LexO. RM. M. SP. SV. FIRM versus THE COMMISSIONER OF INCOME-TAX-MADRAS
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A B c D E F G H 0. RM. M. SP. SV. FIRM v. THE COMMISSIONER OF INCOME-TAX-MADRAS October 14, 1966 [J.C. SHAH, V. ilAMAsWAMI AND V. BHARGAVA, JJ.j Income Tax Act, 1922, s. 25(3)-Assessee firm successor to joint ftmtily business in India and abroad asse.s1ed to tax under Income Tu Act, 1918- Entire foreign income of business abroad remitted to India-- Whether Tax under 1. 3 of 1918 Act, was on income of busine.si- Whether rental income from property of firm abroad was business income ·-Whether relief under s. 25(3) can be claimed. Prior to the coostitution of the assessee firm, ita partners were mem- bers of a Hindu undivided family which camed oil mooey-lencliog bull.- um in India and in Malaya and which was assessed to tax under the Income "fax Act, 1918. There was a partition in the family on June 2, 1938, and thereafter ita members contil\ued the business as partners in the assessee firm. The firm was dissolved on March 2, 1952. In the assessment for tbe year 1952-53, the assessee applied for relief under s. 25(3) of the Income Tax Act,. 1922. This claim was rejected by tbe Income Tax Officer and an appeal to the Appellate Assistant Commio- sioner was dismissed on the view that in the case of business carried on in foreign territory, the business :as such was not assessed under s. 3 of the 1918 Act and only income received in India was so assessed; con- sequently, no relief cou!d be claimed under s. 25 ( 3) of the 1922 Act. A further appeal to the Appellate Tribunal was partly allowed as the Tribunal considered that the assessee was. entitled to relief under s. 25 (3) except in respect of the income received by the assessee firm from certain house properties in Malaya. Tue Higb Court, upon a refer- ence, disagreed with the Tribunal and held in favour of the department. On appeal to this Court, HELD : (i) Tue High Court was in error in holding that tire foreign business of the assessee was not charged under the provisions of the 1918 Act. The assessee was therefore entitled to relief under s. 25(3). When s. 25 ( 3) refers to tax charged on any business, it is intended to refer to tax charged on the owner of any business. If tax is shoW11 to have been charged in respect of the- income of the business under the 1918 Act, the owner or successor-in-interest in relation to the busine&& will be entitled to get the benefit of the exemption under s. 25(3) if tile bllsiness is d,iscontioued. In the context of the finding by the lower courts that the entire income 1>f the foreign business was remitted lo the a~essee and tax imposed on that income under the 1918 Act, the foreign business of the assessee must be held to have been charged uod..- the provisions of the 1918 Act within the meaning of s. 25(3) of the 1922 Act. [911 F-Hl (ii) The assessee was also entitled to relief DDder s. 25(3) on the rental income from the house properties owned by the foreign firm .which was discontinued in the year of account. M!7Sap C.I./66-12 908 SUPUlll ODUaT UPOllft [1967) I s.c.a. 11.,.;.. Income is broken up under different heads only for tho ,...... ot compulalloll of the Iola! lnc:ome. By that breaking ~ Ille illcome don not cease to be tbe income of tbe business. (912 B-FJ Comml.uloner o/ lncomt-taz, ModrtU v. S.Y .R.M. Polanlappa Chtttlor 4 OthtTS. 20 l.T.R. 170, di.rapprovtd: Commullontr of lncomt-taz, Bom- "-1 Ci17 I "· ChUlondM 4 Co., (1964] 8 S.C.IL 332, referred to. A CmL APPELLATB 1UltJSDicnON: Civil Appeal No. 751 of 1965. II Appeal from the judgment and order dated December 18, 1962 of the Madras High Court in Tax Case No. 143 of 1960. A. K. Sen, K. Parasarn, K. Rajender Chaudhuri and J K. R Chaudhuri, for the appellant. B. Sen, T. A. Ramachanaran, S. P. Nayyar for R. N. Sachthey, for the respondent. The Judgment of the Court was delivered by Ranwwaml, J, This appeal is brought, by certificate,fagainst Ille judgment of the Madras High Court dated December 18, 1962 in T.C. No. 143 of 1960. The appellant (hereinafter called the 'assessee') was a firm Qiled O.RM.M.SP. SY. Firm which was registered under s. 26(A) of the Income-tax Act, 1922 (hereinafter called the '1922 Act'). Prior to the constitution of the firm, the partners were memben of a Hindu undivided family. The family which consisted of Meyyappa Chettiar and his two brothers carried on money-lending business in India and in the former Federated Malaya States and it was assessed under the
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