Chinnathambi Rowther and Co. vs Commissioner of Income Tax

Ramanujam, J.—The assesses is a partnership firm consisting of four partners. The firm commenced its business on July 21, 1959, and it

was formed for the specific purpose of selling a particular quantity of cinder, purchased from the South Indian Railways, on June 21, 1959, in the

name of one of the partners, Chinnathambi Rowther, for Rs. 85,600. Each of the partners advanced a sum of Rs. 22,500 as capital. The books of

the firm were closed for the period from July 21, 1959, to March 31, 1963, and the net income was determined at Rs. 27,972. The assessee itself

filed a return admitting the said amount of Rs. 27,972 as the income for the assessment year 1963-64. The Income Tax Officer completed the

assessment accepting the return filed by the assessee.

The assessee, however, filed an appeal before the Appellate Assistant Commissioner challenging the assessment on the ground that the sum of

Rs. 27,972 should be taken as the income for the period of 3 years and 8 months pertaining to the assessment years 1960-61 to 1963-64 and

that, therefore, the said income of Rs. 27,972 returned by the assessee should be apportioned pro rata for all the said assessment years. The

Appellate Assistant Commissioner rejected the appeal, holding that the firm was constituted solely for the purpose of carrying on the solitary

venture of the sale of cinder and that, therefore, the case attracted the principle in K. H. MODY, IN RE., ..

The assessee thereafter filed an appeal before the Tribunal contending that whatever be the stand it had taken, the Income Tax Officer has to

apportion the said amount returned by the assessee for the period of 3 years and 8 months and cannot assess the entire income in the assessment

year 1963-64. The assessee relied on the decisions in British South Africa Co. v. Commissioner of Income Tax, [1946] 14 ITR 17 ., K. Sp. Kt.

Kalayappa Chettiar Vs. Commissioner of Income Tax, Madras, . and an unreported decision of this court in T.C. No. 96 of 1954. The Tribunal,

however, held that only one lot of cinder was purchased from the Railways for Rs. 85,600, that neither the volume nor the weight of the cinder

purchased was known, and there was no way of computing it also, and that, therefore, it was not possible to ascertain at the end of each year,

nemely, March 31, 1960, March 31, 1961, and March 31, 1962, as to what was the quantity sold, what was the rate and what was the profit

derived by the sale. According to the Tribunal, since the quantity of cinder sold in each year and its actual cost of purchase could not be found out,

the whole transaction had to be taken as a single venture and the profit determined on that basis. The Tribunal also took note of the fact that the

assessee''s business was for selling one lot of cinder purchased from the Railways, that the assessee itself had represented in the course of earlier

years to the Income Tax Officer that the profits could be ascertained only at the end of the venture and that no income had accrued in the earlier

years. The Tribunal taking the said peculiar facts of the case held that the entire income returned by the assessee pertained to the assessment year

1963-64 and had been returned by the assessee. The Tribunal also relied on the decision of the Andhra Pradesh High Court in

COMMISSIONER OF Income Tax Vs. NANDURI SURYANARAYANA and ANOTHER., , in support of its view that were the profits were

not capable of ascertainment till the determination of the venture, profits could be taxed only when the venture was over. The Tribunal also

distinguished the decisions relied on by the assessee set out above, holding that they were inapplicable to the facts of this case where the assessee

himself treated the transactions of sale of cinder as a single venture and determined the profits only on that basis.

At the instance of the assessee the following question has been referred:

Whether, on the facts and in the circumstances of the case, the assessment of the entire income of Rs. 27,972 arising over a period of 3 years and

8 months, from July 21, 1959, to March 31, 1963, as chargeable to tax in the assessment year 1963-64 is valid in law ?

The question proceeds on the basis that the income of Rs. 27,972 returned by the assessee for the assessment year 1963-64 is the income

which arose over the period of 3 years and 8 months. But a perusal of the orders of the Income Tax Officer, the Appellate Assistant

Commissioner and of the Tribunal shows that none of the authorities has given a finding that the income of Rs. 27,972 had accrued over the period

of 3 years and 8 months. The fact is that the single venture from which the said income of Rs. 27,972 had accrued to the assessee, was carried on

for a period of 3 years and 8 months. We are of the view that the question referred to proceeds on certain wrong premises. We, therefore,

reframe the question as follows:

Whether, on the facts and in the circumstances of the case, the assessment of the entire income of Rs. 27,972 arising out of business carried on

by the assessee over a period of 3 years and 8 months from July 21, 1959, to March 31, 1963, as chargeable to tax in the assessment year 1963-

64 is valid in law ?

Mr. K. Srinivasan, the learned counsel for the assessee, contends that the view taken by the Tribunal that, as the business carried on by the

assessee-firm related to single venture, the profit can accrue only in the year during which the accounts of that venture had been closed is

erroneous in law, and that the true legal position is that even in respect of a single venture, the profits could accrue each year when the venture was

carried on and not only for the year when the accounts were closed. The learned counsel refers to certain decisions in support of his submissions.

As we are inclined to agree with the said submission of the learned counsel, it is not necessary to refer and deal with any decisions. It is by now

well established that even in respect of a single venture, if it is spread over a period of years, the profits may arise or accrue in each year during

which the venture was carried on, and it is not the universal rule that the profit caa accrue in respect of a single venture only when the accounts of

that venture are closed by the assessee. However, we find that the Tribunal did not rest its decision only on the basis that the income can accrue

only in the year when the accounts of the assessee''s venture in cinder were closed. It has dealt with the facts of the assessee''s case and found that

the assessee itself treated the income of Rs. 27,972 returned as income of the year 1963-64, and the said return was accepted by the Income Tax

Officer, that the accounts maintained by the assessee in respect of the purchase and sale of cinder did not show either the volume or weight of

cinder purchased, or the volume or weight of cinder in stock either at the beginning of the year or at the end of the various assessment years, when

the business was carried on, or the quantity of cinder sold on each occasion. It is for this reason the Tribunal says that it was not possible to

ascertain at the end of each year as to what was the profit derived by the sale of each lot in each of the years and the cost price of cinder sold in

each year. The learned counsel for the assessee concedes that from the accounts of the assessee, it may not be possible to get the quantity of the

cinder purchased, or the quantity of the cinder sold in each of the years; but he states that a duty is cast on the Income Tax Officer to find out the

income earned in respect of each year and that he has to do that duty, whether the assessee has given the necessary material or not. As a general

submission that the Income Tax Officer has to determine the total income of the assessee, even if the assessee does not produce the accounts or

the requisite material, there cannot be any dispute. In fact, the assessee has earned income in the various years. If, in fact, the assessee has earned

income in the various years, the Income Tax Officer has necessarily to determine the same, on whatever materials that are available. But if the

assessee has itself treated the transaction as ;a single venture, and maintained the accounts in such a way that it did not show any profits in any of

the years prior to 1963-64, but showed the profit only as having accrued in the year 1963-64, then the Income Tax Officer is justified in taking the

said accounts and conduct of the assessee and proceed to assess the income returned as income of the year 1963-64. As pointed out by the

Tribunal, the profit and loss as found from the ledger shows the purchase cost of the cinder as on March 31, 1962, at Rs. 1,00,021.20 and the

sale price of the cinder sold in the various years as Rs. 1,31,517 resulting in a net profit of Rs. 27,572.21. From the said entries in the ledger, it is

clear that the assessee had sold certain lots of cinder during the earlier years and he showed a notional stock of cinder on April 1, 1962, the

beginning of the year, and struck the profit in the year 1963-64, taking into account the sale price of the entire stock. These accounts showed that

the purchase cost of cinder as on April 1, 1962, was deducted from the total sale price to ascertain the net profits. If one goes by the said

accounts of the assessee, the profit of Rs. 27,592.21 can be said to have accrued only during the assessment year 1963-64.

Therefore, on the peculiar circumstances of this case, we are inclined to agree with the view taken by the Tribunal that the income of Rs. 27,972

arose only in the assessment year 1963-64. We answer the reference accordingly. The revenue will have its costs. Counsel''s fee, Rs. 250.