Commissioner of Income Tax vs B. Murali Mohan Rao

In this reference made at the instance of the Revenue, u/s 256(1) of the Income Tax Act, 1961, the following questions are referred to this court for opinion. Since they are connected with each other, we propose, to deal with them together :

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the salary income of the assessee from National Gas Company, Bahrain, could not be included for the purpose of assessment for the assessment year 1980-81 ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the assessee is entitled to claim a separate previous year in respect of the salary income from a foreign employer ?"

The facts which gave rise to the above questions may briefly be stated thus :

The assessee has worked in National Gas Company at Bahrain for the period from January 30, 1980, to March 31, 1980. He had also received income under the head "Salaries" in India for the assessment year 1980-81. He had opted for a different previous year so as to protect his income earned at Bahrain (hereinafter referred to as "foreign income"), for which the relevant assessment year was 1981-82. The assessing authority, i.e., the Income Tax Officer, "B" Ward, Visakhapatnam, however, did not agree with the contention of the assessee and assessed that income for the assessment year 1980-81. The assessee pursued the matter before the Appellate Assistant Commissioner of Income Tax, Visakhapatnam, unsuccessfully. Then he carried the matter to the Income Tax Appellate Tribunal, Hyderabad Bench, on February 29, 1984. The Tribunal, upheld the contention of the assessee and held that the assessee could have a different previous year in respect of his foreign income and thus reversed the orders of the Income Tax Officer and the Appellate Assistant Commissioner of Income Tax. Thus, these two questions come to be referred to this court by the Income Tax Appellate Tribunal at the instance of the Revenue.

Shri S. R. Ashok, the learned standing counsel for the Revenue, contends that the salary - whether earned in India or abroad - falls not only under the same head, "Income from salary", but also from the same source, viz., the employment. Therefore, the income earned as salary from foreign employment cannot be treated as a separate source of income.

The provisions of the Income Tax Act with regard to "previous year" as contained in sub-section (3) of section 3, as they stood in the relevant assessment year, read as follows :

"(3) Subject to the other provisions of this section, an assessee may have different previous years in respect of separate sources of his income."

A plain reading of the above sub-section makes it clear that the assessee had an option to have different previous years in respect of separate sources of income. We may point out here that for choosing different previous years, the income need not necessarily fall under different heads. It is enough if it falls under different sources. What can be said to be the source of income ? A plain answer to this question, is in the dicta of the Judicial Committee in Rhodesia Metal Ltd. v. Commr. of Taxes [1941] 9 ITR 45 :

"''source'' means not a legal concept but which a practical man would regard as a real source of income. -"

This observation of the Privy Council was approved by our Supreme Court in Commissioner of Income Tax, Madhya Pradesh, Nagpur and Bhandara Vs. Lady Kanchanbai and Another, . We shall revert to this case presently. Therefore, to find out whether any particular income in question is in respect of a different source than the one for which the previous year has already been opted for by the assessee, a more practical approach has to be made. There is no dispute that the income in question was earned by the assessee from a foreign employment. Therefore, in common parlance it is treated as foreign income and is identifiable as a different source. Once foreign income is treated as a different source, the right of the assessee to have a different previous year for the income derived from the different source cannot be denied. This is, of course, subject to the other provisions. Nothing is pointed out to us to show that there is any other provision in the Act which precludes the assessee from so doing. This principle is indeed applied by the Supreme Court in Commissioner of Income Tax, Madhya Pradesh, Nagpur and Bhandara Vs. Lady Kanchanbai and Another, . In that case, the question arose under the Indian Income Tax Act, 1922. The assessee was a Hindu undivided family having its head office in the Indian State of Indore (Madhya Bharath). The assessee was taxed under the Indian Income Tax Act, 1922, prior to the assessment year 1950-51 as a non-resident Hindu undivided family. She adopted the accounting year ending "Diwali day". The income accrued to her in the former Indian State was taken into account in computing the total income for the purpose of determination of the rate of tax. Subsequently, she became a resident of the Indian State and became assessable to tax in respect of the income that accrued to her in Madhya Bharath. For that income for the assessment year 1950-51, the assessee chose a different financial year ending March 31, 1950, as her previous year. The question that fell for consideration of the Supreme Court was whether she could choose a different previous year. Their Lordships of the Supreme Court held that the income of the assessee earned in Madhya Bharath constituted a separate source and that the assessee could make the choice to have a different previous year for each separate source of income, profits and gains. This principle applies to the facts of our case.

We may, with advantage, refer to the judgment of this court in Additional Commissioner of Income Tax, Andhra Pradesh Vs. K. Ramachandra Rao, . In the said case, an advocate of the High Court was having his income from profession (advocate) as well as under the head "Salary" as editor of I.L.R., and official liquidator. After he was elevated as a High Court judge, he chose a different previous year for assessment of Income Tax in respect of his income received as a judge of the High Court. One of the questions that was referred to this court for opinion was whether he could have a different previous year in respect of his income under the head "Salary" as a judge of the High Court. A Division Bench of this court which dealt with the case held that the "salary" derived by the judge from the consolidated fund of India was from a different source and, therefore, his choice of different previous year was legal.

In the instant case, as has been pointed out above, the assessee had a different source of income, i.e., foreign income. Therefore, his choice of the previous year could not be denied to him in view of the provisions of section 3(3) of the Act as it stood at the relevant assessment year. The Tribunal had rightly upheld the assessee''s choice of the previous year. In this view of the matter, we answer the second question in the affirmative, i.e., in favour of the assessee and against the Revenue. The first question which is a consequential question is also answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

The reference is answered accordingly. No costs.