COMMISSIONER OF INCOME-TAX, LAHORE VS MESSRS NOORANI CALANDERING AND FINISHING MILLS, LYALLPUR
1991 P T D 830
[Supreme Court of Pakistan]
Present: Saad Saood Jan, Abdul Shakurul Salam and Muhammad Rafiq Tarar, JJ
COMMISSIONER OF INCOME-TAX, LAHORE
Versus
Messrs NOORANI CALANDERING AND FINISHING MILLS, LYALLPUR and another
Civil Appeals Nos.352 and 523 of 1980, decided on 06/05/1991.
(On appeal from the judgments and orders dated 22-2-1977 of the Lahore High Court, Lahore passed in Tax Reference No. 221 of 1971 and 15-10-1973 in Tax Reference No.24 of 1967).
Income-tax Act (XI of 1922)---
----S. 2(11)(0---'"Previous year"---Length of the previous year need not be 12 calendar months---Period of previous year in respect of a newly-set up business, profession or vocation may be less than 12 months---Assessee has the option to choose his accounting year ending on any date within the preceding financial year as his "previous year" and once he has exercised such an option the meaning of the expression "previous year" as applicable to him is determined, and he cannot exercise such option again so as to vary the meaning of the expression "previous year" as then applicable to him, except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose-- Income-tax Officer may refuse to give his consent, but if he does give his consent, he has ample power to impose the condition that the full period from the end of the "previous year" for the preceding year's assessment to the end of the new accounting year should be taken as the previous year for the current assessment year---If the previous year at any given time applicable to an assessee ends on 31st March and he wants to vary it so as to make it end on 30th June next, the Income-tax Officer has power to accord sanction to the change on the condition that the "previous year" would consist of the entire period of 15 months- Rationale behind the conferment of such power on Income-tax officer stated.
The length of a previous year need not necessarily. be 12 calendar months. Under section 2(11)(i)(b) of Income-tax Act, 1922 the previous year is such period as may be :determined by the Central Board of Revenue or such authority as the Board may authorise in this behalf, and the period so determined may be more or less than 12 months. Under section 2(11)(i)(c), the period of previous year in respect of a newly set-up business, profession or vocation may be less than 12 months. In this background, section 2(11)(i)(a) may be considered. The assessee has the option to choose his accounting year ending on any date within the preceding financial year as his "previous year". Once he has exercised this option the meaning of the expression "previous year" as applicable to him is determined, and he cannot exercise this option again so as to vary the meaning of the expression "previous year" as then applicable to him; except with the consent of the -Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose if the assessee wants to change the meaning of the "previous year" as then applicable to him, he must obtain the consent of the Income-tax Officer, and the Income-tax Officer may accord such consent on proper terms. The Income-tax Officer may refuse to give his consent, but if he does give his consent, he has ample power to impose the condition that the full period from the end of the "previous year" for he preceding year's assessment to the end of the new accounting year should be taken as the "previous year" for the current assessment year. Therefore, if the previous year at any given time applicable to an assessee ends on 31st March and he wants to vary it so as to make it end on 30th June next, the Income-tax Officer has power to accord sanction to the change on the condition that the "previous year" would consist of the entire period of 15 months. The condition properly safeguards the interest of the revenue. Were he to sanction the change on the footing that the "previous year" of the assessee in relation to the current assessment year would be the period of 12 months; the income of the preceding 3 months would escape taxation altogether. If it were to be that the Income-tax Officer can only grant sanction on condition that the assessee should have two previous years, one consisting of a period of 3 months and the other ending after 12 months that would be an impossible situation as there can be no two "previous years" in respect of the same assessment year. The charge under section 3 for any assessment year is in respect of the income of the previous year. The concept of two previous years in relation to the same assessment year is contrary to section 3.
Ch. Muhammad Ishaque, Advocate Supreme Court instructed by M. Aslam for Appellant (in CA. No.352 of 1980).
Respondent: Ex parte (in CA. No.352 of 1980).
Ch. Muhammad Ishaque, Advocate Supreme Court instructed by M. Aslam, Advocate-on-Record for Appellant (in C. A. No.523 of 1980).
Nemo for Respondents (in CA. No.523 of 1980).
Date of hearing: 12th March, 1991.
JUDGMENT
ABDUL SHAKURUL SALAM, J.---This order will dispose of two appeals by leave bearing No. CA. 352 of 1980 and C. A. No.523 of 1980 as these involve the same question of law i.e. whether Income-tax Officer while allowing change of "previous year" under section 2(11) of the Income-tax Act can impose a condition to count the entire period as one assessment year.
2. The question has arisen in the following circumstances:
The respondent in the first case closed its accounts on 31st March, for the assessment year 1960-61. It wanted to change the closing date to 30th June. It filed separate returns for the periods 1-4-1959 to 31-3-1960 and 1-4-1960 to 30-6-1960. The Income-tax Officer allowed the change on the condition that the account year was to be 15 months i.e. from 1-4-1959 to 30-6-1960. He assessed accordingly vide order dated 12-6-1963. In the second case the respondent filed returns of income, one for the assessment year 1959-60 and the other for 1959-60 (Supplementary), the respective accounting periods ending on 31st March, 1959 and 30th June, 1959. The Income-tax Officer framed a consolidated assessment for the charge year 1959-60 i.e. for fifteen months and ordered accordingly. On assessees' appeals, the Appellate Assistant Commissioner held that "previous year" according to section 2(11) of the Income-tax Act could not be more than twelve months. Departmental appeals were dismissed by the Income-tax Appellate Tribunal (Pakistan) Lahore vide orders dated 27-1-1966 and 12-6-1969. On Reference Applications, the Tribunal framed the questions "whether in the circumstances of the case the Tribunal was justified in holding that the Income-tax Officer cannot depart from the statutory definition of the `previous year' while allowing the change of the same", and "whether the Income-tax Officer was not justified in framing one consolidated assessment for the income of fifteen months ending the 30th June, 1959, relevant to the assessment year 1959-60". In both the cases the Lahore High Court held that while allowing change of the closing date the Income-tax Officer was not justified to depart from the statutory definition of "previous year" in section 2(11) of the Income-tax meaning twelve months. This is vide orders dated 22-2-1977 and 15-1-1973 respectively in the titled two appeals filed by the Commissioner of Income-tax.
3. Learned counsel for the appellant submitted that proviso to section 2(11) of the Income-tax Act has not been given proper and due effect which lays down that while allowing a change in the closing date the Income-tax Officer can put condition as he thinks fit. In the case in hand, while so permitting the Income-tax Officer has added the extra three months in the `previous year', otherwise these would go free and escape from assessment. He acted diligently and referred to some judgments, especially Esthuri Aswathaiah v. Commissioner of Income-tax, Mysore, (1966) 60 ITR 411 (SC) which supports his contention.
4. Nobody appeared to oppose these appeals.
5. Section 2(11) of the income-tax Act as far as relevant for these appeals is quoted as under:
"2(11)(0. In respect of any separate source of income, profits and gains:--
(a) the twelve months ending on the thirtieth day of June next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said thirtieth day of June, then at the option of the assessee the year ending on the date to which his accounts have been so made up:
Provided that where in respect of a particular source of income, profits and gains an assessee has once been assessed, or where in respect of a business, profession or vocation newly set-up an assessee has exercised the option under sub-clause (c), he shall not in respect of that source or, as the case may be, business, profession or vocation exercise the option given by this sub-clause so as to vary the meaning of the expression `previous year' as then applicable to him except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose; or
(b) in the, case of any person, business or company or class of persons, business or company such period as may be determined by the Central Board of Revenue or by such authority as the Board may authorise in this behalf and the period so determined may commence from any date preceding the date of such determination:
(c) where a business, profession or vocation has been newly set-up in the financial year preceding the year for which assessment is to be made the period from the date of the setting up of the business or profession or vocation to the thirtieth day of June next following or to the last day of the period determined under sub-clause (b), or, if the accounts of the assessee are made up in respect of a period not exceeding twelve months from the date of the setting up of the business, profession or vocation and if the case is not one for which a period has been determined under sub-clause (b), then, at the option of the assessee, the period from the date of the setting up of the business, profession or vocation to the date to which his accounts have been so made up:
Provided that when the date to which the accounts have been so made up does not fall between the setting up of the business, profession or vocation and the next following thirtieth day of June inclusive, it shall be deemed that there is no previous year for the said assessment year and the previous year which would otherwise have been determined according to the option exercised by the assessee shall be deemed to be the previous year for the next succeeding assessment year."
6. Reading the afore-quoted several clauses together of section 2(11) of the Act it would be seen that the length of a previous year need not necessarily be 12 calendar months. Under section 2(11)(i)(b), the previous year is such period as may be determined by the Central Board of Revenue or such authority as the Board may authorise in this behalf, and the period so determined may be more or less than 12 months. Under section 2(11)(i)(c), the period of previous year in respect of a newly set-up business, profession or vocation may be less than 12 months. In this background, section 2(11)(i)(a) may be considered. The assessee has the option to choose his accounting year ending on any date within the preceding financial year as his "previous year". Once he has exercised this option the meaning of the expression "previous year" as applicable to him is determined, and he cannot exercise this option again so as to vary the meaning of the expression "previous year" as then applicable to him, except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose. If the assessee wants to change the meaning "of the previous year" as then applicable to him, he must obtain the consent of the Income-tax Officer, and the Income-tax Officer may accord such consent on proper terms. The Income-tax Officer may refuse to give his consent, but if he does give his consent. he has ample power to impose the condition that the full period from the end of the "previous year" for the preceding year's assessment to the end of the new accounting year should be taken as the "previous year" for the current assessment year. Therefore, if the previous year at any given time applicable to an assessee ends on 31st March and he wants to vary it so as to make it end on 30th June next, the Income-tax Officer has power to accord sanction to the change on the condition that the "previous year" would consist of the entire period of 15 months. The condition properly safeguards the interest of the revenue. Were he to sanction the change on the footing that the "previous year" of the assessee in relation to the current assessment year would be the period of 12 months, the income of the preceding 3 months would escape taxation altogether. If it were to be as held by the Appellate Assistant Commissioner and upheld by the Tribunal that the Income-tax Officer can only grant sanction on condition that the assessee should have two previous years, one consisting of a period of 3 months and the other ending after 12 months that would be an impossible situation as there can be no two "previous years" in respect of the same assessment year. The charge under section 3 for any assessment year is in respect of the income of the previous year. The concept of two previous years in relation to the same assessment year is contrary to section 3.
7. In view of the above, the two appeals are allowed. The references are answered in the terms that the Income-tax Officer was justified, and he passed orders within his statutory discretion. As nobody has appeared to oppose the appeals, there shall be no order as to costs.
M.B.A./C-85/SAppeals allowed.