Commissioner of Income Tax vs Ravinder Kumar

Gokal Chand Mital, J.—The Tribunal, Chandigarh, has referred the following two questions for the opinion of this Court, first being at the instance of the revenue and second at the instance of the assessee: 1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessee had a right in law to exercise an option for adoption of a particular previous year in respect of the agricultural income which was brought within the tax net for the first time during the assessment year 1974-75?

Whether, the Tribunal, in the context of the relevant provisions of law relied upon by the assessee to show that the agricultural income for the period from 8-9-1972 to 7-9-1973 was not includible in the total income of the assessee, erred in law in holding that the interpretation of the expressions ''in the previous year'' and ''during the previous year'' was not material?

The assessee is a partner in various firms and is also having agricultural income He was maintaining books of account for agricultural income as well. The agricultural income is not subject to income tax. However, by the Finance Act, 1973, which came into force with effect from 1-4-1973, the agricultural income had to be taken notice of for imposition of rate of tax. For the purposes of taxation the previous year in the case of the assessee ended on 7th September each year, that is, his income 12 months prior to 8th September had to be taken into account for assessing the income tax of each year. However, the assessee made a deviation for the first time and closed the agricultural books of account on 31-3-1973, instead of doing so on 7-9-1973. He again started books from 1-4-1973 and closed on 7-9-1973.

During the assessment proceedings relating to the assessment year 1974-75, the assessee''s claim was that his agricultural income of Rs. 6,880 for the period 1-4-1973 to 7-9-1973 had to be taken notice of for rate purposes as he has opted to do so u/s 3(1)(d) (ii) of the Act. For the period 8-9-1972 to 31-3-1973, the assessee returned the agricultural income of Rs. 11,825 but the ITO did not agree with the assessee and included agricultural income for the entire previous year from 8-9-1972 to 7-9-1973 amounting to Rs. 18,705 in the total income of the assessee for rate purposes. The AAC confirmed the order of the ITO but on appeal to the Tribunal, the assessee''s viewpoint was accepted. The Tribunal considered the agricultural income to be from a new business and allowed him to have the option of the previous year and obviously this was done by applying provisions of section 3(1)(d) (ii).

On consideration of the matter, we are of the view that the Tribunal erred in disturbing the decisions of the ITO and of the AAO. The first mistake committed by the Tribunal was that it considered the inclusion of agricultural income for rate purposes with effect from 1-4-1973 as setting up of a new business or profession by the assessee regarding agriculture, which was not a new endeavour. He was already having agricultural income and was maintaining his books of account for that income from 8th September to 7th September of the following year, as was being done in respect of the income from firms, in which he was the partner. When he came to know of the Finance Act, 1973, which was enforced with effect from 1-4-1973, that agricultural income is also being included for finding out the rate of tax applicable, he closed his books of account relating to the agricultural income on 31-3-1973, instead of closing on 7-9-1973. He started new books from 1-4-1973 and again closed on 7-9-1973. If it had been a case of new business or profession, question of closing his earlier books of account on 31-3-1973 and again starting fresh account from 1-4-1973 and again closing on 7-9-1973 would not have arisen. Since it is not a case of new business or profession, section 3(1)(d) (ii) would not be applicable. In fact section 3(4) prohibits the changing of previous year without the consent of the ITO. He was already an assessee as he was being assessed for income received from firms in which he was a partner and as such he was maintaining his books of account from 8th September to 7th September of the following year and in this manner his previous year was being considered for the assessment purpose. He was also having agricultural income much prior to 1-4-1973. The only change came about was that the agricultural income was to be taken into consideration for rate purpose and this cannot be held as setting up of a new business or profession.

If an assessee is already in a business and adds to his business, provisions of section 3(1)(d) would not be applicable to him and if he would like to have a change in the previous year, he will have to seek the permission of the ITO u/s 3(4) of the Act. Hence, the decision of the Tribunal was totally misconceived and based on erroneous facts. Accordingly, we answer the first question in favour of the revenue and against the assessee in the affirmative to the effect that the Tribunal erred in law in holding that the assessee had a right to exercise his option for adoption of a particular previous year in respect of agricultural income, which was brought within the tax net for rate purposes for the first time since the assessment year 1974-75. Adverting to question No. 2, no worthwhile argument was raised to take a different view. We are of the opinion that the Tribunal rightly decided this matter. The question is answered against the assessee, in the negative, that is, the Tribunal did not err in holding that the interpretation of the expressions ''in the previous year'' and ''during the previous year'' was not material. The parties are left to bear their own costs.