JUDGMENT Malik, C.J.
1. These two references are Under Section 66 (2), Income-tax Act, in the matter of the income-tax assessment of Messrs. Jagannatb Ramdayal of Kanpur.
2. The same question has been referred to us for opinion in both these cases. The question referred is as follows:
"Whether, in all the circumstances of the case, the sum of Rs. 92,188/- being the balance of Rs. 1,56,657/- less Rs. 64,469/- already taxed, or any part thereof may be deemed in law to be the income, profits or gains of the 'previous year' which can be assessed to income-tax in the assessment year 1938-1939?"
3. The assessee is a Hindu undivided family. The assessment year in question is 1938-1939 and the account year began on 28th September 1936 and ended on some date in September 1937. The assessee carries on business in Kanpur.
4. This Hindu undivided family was a partner in the Upper Indian Ghorwari Collieries at Hirdaigarh in the Central Provinces (hereinafter referred to as "the Collieries"). The share of the family was six annas. The collieries was assessed to income-tax in the Central Provinces and the assessment used to be made by the Income-tax Officer of Chhindwara. Each year the Income-tax Officer of Chhindwara used to report the amount of the profits corresponding to assessee's six annas share and the Income-tax Officer at Kanpur used to add the amount so reported to the taxable income of the Hindu undivided family.
5. The collieries had been taken on lease by the partnership for a period of ten years from 1926 and the period expired on 15th September 1936. The assessment of the collieries commenced from 1928-1929 and the last assessment was made in the year 1937-1938 and the profit which was supposed to be the profit corresponding to six annas share of the Hindu undivided family was reported by the Income-tax Officer of Chhindwara to the Income-tax Officer at Kanpur and was duly included by the Income-tax Officer of Kanpur in the amount of taxable income in the assessment year 1937-1938.
6. In the year 1938-1939 when going through the account books at Kanpur of the Hindu undivided family the Income-tax Officer found that there was a ledger head in the name of Budhu Lal Jagannath. In this account were entered the sums that were from time to time sent to the "collieries" from Kanpur and the amounts received from there. The total sums received from the "collieries" during the ten years that the "collieries" business was in existence was Rs. 1,54,697/- while the amount of debit, that is, sums sent to the collieries at Hirdaigarh came to only Rs. 84,125/-. There was thus a surplus balance of Rs. 70,572/-. The account had not been finally closed and the surplus balance was carried over to the next year.
7. The Income-tax Officer further found that there were items amounting to Rs. 48,700/-, received from the collieries in the sambat year 1992-1993, which were entered in the cash book, but which were not posted in the ledger account of Budhu Lal Jagannath. These items were received on seven dates. In the Sambat year 1993-1994 these sums were taken away by one Chunni Lal. A further sum of Rs. 37,385/- had been debited to Hirdaigarh collieries account and credited to Chunni Lal's account at the close of the business i.e., in September 1936.
8. It was originally claimed that Chunni Lal was some sort of a sub-partner of the Hindu undivided family and held a general power of attorney from Jagannath, the karta of the family, to look after the collieries business on behalf of the family, but there is no dispute now that the total sum mentioned above was the assessee's share of profits in the collieries.
9. During the ten years that the collieries business had been carried on the total amount of profit, of the share of the assessee, on which income-tax had been charged was Rs. 64,469/-. The income-tax authorities have from the total of the three figures i.e., Rs. 70,572/-, Rs. 48,700/- and Rs. 37,385/- deducted the sum of Rs. 64,469/- and have treated the balance of Rs. 92,188/- as the profit of the "previous" year taxable in the year 1938-1939.
10. If the sum of Rs. 1,56,657/- was to be treated as the profit made in the "previous year," it is difficult to understand why the sum of Rs. 64,469/- should be deducted from it and Rs. 92,118/-, the balance, treated as the profit of the "previous" year taxable in the assessment year 1938-1939. Rupees 64,469 was subjected to taxation as profits not of the previous year to the assessment year 1938-1939, but as the profits made prior to the previous year during the period that the collieries business had been carried on from 1926 to 15th September 1936.
11. If the assessee had not been declaring, his profits correctly in the previous years with the result that this amount had escaped assessment in the course of ten years the sum could not be treated as profit for the "previous" year merely on that account. The argument on behalf of the Commissioner of Income-tax is that, as the ledger account of Budhu Lal Jagannath was a running account up to the time when the collieries business was carried on and as the collieries business came to an end on 15th September 1936, and several months must have been required to wind up the entire business, the balance left over after the business was finally wound up should be deemed to be the profit of the "previous" year.
12. Reliance has been placed on behalf of the Commissioner of Income-tax on the decision of their Lordships of the Judicial Committee in the case of Commissioner of Income-tax, B. and O. v. Kameshwar Singh, 1933-1 I. T. R. 94 (A. I. R. (20) 1933 P. C. 108). The assessee in that case carried on money-lending business and kept his account books on a system which their Lordships have characterised as a hybrid system. It was the assessee's practice to enter sums as he received them in a deposit register without discriminating between interest and capital payments and then subsequently to treat as income such portions of these sums as he chose to allocate to interest. The Income-tax Officer accepted the assessee's allocation of sums received in previous years and treated as interest received in that year and added to it the amount allocated by himself as interest from the sums received by the assessee in the account year. Their Lordships of the Judicial Committee observed as follows:
"What the officer is directed to compute is not the assessee's receipts but the assessee's income and in dubio what the assesses himself chooses to treat as income may well be taken to be income and to arise when he so chooses to treat it. The Bums which the officer has brought into account from the interest register in so far as consisting of allocations from sums received in previous years have never borne tax and in their Lordships' opinion the assessee cannot complain If the officer agrees with the assessee In treating them as income of the year in which the assessee himself first thought fit so to regard them Their Lordships see nothing contrary to principle in the computation of an assessee's total income for a particular year as consisting in part of actual receipts in that year and in part of sums carried by the assessee to income account in that year out of the receipts of previous years which have been held in suspense and no part of which has previously been returned as income. Their Lordships do not find that the Income-tax Officer in the present case has acted in any way illegally in computing the profits of the transactions in question for the year 1332 Fasli by taking into account both actual receipts of interest in that year and sums treated by the assessee in that year as receipts of interest by their transference to the interest register from what for this purpose may be regarded as a suspense account."
13. It would be clear from what has been quoted above that the money received in previous years was treated as income for the relevant year only on the ground that the assessee had himself chosen to treat it as income of that year. Their Lordships' decision only amounts to this, that if an assessee carries on a method of accounting of his own and chooses to keep certain monies in suspense account and treat it as income of a particular year he cannot object if the Income-tax Officer accepts the assessee's own treatment of the amount as the income for that year. So far as the Income tax Officer is concerned he has been given no right to treat the income received in a previous year as income for a particular year merely on the ground that that income was detected in that particular year and had escaped assessment in the previous years.
14. The sum of Rs. 70,572 is the balance of the credit and the debit side of the khata in the name of Budhu Lal Jagannath in the account books of the assessee. I fail to see how it can be said that the assessee treated it as his share of the profits of the "previous year" for the purposes of assessment for the year 1938-39. As regards the sum of Rs. 37,385/- all that hag happened is that this amount has been transfer. red from the khata of Budhulal Jagannath to the account of Chunni Lal and one Shambhu Nath Jageshwar. I fail to see how it can be said that merely by reason of this transfer it should be deemed that the assessee decided to treat it as the profits made in the "previous" year. The sum of Rs. 48,700/- was not even entered in the ledger of Budhu Lal Jagannath. The money was received in sambat 1992-93, that is, prior to the "previous" year, the receipt of the money was entered in the cash book and then the amount was transferred to the account of Munni Lal Chunni Lal, Chum Lal Shambhu Nath and Jagannath Jageshwar. I fail to see how these sums could be said to have been treated as profits which had accrued to the assessee in the year in question i.e. in the sambat year 1993-94.
15. It is true that these are sums which have never borne tax. It is also true and the fact was not disputed that these are suppressed profits but I fail to see on what material it can be held that the assessee decided to treat these sums as profits for the previous year. From the way that the Income tax Officer has acted in deducting Rs. 64,469/- from the total amount it is clear that the sum of Rs. 1,56 657/- was treated as the income made during the whole of the ten years when the partnership business was being carried on.
16. My answer to the question referred to us is that the sum of Rs. 92,188/- cannot be deemed to be the income, profits or gains of the previous year which can be assessed to income tax in the assessment year 1938-39. The assessee is entitled to his costs which we fix at Rs. 500/-.
Seth J.
17. I agree and do not wish to add anything.
18. The answer of the Court to the question referred to us is that the sum of Rs. 92,188/- cannot be deemed to be the income, profits or gains of the previous year which can be assessed to income-tax in the assessment year 1938-39. The asssssee is entitled to his coats which we fix at Rs. 500/-.