16 of 1972 introduced an amendment in section 56 of the Income-tax Act in sub-section (2) thereof and inserted a new clause (ib) after clause (ia) in these words "(ib) income referred to in sub-clause (ix) Of clause (24) of section 2 ;" Section 56(1) of the Income-tax Act says, -- "income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E". Sub-section (2) thereof provides, inter alia, as follows"(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head 'Income from other sources', namely :-- (ib) income referred to in sub-clause (ix) of clause (24) of section 2 ; (ic)......" * This court had the occasion to deal with a somewhat similar situation in the case of CIT v. B. C. Kothari. The assessee in the said case won a jackpot at the horse race held on February 28, 1972, and received a sum of Rs. 38, 079 on this account. The assessee in the said case won a jackpot at the horse race held on February 28, 1972, and received a sum of Rs. 38, 079 on this account. For the assessment year 1973-74 for which the previous year of the assessee ended on November 5, 1972, the Income-tax Officer included this sum of Rs. 37, 029, after granting a deduction of Rs. 1, 000 in the total income, rejecting the claim of the assessee that it was exempt. The Appellate Assistant Commissioner accepted the claim of the assessee that the winnings from the race accrued to the assessee on February 28, 1972, which fell in the financial year 1971-72 relevant to the assessment year 1972-73 and hence, not assessable in the assessment year 1973-74. The Tribunal confirmed the said view. On a reference, the High Court expressed its view in these words "The Tribunal has found as a fact that the return of income for the assessment year 1973-74 did not show the amount of Rs. 38, 079 as income. On the other hand, the Tribunal has referred to the fact that there is a statement accompanying the return which indicated : 'Horse race receipts Rs. 38, 079 (exempt)'. The learned counsel for the Revenue has, however, argued that the statement made by the Tribunal in paragraph 3 of its order that the return clearly indicated that the receipt of Rs. 38, 079 was exempt, the receipt being relevant for the assessment year 1972-73, should not be accepted by us as correct because, according to learned counsel, the statement, the contents of which are reproduced by the Tribunal, itself merely states 'Horse race receipts Rs. 38, 079 (exempt)'. It is not possible for us to reject the observations made by the Tribunal as incorrect because there is no material to show that the statement is really incorrect. The statement referred to by the Tribunal in paragraph 4 is clearly in addition to the statement made in the return that the receipt of Rs. 38, 079 was exempt. The order of the Income-tax Officer also shows that a positive case was put before him that there is no regular account for this income and hence, the receipt being in March, 1972, before the financial year 1972-73, i.e., commencing from 1st April, 1972, is exempt. Therefore, even before the Income-tax Officer, the assessee's case was that this amount of Rs. Therefore, even before the Income-tax Officer, the assessee's case was that this amount of Rs. 38, 079 was received during the financial year 1971-72 and, therefore, in the previous year corresponding to the assessment year 1972-73. This statement, in our view, was enough to indicate that in respect of this income, the assessee had clearly exercised his option and no separate accounts having been maintained, that being the only income from the source of horse racing, nothing prevented the assessee from taking the stand and exercising an option that that income should be treated as income of the financial year 1971-72. The circumstance that in the wealth-tax assessment for the year ending November 5, 1972, the assessee has included this as a part of his net wealth would not necessarily indicate that the income was not received in the previous year 1971-72. The return in respect of the year ending November 5, 1972, for wealth-tax has to be with reference to the valuation date under section 2(q) of the Wealth-tax Act. That position cannot, however, be in any way inconsistent with the specific choice given under section 3(2) to the assessee to adopt any previous year in respect of any particular source of income. The fact that the assessee chose to make a claim for exemption would not necessarily lead to the conclusion that for the purpose of the assessment under the Income-tax Act, the assessee had as a matter of fact included the disputed amount as income of the previous year ending Deepavali, 1972. This would be inconsistent with his express case and statement in the return that the income has to be treated as having been received in the financial year 1971-72Learned counsel for the Revenue has relied upon a decision of the Gujarat High Court in (CIT v. Kirit Kumar Anubhai in Income-tax Reference No. 109 of 1974, decided on April 7, 1976) reported in the issue of Taxation of January, 1977, at page 4. The question in that case was whether capital gains arising out of sale of some shares which had taken place on January 1, 1961, could be brought to tax in the assessment year 1962-63 or in the assessment year 1961-62. The question in that case was whether capital gains arising out of sale of some shares which had taken place on January 1, 1961, could be brought to tax in the assessment year 1962-63 or in the assessment year 1961-62. In the return for the assessment year 1962-63, filed on the basis of the calendar year, the consideration for the receipt of the sale of shares is shown, but the contention of the assessee was that inasmuch as no separate account for the share of the company was maintained by the assessee in his books of account and, since that amount was not made up for the purpose of capital gains, which arose out of the sale of shares of the company, the financial year should be taken as the previous year. The assessee's further contention was that the books of account-were for all sources of income other than the source 'capital gains' and., therefore, the previous year for the purposes of capital gains should be the financial year 1960-61 and for the rest of the amounts shown in the return, the previous year should be the calendar year 1961. It was held that by filing the return which was filed as on the footing of the balance-sheet as on December 31, 1961, the assessee had exercised the option mentioned in section 3(1)(b) and once that option was exercised, the previous year for the purpose of capital gains must also be held to be the calendar year 1961 and not the financial year 1960-61. It is difficult to see how this case can be of any assistance to us. All that this case decided was that the transaction: out of which the capital gains arose, had taken place on January 1, 1961. This date undoubtedly, fell in the calendar year 1961, as also in the financial year 1960-61, but the return having been filed positively on the basis of the balance-sheet as on December 31, 1961, this particular conduct of the assessee was construed as having adopted the calendar year as the previous year.... The other decision relied upon by learned counsel for the Revenue is of this court in CIT v. Nellai Murasu P. Ltd. That decision is also clearly distinguishable on the facts. The previous year which the assessee-company had adopted ended each year on the 30th of June. The company sold certain lands on July 19, 1967. The other decision relied upon by learned counsel for the Revenue is of this court in CIT v. Nellai Murasu P. Ltd. That decision is also clearly distinguishable on the facts. The previous year which the assessee-company had adopted ended each year on the 30th of June. The company sold certain lands on July 19, 1967. The profit arising on this sale was taken note of by the assessee in its accounting period ending on June 30, 1968, and in the return filed for the assessment year 1969-70, the assessee disclosed not only its business profits, but also the capital gains on the sale of the lands in question. The case of the assessee was that the transfer of lands took place on July 19, 1967, and the capital gains must, therefore, be considered for the assessment only in the previous year ending on March 31, 1968, relevant to the earlier assessment year 1968-69 and hence, bringing to tax the capital gains in the assessment year 1969-70 was not justified. It may be noted that this was argued for the first time before the Tribunal because before the Income-tax Officer and the Appellate Assistant Commissioner, the liability was denied on the ground that the lands were agricultural lands. The Tribunal accepted the assessee's claim that the capital gains could not be brought to tax in the assessment year 1969-70. When the matter came to this court, this court took the view that the conduct of the assessee in making up its accounts up to June 30, 1968, showing the gains arising on the transaction in its accounts for the said year and also having filed its return of income for the assessment year 1969-70, disclosing the capital gains, clearly indicated that the assessee had, even in respect of the capital gains, adopted the year ending June 30, 1968, as the previous year and hence had exercised its option under section 3(1)(b) of the Income-tax Act. This decision also proceeds on the facts disclosed giving rise to an inference as to in respect of which previous year the assessee had exercised its option. The main circumstance which was found by the court was that the assessee had disclosed the capital gains in the return for the assessment year 1969-70.... This decision also proceeds on the facts disclosed giving rise to an inference as to in respect of which previous year the assessee had exercised its option. The main circumstance which was found by the court was that the assessee had disclosed the capital gains in the return for the assessment year 1969-70.... The decision is, therefore, clearly distinguishable on factsOn a careful consideration of the matter, we are satisfied that the Tribunal was justified in taking the view that the sum of Rs. 38, 079 being the income from horse races was not taxable for the assessment year 1973-74. The question referred to us has to be answered in the affirmative and against the Revenue. The question is accordingly answered." * This court in Kothari's has also observed about the effect of section 59 of the Act and stated as follows "The effect of section 59 of the Finance Act, 1972 * Two obvious principles thus emerge and to which we record our complete agreement, viz (i) that the assessment year in the case of the assessee shall start from the first day of July to 30th day of June of the next calendar year and as the beginning of the financial year is advanced at the option of the assessee, the assessment year shall also get advanced and commence accordingly for the assessee ; and (ii) that in view of section 59 of the Finance Act, 1972, the income before April 1, 1972, notwithstanding the amendment in section 56 which was not chargeable until the said date will not become chargeable merely because a charge is created by the amendment Learned counsel for the Revenue, however, has embarked mainly upon the factors that for the financial year April 1, 1972, to March 31, 1973, the assessment year will be 1973-74 and since the accounting year of the assessee was July 1, 1971, to June 30, 1972, and the accounts had been closed in the financial year April 1, 1972, to March 31, 1973, the assessment year would be 1973-74 only. Two judgments of the Andhra Pradesh High Court illustrate the substance of the scheme of the law. In Addl. Two judgments of the Andhra Pradesh High Court illustrate the substance of the scheme of the law. In Addl. CIT v. K. Ramachandra Rao a Bench of the said court observed as follows "As has already been extracted, it provides that for the purpose of the Act, 'previous year' means-- 'if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date' and under section 4 of the Act, income-tax shall have to be charged for the assessment year in respect of the total income of the previous year of every assessee In the present case, the financial year preceding the assessment year 1969-70 was the period between April 1, 1968, and March 31, 1969. That the assessee was appointed as judge on August 21, 1968, and that he opened the accounts on August 21, 1968, and made up the accounts as on July 31, 1969, as found by the lower Tribunal, are not in dispute. Since the date of making up of the accounts on July 31, 1969, fell beyond the financial year preceding the income-tax assessment year 1969-70, there is no corresponding previous year for this new source of income for the income-tax assessment year 1969-70 The previous year arises, so far as the facts of the present case are concerned, for the first time for the assessment year 1970-71. The financial year preceding the same year 1970-71 was the period between April 1, 1969, and March 31, 1970. As has already been noticed, the accounts for a new source of income have been made up by the assessee as on July 31, 1969. That date falls within the financial year preceding the income-tax assessment year 1970-71. Therefore, the previous year for this new source of income for the income-tax assessment is the income-tax assessment year 1970-71 and not the assessment year 1969-70 We agree with the contention put forth by Sri Anjaneyulu on behalf of the assessee, that the provisions of section 3(1)(b) of the Income-tax Act are applicable to the facts of the assessee's case inasmuch as the accounts maintained by the assessee were made up to a date falling beyond the financial year preceding the assessment year 1969-70." * In Guntur Merchants Cotton Press Co. Ltd. v. CIT the principle is explained as follows "The above provisions, when read together, disclose that ordinarily speaking the financial year would be the previous year. But it is open to the assessee to opt for any other previous year so long as the accounts of that previous year are made up to a date falling within the preceding financial year. It is also permissible for an assessee to have different previous years in respect of separate sources of his income. Now, in this case, it must be remembered that the assessee was adopting the calendar year as the previous year. It did not indicate either expressly or in any other manner that it wanted to have a different previous year for this income, assuming that it is not business income. In the absence of such indication, the assessing authority was justified in treating the calendar year, which has already been adopted by the assessee, as its previous year for this income as well. The contention of learned counsel for the assessee that, since it has not entered the said amount in its books, the financial year must be treated as the previous year for this head of income cannot be accepted. The matter cannot be predicated upon entering or not entering the said amount in the books of account. Unless the assessee otherwise specifies, the previous year which it is already adopting shall be treated as the previous year for other heads of income as well. In other words, the presumption is that the assessee has one previous year for all heads of income unless it says that it shall have different previous years for different heads of income (vide section 3(3) of the Act). In other words, the presumption is that the assessee has one previous year for all heads of income unless it says that it shall have different previous years for different heads of income (vide section 3(3) of the Act). In this view of the matter, we are of the opinion that the Tribunal was justified in holding that the income must be treated as having been received in the previous year relevant to the assessment year 1962-63." * In the circumstances that we have noticed that the jackpot income accrued to and was received by the assessee on February 28, 1972, i.e., before the first of April, 1973, from which date alone income from horse race, etc., was made taxable and for all purposes the assessee had adopted a financial year advanced by three months of a regular financial year for his accounts, the jackpot accidentally appeared to fall in the previous year of the assessment year 1973-74. In fact and for all purposes the jackpot income fell in the accounting year 1971-72 of the assessee of which the assessment year was 1972-73 and not 1973-74 as claimed by the Revenue. We are of the opinion that the Tribunal has committed no mistake in excluding the income from race winnings from the tax The reference is answered accordingly. No costs.