1. This is a reference by the Appellate Tribunal, at the instance of the Commissioner of Income-tax, Lucknow, under Section 66(1) of the Indian Income-tax Act, 1922, (hereinafter referred to as "the Act"). The statement of the case relates to the assessment year 1945-46. The relevant previous year ended on October 15, 1944.

2. The material facts are these. The late Ganga Sagar Jatia carried on business of cotton ginning and commission agency in cotton and he had also income from property and dividends. He was an assessee under the Income-tax Act of 1918 (Act VII of 1918). He died on September 22, 1944, leaving behind him his widow, Smt. Indermani Jatia, but no issues. Smt. Indermani succeeded to the assets left by her deceased husband and the businesses and she continued to carry on the same.

3. For the relevant assessment year 1945-46 the Income-tax Officer computed the total income of the assessee, the late Ganga Sagar Jatia, under the following heads :

Property 27,268 Business 31,762 Dividend 3,51,529 Directors' fees 4,130 Other sources 90,000 Total 5,04,689

4. Before the Income-tax Officer Smt. Indermani contended that as her late husband was an assessee under the Indian Income-tax Act of 1918 and she had succeeded to the business and the vocation carried on by him, she was entitled to the relief under Section 25(4) of the Act. She claimed that such relief was allowable on the profits of the businesses and also on the income from all assets which she had inherited from her husband including immovable properties and shares of joint stock companies. Her contention was that all these assets were assets of the businesses, which her husband used to carry on and they were shown in the balance-sheets as such. The Income-tax Officer by his order dated February 17, 1955, which is annexure "A" to the case, held that the only relief which is admissible under Section 25(4) was in regard to the sum of Rs. 31,762 which had been assessed as income from the business under Section 10 of the Act. The Income-tax Officer held that no further relief was admissible to the assessee.

5. Smt. Indermani then filed an appeal before the Appellate Assistant Commissioner against the order of the Income-tax Officer. It was contended on her behalf that the Income-tax Officer should have allowed relief not only with regard to the income from business assessed under Section 10 but also with regard to the income from property and shares which were held as assets of the business. The Appellate Assistant Commissioner was of the view that the shares and properties held by the assessee were not, in reality, the assets of the business or vocation carried on by him. He agreed with the Income-tax Officer that relief under Section 25(4) could not be allowed in respect of dividend income of Rs. 3,51,529 and property income of Rs. 27,268 nor with regard to the sum of Rs. 90,000 which had been assessed as the the assessee's income from "other sources". He confirmed the order of the Income-tax Officer allowing the assessee relief under Section 25(4) in respect only of the business income of Rs. 31,762 which had been assessed under Section 10 of the Act.

6. When the case came to the Tribunal, on appeal by Smt. Indermani, a different view was taken of the matter. Before the Tribunal both the parties accepted that the shares as well as the immovable properties were held as business assets. The department, however, still maintained that the income from properties and shares, which were assessable under Sections 9 and 12 of the Act, did not qualify for relief under Section 25(4). The contention on behalf of the department appears to have been that only income from business, which was assessable under Section 10 of the Act, was entitled to the relief. The Tribunal negatived the contention of the department and allowed the appeal of the assessee. The Tribunal relied on the decision of the Bombay High Court in Commissioner of Income-tax v. Chugandas and Co. Commissioner of Income-tax v. Chugandas and Co., [1960] 38 I.T.R. 341. and concluded that the relief under Section 25(4) was allowable in respect of the entire income from the assets of the business irrespective of the heads under which the same might have been charged to tax.

7. At the instance of the Commissioner of Income-tax the following question has been referred to this court for opinion :

"Whether, on the facts and in the circumstances of the case, relief under Section 25(4) of the Indian Income-tax Act, 1922, is restricted only to the profits and gains assessable under Section 10 of the said Act ?"

8. The view taken by the Tribunal, as already stated, was based on a decision of the Bombay High Court in the case of Commissioner of Income-tax v. Chugandas & Co.. The decision of the Bombay High Court in that case was subsequently affirmed by the Supreme Court. The decision of the Supreme Court is reported as Commissioner of Income-tax v. Chugandas & Co., [1965] 55 I.T.R. 17 (S.C.). It was a decision on the terms of Sub-section (3) of Section 25 which relates to the relief allowable to an assessee, who had been assessed under the act of 1918 (act no, vii of 1918), on the discontinuance of his business. subsection (4) of section 25, with which we are concerned in this case, relates to succession to the business of an assessee, who had, at any time, been charged under the provisions of the Act of 1918. In order to appreciate the ratio of the decision of the Supreme Court in Chugandas's case and to consider its bearing on the facts of the present case, it would be necessary to set out the terms of both the sub-sections. Sub-section (3) of Section 25, omitting portions not material to our purpose, is as follows :

"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 ....."

9. The conditions required to be satisfied to attract Sub-section (3) are :

1. the business, profession or vocation must be one on which tax was at any time charged under the 1918 Act; and

2. the case must be one where there has been a discontinuance of the business and there has been no succession thereto attracting the application of Sub-section (4).

10. Sub-section (4) gives relief in the case of succession to a business taking place after the commencement of the Indian Income-tax (Amendment) Act, 1939. The material portion of Sub-section (4) is as follows:

"Where the person who was at the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first-mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person 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..."

11. The requisite conditions necessary to attract the provisions of subsection (4) are:

1. the business, profession or vocation must have been charged at any time under the 1918 Act;

2. there must be a succession to the business, profession or vocation, the change not being merely a change in the constitution of a partnership ; and

3. the person claiming the relief must have been carrying on the business, profession or vocation at the commencement of the Amending Act of 1939, i.e., the 1st April, 1939.

12. It would appear that under Sub-section (3) relief is allowable in respect of the income of any "business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918" if such business was discontinued in the relevant previous year. Similarly, under Sub-section (4), relief is allowable in the case of succession to a person who was, at the commencement of the Amending Act 1939, carrying on any "business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918". The words "business, profession or vocation" occurring in Sub-section (3) came in for the interpretation of the Supreme Court in the case of Chugandas & Co. referred to above. In that case the assessee was a dealer in securities which constituted its stock-in-trade. The assessee had been charged to tax under the Indian Income-tax Act, 1918, in respect of its business. In the years 1946 and 1947 the assessee had received the sums of Rs. 4,13,992 and Rs. 1,01,229 as interest on securities. The assessee-firm discontinued its business on June 30, 1947. In the proceedings for assessment for the years 1947-48 and 1948-49 the assessee-firm claimed exemption from payment of tax on income earned in the relevant previous year on the ground that the firm had been carrying on business from before the year 1922 and tax had been charged on such business under the provisions of the Act of 1918. The Income-tax Officer held that interest earned by the firm on securities being liable to be assessed to tax under Section 8 and not under Section 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 by the Appellate Assistant Commissioner but reversed by the Appellate Tribunal. The Appellate Tribunal held that the firm was entitled to the benefit of the exemption in regard to the entire income of the business including income from securities in the year in which the business was discontinued. The Commissioner of Income-tax, thereupon, carried the matter in reference to the High Court of Bombay. The majority of the court held that all income earned by the assessee by carrying on business qualified for the exemption. The decision of the Bombay High Court, as already noted, is reported in 39 I.T.R. 241. The Supreme Court agreed with the majority decision of the High Court and observed that there was no reason to restrict the applicability of the exemption only to income which was taxable under Section 10(1). The relevant observation by the Supreme Court on the interpretation of Section 25(3) may be quoted below:

"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-section (3) of Section 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 Subsection (3) such a restricted meaning. Sub-section (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."

13. Elucidating the matter further their Lordships remarked that the different heads of income mentioned in Section 6 of the Act do not exhaustively delimit sources from which income arises. Business, in terms, their Lordships pointed out, 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 Act for computation of income. It would be noticed that Sub-sections (3) and (4) of Section 25 both relate to income from any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918. Hence, what the Supreme Court has said about the true connotation of the words "business, profession or vocation" mentioned in Sub-section (3) would apply, with equal cogency, to the same words occurring in subsection (4) and the different items of income earned by the assessee from the business activities carried on by him would qualify for the exemption irrespective of the consideration whether the items of income are assessable under Sections 8, 9 or 10. The exemption is not to be limited to the income from business taxable specifically under Section 10(1) of the Act.

14. In a recent case, E. D. Sasoon & Co. Ltd. v. Commissioner of Income-tax, [1968] 70 I.T.R. 561, the Bombay High Court expressed the same view following the decision of the Supreme Court in Commissioner of Income-tax v. Chugandas & Co. The facts in that case were as follows: For several years prior to 1920 a partnership firm was carrying on business in India in the name and style of E. D. Sasoon & Co. The business was that of bankers, commission agents, agents of joint-stock companies and as dealers in shares and securities in foreign exchange. In the year 1920 the business of the firm as a going concern was taken over by the assessee-company. The assessee-company, however, went into liquidation in the year 1948 and ceased to do business. Since the company discontinued its business in the accounting year 1948, it claimed relief in respect of the income which it had earned in that year, under Section 25(3), on the ground that its business was charged to income-tax under the Act of 1918. The claim of the assessee was concurrently negatived by the income-tax authorities as well as by the Appellate Tribunal. On reference, however, the Bombay High Court allowed the claim for. exemption and observed that the word "business" in Section 25(3) does not refer to the head of charge which is referred to in Section 6, read with Section 10, but it implies "business" in a very general sense and includes within it all the heads of charge mentioned in Section 6. The court further observed that there is no reason to restrict the condition of the applicability of the exemption only to income on which tax was payable under Section 10(1) of the Act.

15. In the present case, as already noted, it was conceded by both the parties before the Appellate Tribunal that "shares as well as the immovable properties were held as business assets". The word "business" has been defined in Section 2(4) of the Act as follows :

"'Business' includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."

16. The definition, it would be noticed, is inclusive. The general connotation of the term "business" was laid down by the Supreme Court in the case of Narain Swadeshi Weaving Mills v. Commissioner of Excess Pro/its Tax, [1954] 25 I.T.R. 765, 773 (S.C.) in the following words :

"The word 'business' connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose."

17. In the wider sense all income, profits or gains resulting from the exploitation of assets of the business might be regarded as income, profits or gains of the business. Business assets not only include the stock-in-trade, or the circulating capital but also fixed assets including investments. Such assets are shown on the assets side of the balance-sheet of the business. The assessee claimed that the shares and immovable properties had been shown as assets of the business in his balance-sheets all along by the late Ganga Sagar Jatia. As already pointed out, it was common ground before the Tribunal that the shares and the immovable properties were held by the assessee as assets of the business. That being so, the entire income earned by the assessee by exploitation of the assets of the business, profession or vocation should be entitled to the exemption under Section 25(4) of the Act although the different items of income derived from the different assets might be assessable under different heads.

18. Our answer, therefore, to the question referred by the Tribunal is in the negative and in favour of the assessee. The assessee will get Rs. 200 from the Commissioner of Income-tax as the costs of this reference.