Commissioner of Income-Tax Bombay Vs.
Chugandas and Co., Bombay [1964] INSC 166 (29 July 1964)
29/07/1964 SHAH, J.C.
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION: 1965 AIR 568 1964 SCR (8) 332
CITATOR INFO:
R 1966 SC 47 (7) RF 1966 SC1514 (9) F 1967
SC1061 (5,6) D 1968 SC 9 (12)
ACT:
Indian Income-tax Act (XI of 1922), s.
25(3)-Exemption applicable to what income.
HEADNOTE:
The respondent was a firm dealing in
securities and was charged to income-tax under the Income-tax Act (VII of
1918). It received certain sums of money as interest oil securities in the
accounting years 1946 and 1947 (assessment years 194748 and 1948-49)
respectively. It discontinued its business on 30th June 1947, and, for the
assessment year 1948-49, claimed exemption from taxation under s. 25(3) of the
Income tax Act (XI of 1922). The income-tax officer and the Appellate Assistant
Commissioner, held that, the income fell under the bead 'interest on
securities" under s. 8 and not under the head "profits and gains of
business, profession or vocation" under s. 10 and that therefore, the
respondent was not entitled to the exemption. The Appellate Tribunal reversed
that order and the High Court (by a majority) confirmed the order of the
Tribunal. The Commissioner of Income-tax appealed to the Supreme Court.
Held: The appeal should be dismissed.
When s. 25(3) of the Indian Income-tax Act
(XI of 1922) enacts that "where any business, profession or vocation on
which tax was at any time charged, it is intended that the tax was at any time
charged on the owner of the business.
If that condition be fulfilled in respect of
the income of the business under the Indian Income-tax Act (VII of 1918), the
owner will be entitled to get the benefit of the exemption under the section if
the business is discontinued.
The section in terms refers to tax charged on
any business, that is, tax charged on any person In respect of all income
earned by carrying on the business. There is no reason to restrict the
condition of the applicability of the exemption only to income on which tax was
payable under s. 10 of the Act under the head "Profits and gains of
business, profession or vocation".
The United Commercial Bank Ltd., Calcutta v.
The Commissioner of Income-tax, West Bengal, 19581 S.C.R. 79 and The Commissioner
of Income-tax, Madras v. The Express Newspapers Limited, Madras, [1964] 8
S.C.R. 189, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 685 & 686 of 1963.
333 Appeal from the judgment and order dated
December 17, 18, 1958, of the Bombay High Court in Income-tax Reference No.
27/X of 1954.
K.N. Rajagopala Sastri and R. N. Sachthey,
for the appellant.
N.A. Palkhivala, J. B. Dadachanji, O. C.
Mathur and Ravinder Narain, for the respondent.
July 29, 1964. The Judgment of the Court was
delivered by SHAH-M/S. Chugandas and Co a firm dealing in securitiesreceived in
the year 1946 Rs. 4,13,992/as interest on securities held by it. In 1947 it
received Rs. 1,01,229/as interest from the same source. On June 30, 1947 the
firm discontinued its business. In proceedings for assessment for 1947-48 and
1948-49 the firm, relying upon s. 25(3) of the Indian Income-tax Act, 1922,
claimed exemption from payment of tax on income earned in the relevant previous
year, on the plea that the firm was carrying on business before the Indian
Income-tax Act, 1922, was enacted, and on that business, tax had been charged
under the provisions of the Indian Income tax Act 7 of 1918 in respect of the
business done immediately before that Act was repealed. The firm also applied
to substitute the income earned in the year 1947 for the income of the previous
year. The Incometax Officer held that the interest earned by the firm on
securities being "liable to be assessed to tax" under s. 8 and not
under s. 10 of the Income-tax Act, the firm was not entitled to the benefit of
the exemption claimed. The order of the Income-tax Officer was confirmed in
appeal by the Appellate Assistant Commissioner. The Income-tax Appellate
Tribunal, however, reversed the order and held that the firm was entitled to
the benefit of the exemption in respect of the entire income of the business
including income from securities in the year in which the business was
discontinued.
At the instance of the Commissioner, the
Tribunal referred under s. 66(1) of the Act a question, which 334 when reframed
by the High Court of Bombay read as follows:"Whether the assessee is
entitled to the benefit of s. 25(3) in respect of the interest on
securities?" It is common ground that the principal business of the
assessee was as a dealer in securities. Securities held by the assessee were
its stock-in-trade and interest on those securities was received from time to
time, and this interest had for computing the taxable income to be taken into
account under s. 8 of the Indian Income-tax Act, 1922.
Section 25(3), on the true interpretation of
which the respective contentions of the assessee and the Commissioner have to
be adjudged, is in the following terms:
"Where any business, profession or
vocation on which tax was at any time charged under the provisions of the
Indian Income-tax Act, 1918 (VII of 1918), is discontinued, then, unless there
has been a succession by virtue of which the provisions of sub-section (4) have
been rendered applicable, no tax shall be payable in respect of the income,
profits and gains of the period between the end of the previous year and the
date of such discontinuance, and the assessee may further claim that the
income, profits and gains of the previous year shall be deemed to have been the
income, profits and gains of the said period. Where any such claim is made, an
assessment shall be made on the basis of the income, profits and gains of the
said period, and if an amount of tax has already been paid in respect of the
income, profits and gains of the previous year exceeding the amount payable on
the basis of such assessment, a refund shall be given of the difference."
Exemption from liability to pay tax in respect of the income, ,profits and
gains under s. 25(3) may be claimed by an 335 assessee if the business is one
in respect of which tax was charged at any time under the Indian Income-tax
Act, 1918 and the business is discontinued-there being? a succession by virtue
of which the provisions of sub-s. (4) of s. 25 have been rendered applicable.
Section 25(3) however applies even if the person assessed under the Income-tax
Act, 1918, was different from the person who claims relief under that section
provided the former was the predecessorin-interest of such person qua the business.
The reason for enacting s. 25(3) was that under the Indian Income-tax Act 7 of
1918, income-tax was levied by virtue of s. 14(2) of Act 7 of 1918 on the
income of the year of assessment. Tax was therefore levied in the financial
year 1921-22 on the income of that year. By the Indian Income-tax Act 11 of
1922 the basis of taxation was altered and by s. 3 of that Act, charge for tax
was imposed upon the income of the previous year. When Act 1 1 of 1922 was
brought into force on April 1, 1922, two assessments in respect of the same
income for the year 1921-22 had to be made. The income for 1921-22 was
accordingly charged to tax twice: it was charged under Act 7 of 1918 and it was
also charge,' to tax under s. 3 of Act 1 1 of 1922 read with the appropriate
Finance Act, resulting in double taxation in respect of the income for that
year.
But with a view to make the number of
assessments equal to the number of years during which the business was carried
on the Legislature enacted the exemption prescribed by s.
25(3). This benefit was however restricted
only to the income, profits and gains of business, profession or vocation on
which tax had been charged under the provisions of the Indian Income-tax Act,
1918. By enacting s. 25(3) the Legislature intended to exempt the income,
profits and gains resulting from the activity styled business, profession or
vocation from tax when the business, profession or vocation is discontinued if
tax was charged in respect thereof under the Act of 1918. That much is clear.
But that is not the whole problem. What is to
be regarded --is income, profits and gains of business, profession or vocation
within the meaning of s. 25(3) for which exemption may be obtained on
discontinuance raises a problem on which 336 there was a difference of opinion
in the High Court. In the judgment under appeal, Tendolkar, J., was of the view
that by this expression only income, profits and gains of business chargeable
to tax under the head "profits and gains of business, profession or vocation"
under s. 10 read with s. 6(iv) stood exempt from liability under s. 25(3)_. S.
T. Desai, J., held that s. 25(3) exempted from liability to tax all income,
profits and gains earned by conducting a business, profession or vocation
irrespective of whether they were chargeable to tax under the head
"profits and gains of business, profession or vocation", and with
this view K. T. Desai, J., to whom the case was referred for opinion.
agreed.
To appreciate the point in dispute, it is
necessary to bear in mind the scheme of the Act for computing the taxable
income. Under the Act, income-tax is a single tax on the aggregate of income
received from diverse heads mentioned in s. 6: s. 6 is not a charging section,
and income computed under each distinct head is not separately chargeable to
tax. But income which is chargeable under a specific head, cannot be brought to
tax under another head either in lieu of or in addition to that head. As
observed by this Court in The United Commercial Bank Ltd., Calcutta v. The Commissioner
of Income-tax, West Bengal(1) "the scheme of the Indian Income-tax Act,
1922, is that the various heads of income, profits and gains enumerated in s. 6
are mutually exclusive, each head being specific to cover the item) arising
from a particular source and, consequently, "interest on securities"
which is specifically made chargeable to tax under s. 8 as a distinct head,
falls under that section and cannot be brought under s. 10, whether the
securities are held as trading assets or capital asset." In The United
Commercial Bank's case(1) the Income Tax Officer split up the income of a
Banking Company was in the course of assessment, into two heads" interest
on securities" and "business income", and set off the business
loss against the income from securities in the year, of assessment, but did not
allow the business loss of a previous year to be set off under s. 24(2) against
that (1) [1959] S.C.R. 79.
337 income. This view was approved by the
High Court of Calcutta. The High Court held that the several heads under s. 6
of the income-tax Act are mutually exclusive, and an item falling under an
exclusive head cannot be charged under another head. This view was affirmed by
this Court, and it was held that "interest on securities" being specifically
charged under s. 8, which is a distinct head, it could not be brought under s.
10, whether the securities were trading assets or capital assets.
It must therefore be held that even if an
item of income is earned in the course of carrying on a business, it will not
necessarily fall within the head "profits and gains of business"
within the meaning of s. 10 read with s. 6(iv). If securities constitute
stock-in-trade of the business of an assessee, interest received from those
securities will for the purpose of determining the taxable income be shown
under the head "interest on securities" under s. 8 read with s. 6(ii)
of the Act. Similarly dividends from shares will be shown under s. 12(1A) and
not under s. 10. If an assessee carries on business of purchasing and selling
buildings, the profits and gains earned by transactions in buildings will be
shown under s. 10, but income received from the buildings so long as they are
owned by the assessee will be shown under s. 9 read with s. 6 (iii). Income
earned by an assessee carrying on business will in each case be broken up, and
taxable income under the head profits and gains of business will be that amount
alone which is earned in the business, and does not all under any other
specific head.
Tendolkar J., in the judgment under appeal
was of the opinion that income of the business to be computed under s.
10 alone could be admitted to the exemption:
the ,majority of the Court held that all income earned by carrying on business
qualified for the exemption. Now cl. (3) of s. 25 expressly provides that
income of a business, profession or vocation which was charged at any time
under Act 7 of 1918 to tax is, on discontinuance of that business. profession
or vocation, exempt from liability to tax under Act 11 at 1922 for the period
between the end of the previous year and the date of such discontinuance. Tax
is charged under the Income-tax Acts on specific units, such 51 S.C.-22 338 as,
individuals, Hindu Undivided Families, Companies Local Authorities, Firms and
Associations of persons or partners of firms and members of associations
individually, and business, profession or vocation is not a unit of assessment.
When, therefore, s. 25(3) enacts that tax was charged at any time on any
business, it is intended that the tax was at any time charged on the owner of
any business. If that condition be fulfilled in respect of the income of the
business under the Act of 1918, the owner or his successor in-interest qua the
business, will be entitled to get the benefit of the exemption under it if the
business, is discontinued. The section in terms refers to tax charged on any
business, i.e., tax charged on any person in respect of income earned by
carrying on the business.
Undoubtedly it is not all income earned by a
person who conducted any business, which is exempt under sub-s. (3) of s. 25:
non-business income will certainly not qualify for the privilege. But there is
no reason to restrict the condition of the applicability of the exemption only
to income on which the tax was payable under the head "profits and gains
of business profession or vocation". The Legislature has made no such
express reservation, and there is no warrant for reading into sub-s. (3) such a
restricted meaning. Subsection (3) it may be noticed does not refer to chargeability
of income to tax under a particular head as a condition of obtaining the
benefit of the exemption.
Diverse other provisions of the Act lend
strong support to that view. Where the Legislature intended to refer to a
specific head of taxation under s. 6 of the Act as a condition for imposing an
obligation or claiming a right, the Legislature has in terms referred to such a
head. For instance, by s. 18(2) liability is imposed upon any person
responsible for paying any income chargeable under the head
"salaries" to deduct income-tax and super-tax on the amount payable.
Similarly under s. 18(3) persons responsible for paying income-tax under the
head "interest on securities" are liable to deduct income-tax and
super tax at the prescribed rates on the amount of interest payable. Section 24
enables set-off in respect of loss sustained under any of the heads mentioned
in s. 6 against income, profits 339 and gains from any other head in that year.
These are some of the provisions in which reference is made to specific heads
of taxation. But the exemption under s. 25(3) is general: it is not restricted
to income chargeable under s. 10 of the Act. Some indication is also furnished
by the scheme of sub-ss. (1) and (2) of s. 25. Under sub-s. (1) the Income-tax
Officer is given power to make what is called an "accelerated
assessment" when a business, profession or vocation is discontinued in any
year. The reason of the rule contained in s. 25(1) is to prevent loss of
revenue by the assessee discontinuing the business, profession or vocation and
frittering away or secreting the assets and income or disappearing from the
scene of his activity. But such an assessment would in the normal course have
to be in respect of the entire income of that business, profession or vocation.
If the contention of the Department that income of the business, profession or
vocation for the purpose of an accelerated assessment is to be limited only to
income on which tax is payable under s. 10 be correct, the assessment under s.
25(1) would serve little useful purpose, because income received from
securities, from dividends, from house property etc. would remain still to be
determined and brought to tax after the end of the year and in the relevant
year of assessment. Again an assessee discontinuing his business, profession or
vocation is entitled by s. 24 to set off losses in one business against profits
in another, and this right may turn out to be illusory if in the assessment of
the income of a business which is discontinued, profit and gains which fall
within s. 10 only are taken into account. The Revenue authorities, it is true,
may get a complete picture of the liability of the assessee to taxation only on
final assessment. This is not to say that a mere possibility of two assessments
is decisive of the intention of the Legislature, for if that be the test, every
person who has income received from business, profession or vocation and income
from other source would still have to be subject, after an accelerated
assessment under s. 25(1), to a final assessment in respect of the non-business
income to determine his overall liability. But the possibility of two
assessments in respect of the same business for the same year, one of which
serves no useful purpose, must be taken into account 340 in ascertaining the
meaning to be attributed to the expression "income, profits and gains of
business, profession or vocation" which is discontinued. The phraseology
of s. 25 (2) also supports the view that the income, profits and gains of business
are not restricted to profits and gains charge-able under s. 10. For failure to
give notice of discontinuance of business, penalty for an amount not exceeding
the tax assessed in respect of any income, profits or gains of the business may
be imposed. There is no local reason for restricting the penalty to the amount
of tax assessed on profits and gains determined for the purpose of s. 10.
It has also to be noticed that prior to the
insertion of sub-s. (1A) of s. 12 by s. 9 of the Finance Act, 1955, with affect
from April 1, 1955, income from dividends was chargeable not under s. 12 but
under s. 10, if the shares from which such income was received were the
stock-intrade of the assessee. The result of the insertion of s. 12(1A) is that
in respect of a business in shares dividends received from the shares were till
March 31, 1955, regarded as profits and gains of business assessable to tax
under s.
10. After the enactment of the Finance Act of
1955, dividends became chargeable under s. 12(1A) under the head "income
derived from other sources". Could it have been the intention of the
Legislature that dividend income of a business in respect of which tax was
charged under the head "Income from shares" under Act 7 of 1918 would
not, after March 31, 1955, be entitled to the benefit of the exemption under s.
25(3) merely because the head under which it was charged prior to the Finance
Act of 1955 is now the head "other sources" ? Section 2(4) of the
Indian Income-tax Act, 1922 defines "business" as including any
trade, commerce, or manufacture or any adventure or concern in the nature of
trade, commerce or manufacture. Business is therefore an activity of a
commercial nature. By s. 25(3) indisputably exemption from payment of tax was
intended to be given where there had been in respect of the same activity
double taxation when Act 11 of 1922 was enacted. If the right arises on
discontinuance of the activity styled business, 341 as s. 25(3) expressly
provides, tax in connection with that activity would prima facie be tax payable
on the income, profits and gains derived from that business activity. The heads
described in s. 6 and further elaborated for the purpose of computation of
income in ss. 7 to 10, and 12, 12A 12AA and 12B are intended merely to indicate
the classes of income: the heads do not exhaustively delimit sources from which
income arises. This is made clear in the judgment of this Court in the United
Commercial Bank Ltd.'s ,case(1) that business income is broken up under
different heads only for the purpose of computation of the total income: by
that break-up the income does not cease to be the income of the business, the
different heads of income being only the classification prescribed by the
Indian Income-tax Act for computation of income. It cannot be gainsaid that
there was on the part of the Legislature a desire by enacting s. 25(3) to give
relief to two classes of income subjected to double taxation for the income of
the year 1921-22. That this benefit was restricted to income paid by assessees
who paid tax on income derived from business and professional earnings under
the earlier Act and was not available in respect of other income, will not, in
our judgment, be a ground for giving a restricted meaning to the expression
"income, profits and gains of business, profession or vocation"
occurring in sub-s. (3) of s. 25. An intention to grant a partial exemption to
income, profits and gains of a business, profession or vocation may not be
lightly attributed to the Legislature.
There is no force in the contention raised by
counsel for the Commissioner that for the year 1921-22 interest on securities
could not be charged to tax twice over. Under the Income-tax Act, 7 of 1918, by
s. 14(2) tax was levied in respect of the year beginning from April 1, 1918 in
respect of each subsequent year, upon every assessee on his taxable income in
that year at the rate specified in Sch. 1. Section 5 of that Act classified the
income chargeable to incometax, and "Interest on securities" was
charged under s. 7 read with s. 5(ii). In respect of interest on securities by
s. 14(1) the aggregate amount of the assessee's income chargeable under each of
the heads mentioned in ss. 6 to 11 (1) [1958] S.C.R. 79 342 became taxable in
the year in which it was received. Act 7 of 1918 undoubtedly made a provision
in s. 19 for adjustment of liability to tax when the actual income was
ascertained.
Our attention has not been invited to any
provision in the Income-tax Act 7 of 1918 which excluded from liability to tax,
interest on securities for the year in which that income had accrued. By s. 3
of Act 1 1 of 1922 interest on securities earned in the year 1921-22 became
chargeable and under s. 68 of that Act which was a provision transitory as well
as repealing, machinery provided by the Inome-tax Act of 1918 was expressly
kept alive for the purpose of assessment and making adjustments under s. 19 of
the Income tax Act, 1918. Interest on securities earned in 1921-22 was
therefore chargeable to tax under Act 7 of 1918, and it was also chargeable to
tax under Act 1 1 of 1922. We are therefore unable to agree with counsel for
the Commissioner that interest on securities not being exposed to double
taxation for the year 1921-22, benefit of s. 25(3) was not admissible to that
class of income.
Counsel also contended, relying upon the
judgment of this Court in Commissioner of Income-tax, Bihar and Orissa Y.
Ramakrishna Deo(1) that it is for the
respondent to prove that the income sought to be taxed is exempt from taxation,
and unless he discharges that burden, the claim of the respondent must fail.
Undoubtedly where a doubt arises on the facts placed before the taxing
authority, whether the tax-payer is entitled to exemption from taxation under a
certain statutory provision, the burden lies upon him to establish that
exemption. But, here we are concerned not with any question of burden of proof,
but with a question of interpretation whether the exemption which is admittedly
given by s. 25(3) operates in respect of the entirety _of the business income
for the year in question in the course of which the business is discontinued or
whether it applies only to that class of income which is taxable under the head
it profits and gains of business." carried on by the assessee in that
year.
Section 26 on which reliance was placed by
counsel for the Commissioner also may be noticed in this connection.
(1) [1959] Supp. 1 S.C.R. 176 343 That
section provides for a scheme of assessment when there is change in the
constitution of a firm or succession to a business. The section applies not to
discontinuance of business, but to changes in the constitution of the assessee
firm and to succession to business. Under sub-s. (1) if at the time of making
an assessment it be found by the Income tax Officer that a change has occurred
in the constitution of a firm or that a firm has been newly constituted, the
firm as constituted at the time of making the assessment has to be assessed.
But the income, profits and gains for the previous year for the purpose of
inclusion in the total income of the partners must be apportioned between the
partners who in such previous year were entitled to receive the same. If the
tax assessed upon a partner cannot be recovered from him it may be recovered
from the firm as constituted at the time of making the assessment. This
provision deals with the machinery of assessment and not with computation of
income, nor with exemption from liability to tax. Sub-section (2) of s. 26
deals with cases of succession to any person carrying on any business,
profession or vocation by another person carrying on business, profession or
vocation in such capacity, and provides that the person succeeding is, subject
to the provisions of sub-s. (4) of s. 25, liable to be assessed in respect of
his actual share of the income, profits and gains of the previous year. But the
proviso enacts that if the person succeeded in the business, profession or
vocation cannot be found, the assessment of the profits of the year in which
succession took place upto the date of succession, and for the previous year,
shall be made on the person succeeding in like manner and in the same amount as
it would have been made on the person succeeded or when the tax in respect of
the assessment made for either of such years assessed on the person succeeded
cannot be recovered from him, it shall be payable by and recoverable from the
person succeeding. This clause also deals with liability to assessment and
payment of tax and not with the computation of income and whatever
interpretation may be placed on s. 26 as to the extent of liability incurred by
a successor to a business, profession or vocation, it is not indicative of the
extent or of the field of the right to claim exemption under 344 s. 25 (3).
Section 26 provides for apportionment of liability to tax in case of change in
the constitution of firms and succession to persons carrying on business: it
directs apportionment of tax liability in respect of the actual share of the
successor and the person succeeded. The fact that under sub-s. (2) of s. 26
liability is imposed upon the successor to pay tax on behalf of his predecessor
or to be assessed in respect of the income of the person succeeded for the
previous year, will not, in our judgment, be sufficient to hold that the
exemption which has been granted in consequence of double taxation under the
Acts of 1918 and 1922 also must be restricted to income which is taxable under
s. 10.
We may briefly refer to the decision of this
Court in The Commissioner of Income-tax, Madras v. The Express Newspapers
Limited, Madras(1). In that case Free Press Limited-a Private
Company-transferred its business on August 31, 1946 to the assessee the Express
Newspapers Ltd. and thereafter resolved to wind up its business voluntarily. An
amount of Rs. 2,14,000/was assessed in the relevant year of assessment as
business profit of the transferor company taxable under s. 10(2) (vii) and Rs.
3,94,576/taxable as capital gains. The business profit was held to be not
taxable because it accrued in a winding up sale and not in a trading venture.
Liability of the second amount to tax as capital gains was not canvassed, but
it was contended by the Express Newspapers Ltd. that as successor to the Free
Press Ltd., it was not liable to be assessed under s. 26(2). In examining the
scheme of s. 12B it was observed:"Under that section the tax shall be
payable by the assessee under the head capital gains in respect of any profits
or gains arising from the sale of a capital asset effected during the
prescribed period. It says further that such profits or gains shall be deemed
to be income of the previous year in which the sale etc. took place. This
deeming clause does not lift the capital gains from the 6th head in s. 6 and
place it (1)[1964] 8 S.C.R. 189 345 under the 4th head. It only introduces a
limited fiction, namely, that capital gains accrued will be deemed to be income
of the previous year in which the sale was affected.
The fiction does not make them the profit or
gains of the business. It is well settled that a legal fiction is limited to
the purpose for which it is created and should not be extended beyond its
legitimate field. Subsection (2A) and (2B) of s. 24 provide for the setting off
of the loss falling under the head "capital gains" against any
capital gains falling under the same head. Such loss cannot be set off against
an income falling under any different head. These three sections indicate
beyond any doubt that the capital gains are separately computed in accordance
with the said provisions and they are not treated as the profits from the
business. The profits and gains of business and capital gains are two distinct
concepts in the Income tax Act:
the former arises from the activity which is
called business and the latter accrues because capital assets are disposed of
at a value higher than what they cost to the assessee.
They are placed under "different heads;
they are derived from different sources; and the income is computed under
different methods.
The fact that the capital gains are connected
with the capital assets of the business cannot make them the profit of the
business. They are only deemed to be income of the previous year and not the
profit or gains arising from the business during that year." Dealing with
s. 26(2) it was observed the expression "profits" in the proviso
makes it clear that the income, profits and gains in sub-s. (2) of s. 26 only
refer to the profits under the 4th head in s. 6. On the other hand, if the
interpretation sought to be put upon the expression "income" in
sub-s. (2) of 346 s. 26 by the Revenue is accepted, then the absence of that
word in the proviso destroys the argument. But the more reasonable view is that
both the sub-section and the proviso deal only with the profits under the 4th
head mentioned in s. 6 and, so construed, it excludes capital gains. The
argument that sub-s. (2) of s. 26 read with the proviso thereto indicates that
the total income of the person succeeded is the criterion for separate
assessment under sub-s. (2) and for assessment and realisation under the
proviso is on the assumption that sub-s. (2) and the proviso deal with all the
heads mentioned in s. 6 of the Act. But if, as we have held, the scope of
sub-s. (2) of s. 26 is only limited to the income from the business, the share
under subs. (2) and the assessment and realisation under the proviso can only
relate to the income from the business. The argument is really begging the
question itself." It is obvious that the Court in that case held having
regard to the special nature of "capital gains" which are not in
truth income, but are deemed income for the purpose of taxation and the
phraseology used, that the liability of the successor under the proviso to s.
26 (2) is only in respect of tax on income, profits and gains of the business
strictly so-called, to be computed under s. 10 read with s. 6 (iv) and not in
respect of all receipts which may be regarded as income of the business. The
schemes of s. 25(3) and s. 26(2) proviso are different. The first grants an
exemption because there has been a double levy of tax, and an intention to
exempt all income, profits and gains of business from taxation may be
attributed to the Legislature.
Section 26(2) fastens liability of the
predecessor, if he cannot be found, upon the successor and must be strictly
construed. The Legislature has imposed by s. 26(2) liability upon the successor
to be assessed for profits earned in a business carried on by his predecessor,
and unless there is a clear intention expressed 347 in the statute to include
in that expression what in reality is not income, but is deemed income, the
liability to assessment would justifiably be limited to profits of the business
which is computable under s. 10.
The appeals therefore fail and are dismissed
with costs.
One hearing fee.
Appeals dismisses.
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