S. NARAYANAN, A.M. Order These three appeals raise common contention. They are taken up for disposal by this consolidated order. 2 . assessee is individual. He is managing director of Sphinax Chemical Industries (P) Ltd. He gets salary from company. This has been assessed under head `Salaries' for three assessment years in appeal here, viz., 1976-77, 1977-78 and 1978-79. There is no dispute that correct head of income is `Salaries'. dispute is, however, with regard to quantum of salary assessable for each of above years. Revenue's claim is : accounting year for salary income can only be financial year for each of assessment years above, there being no accounts maintained by assessee for such source. On other hand, assessee's claim has been : employer-company follows accounting years for his salary income could and should be only as under : Accounting Asst. year claimed by Remarks Yr. assessee assessee started earning salary from 1st Dec., 1975. company's accounting year ended on 31st July, 1976. Hence, there was no 1976- s l r y income assessable for this . 77 assessment year. (The salary for period 1st Dec., 1975 to 31st July, 1976 was, therefore, shown by assessee as income assessable for next assessment year) 1977- 1-12-1975 ----- 78 to 31-7-1976 1978- 1-8-1976 ----- 79 to 31-7-1977 3 . Shri M. Naganathan, authorised representative of assessee, pointed out that assessments for first two years had been reopened u/s 147(a) of IT Act, 1961 ("the Act") to redetermine salary income on basis of previous year being financial year concerned, but that, however, no objection has been taken to validity of action u/s 147(a). Shri Naganathan's grievance is that in terms of s. 3(3) of Act assessee had option to choose previous year for his salary income. In accordance with this specific right conferred by legislature, assessee chose accounting year opening with 1st of August and ending with 31st July of following year as his accounting year for his salary income, and authorities were, therefore, not justified in rejecting his claim. Shri Naganathan relied on decision of Andhra Pradesh High Court in Addl. CIT vs. K. Ramchandra Rao (1981) 20 CTR (AP) 60 : (1981) 127 ITR 414 (AP). 4. For Revenue Shri A. B. Martin David supported ITO's action. He pointed out that no doubt for first two years, assessments were originally completed accepting asses' previous year for salary income as correct. Accordingly, salary income was taken at nil for asst. yr. 1976-77 and salary of Rs. 26,990 (drawn for period 1st Dec., 1975 to 31st July, 1976) was assessed for asst. yr. 1977-78. Both these assessments were incorrect in law as in these assessments were incorrect in law as in absence of assessee having chosen to maintain any accounts for salary income, assessments could have been only on basis of financial year as previous year. ITO, therefore, reopened assessments u/s 147(a) and revised total income for these two years as under : Income Asst. Income assessed under section originally Yr. 147(a) assessed Rs. 38,601 (salary income was 19761- Nil included at Rs. 10,000 accounting 77 77 period being 1-12-1975 to 31-3-1976). Rs. 41,169 (salary income of Rs. 1977- Rs. 32,667 included by con-considering 78 29,000 salary drawn for period 1-4-1976 to 31-3-1977). There was not reassessment. original assessment itself is in 1978- Rs. appeal. Salary included in this 79 44,940 assessment is for period 1-4-1977 to 31-3-1978. 5 . Shri Martin David refers in this connection to AAC's consolidated order for these three years. AAC rejected assessee's contentions holding that so far as head of income `Salaries' was concerned, previous year could be only financial year. No doubt in K. Ramachandra Rao's case (supra) court accepted different previous year, also for income from salary but that case was distinguishable on facts, i.e. salary income there was that drawn by judge of High Court. Such salaries are paid under Art. 2 21 read with Second Schedule to Constitution of India. being payable from out of consolidated fund of State. Hence, it constituted `separate and distinct' source of income. Secondly, in that case finding of Tribunal was that accounts for this new source of income `were opened on 21 st Aug., 1968 and were made up till 31st July, 1969'. Both these features (according to Shri Martin David) being absent in this case, assessee's reliance on K. Ramachandra Rao's case (supra) in misplaced. 6. first question is whether there could be previous year other than financial year for income from salary. In view of ruling in K. Ramachandra Rao's case (supra) this question has to be answered in affirmative. We do not think it necessary that to constitute such separate source, salary has to be paid under constitutional provision from out of Consolidated Fund of India. Salary per se is `separate and distinct' source of income and is distinguished as such from other specified sources of income in Act itself. 7 . Sec. 3(1)(a) provides that `previous year' means financial year immediately preceding assessment year. However, s. 31(1)(b) provides that i f accounts of assessee had been made up to date within said financial year, then, at option of assessee, twelve months ending on such date. Sec. 3(3) goes on to add, `subject to other provisions of s. 3,' assessee may have different previous years in respect of separate sources of h i s income. various other provisions in s. 3 deal with income from business or profession including share of profits of partner from firm. These are not relevant. In light of provisions of s. 3, which are relevant, no serious objection can be raised if assessee makes up his accounts for period other than financial year with regard to his salary income also, especially in light of decision in K. Ramachandra Rao's case (supra). But in this case assessee cannot get benefit of s. 3(1)(b). Admittedly, he has not kept any books of account or similar record on basis of any previous year for his salary income. result is, case is covered by s. 3(3), in our view, is misplaced because that merely enables enables assessee, where he maintains accounts for any source of income; where no accounts at all are kept, s. 3(3) does not operate. In result, we do not find it possible to interfere with orders of authorities dismissed. 8. appeals are dismissed. PER T.N.C. RANGARAJAN, J.M. admitted facts in this case are as follows : assessee is individual. For asst. yr. 1976-77 corresponding to previous year ended 31st March, 1976, assessee filed return on 27th Sept., 1976 showing income from property and business and other sources. Under head `Salaries', assessee did not show any income as assessee had resigned from job which he had in preceding accounting year itself. assessment was completed on 30th June, 1978 on total income of Rs. 30,600 taking income from salary at nil. For next asst. yr. 1977-78, assessee filed return on 27th Oct., 1977 in which under head `Salaries' income shown was Rs. 17,000. In statement annexed to return, assessee explained that this income represented managing director's remuneration from Sphinax Chemical Industries (P) Ltd. for period ended 31st July, 1976 amounting to Rs. 20,000 less standard deduction of Rs. 3,000. assessee had also filed certificated of deduction of tax from income charged under salaries showing income of Rs. 20,000 for period December 1975 to July 1976. assessment was completed, accordingly, on 6th Nov., 1979 taking income from salary at Rs. 17,000. For next asst. yr. 1978-79, assessee showed income from salary at Rs. 30,500. statement filed along with return explained that this was managing director's remuneration from Sphinax Chemical Industries (P) Ltd. for period ended 31st July, 1977 amounting to Rs. 34,000 less standard deduction of Rs. 3,500. certificate of deduction of tax was also filed showing that income was for period August 1976 to July. But ITO was of view that in case of salary, previous year should be taken as year ending with 31st March and he proposed to assess salary income accordingly and, therefore, issued notice under s. 148 of Act in respect of preceding asst. yrs. 1976-77 and 1977- 78 to notices and stated that he was appointed as managing director of Sphinax Chemical Industries (P) Ltd. which came into existence only in November 1975, that first accounting year of company ended on 31st July, 1976 and, therefore, he had adopted previous year for income from that source as year ended July 1976. ITO, however, rejected this contention by standing that under s. 3 if not business is done by assessee, previous year to be adopted is only financial year to be adopted is only financial year and assessee has no option to adopt different previous year. He, accordingly, revised assessment for earlier years also and brought to tax salary income of each financial year amounting to Rs. 38,601 for 1976-77, Rs. 41,169 for 1977-78 and Rs. 44,940 for 1978-79. 10. assessee appealed and pointed out to AAC that as managing director, income, but also commission based on profits earned by company and, therefore, it was necessary to adopt as his previous year for this source of income same accounting year as that of company. AAC, however, rejected this contention on ground that as far as income under head `Salaries' is concerned, previous year could only be financial year. 11. In appeals before us, contention of assessee is that 11. In appeals before us, contention of assessee is that authorities below were in error in proceeding on basis that were in error in proceeding on basis that assessee could never have different previous year for income assessable under head `Salaries'. Reliance was placed on decision of Andhra Pradesh High Court in case of K. Ramachandra (supra). On other hand, contention of Revenue is that salary income could be assessed only on basis of financial year as accounting year. This contention of Revenue appears to be opposed to provisions of s. 3 which defines `previous year' to mean (a) financial year immediately preceding assessment year, or (b) if accounts of assessee have been made up to date within said financial year, the, at option of assessee, twelve months ending on such date. Clearly, therefore, assessee is entitled to choose different previous year if accounts of assessee had been made up to date within financial year relevant to assessment year. Hence, only question that survives for consideration is whether accounts of assessee have been made up to date within financial year. On this issue, contention of Revenue is that assessee not having any accounts for income derived under head `Salaries', provisions of s. 3(1)(b) should not at all apply. answer of assessee to this contention is that very fact that assessee has filed return along with statement showing income computed on basis of accounting year of company satisfied this provision. It does not appear that when s. 3(1)(b) talks of accounts being made up, it could refer to any regular books of accounts maintained by assessee because even in case of K. Ramachandra Rao (supra), we do not find any reference to assessee maintaining regular books of accounts, such as, cash book, ledger, etc. That was case of judge of High Court who was only getting monthly salary and it would be difficult to imagine maintenance of regular cash book only to show receipt of salary in each. Month. If that was all that was required, it would be quite easy for assessee even in present cash to prepare note book showing his monthly income and close accounts up to July of every year for purpose of satisfying that definition. expression `accounts being made up to date' must' therefore, mean something else if it is to be meaningful. generally accepted definition of accounting describes it as `.........the art of recording, classifying and summarising in significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting results thereof' (American Institute of Certified Public Accountants. Committee on Terminoloty, Accounting Terminology Gulletin No. 1, New York). Yorston's Advance Accounting (Vols. 1 and 2, Sixth Edition) says `Accounting which has been referred to as language of business is not end in itself, it is essentially service function designed to provide relevant information concerning entity for those who are interested in interpreting and using that information. It follows that if it is to be useful, accounting must be adapted to particular needs of enterprise and of those interested in it'. It is further stated that accounting period is interval of time at end of which income or revenue statement and balance sheet are prepared in order to show result of operations and change in resources which have occurred since previous statements were prepared since previous statements were prepared. This shows that s. 3(1)(b) does not refer to mere recording of entries relating to financial transactions but to striking up of result over period of time and, hence, expression `made up' if it should be meaningful, must relate only to statement prepared by assessee determining results of transactions over period of time. Obviously, there is difference between expression `accounts being made up' and `accounts being maintained' because this expression cannot refer to mere recording of transactions but must refer to taking stock of transactions but must refer to taking stock of transaction over period to time. Looked at from this point of view, it is quite reasonable for assessee to claim that since his income is derived as salary and commission from company in which he was managing directors, it would be appropriate to determine financial position on same date on which company also makes up its accounts. If only objection of Revenue is that there is not evidence to show that assessee has made up its accounts on date company has classed its accounts, we need only refer either to statement filed along with return showing income of assessee from under head `Salaries' determined at end of accounting period of company or if necessary to certificate of deduction of tax at source given by company. If can even be said that ledger page maintained by company in which salary and remuneration paid to managing director is credited could as well be regarded as accounts maintained by company on behalf of assessee if section had required that assessee should have maintained accounts instead of only making up accounts. But it is necessary to go that extreme step of recognising account of company as that of assessee as it would be sufficient to confine to statement filled with return which shows that assessee had consciously adopted year ending July as year of account as far as income under head `Salaries' is concerned. There is no reason to reject this claim especially when it would be so convenient for assessee as well as ITO who could easily verify income accruing to assessee with reference to books of company and, hence, there could not be any valid reason for rejecting claim of assessee. In circumstances, original assessments made for asst. yrs. 1976-77 and 1977-78 were correct and need not have been revised at all. assessment for asst. yr. 1978-79 should, therefore, follow income under head `Salaries' having been already adopted for first assessment year as year ended July, income for this assessment year also should be determined on same basis. orders of authorities below for asst. yrs. 1976-77 and 1977-78 are cancelled and original assessments made for these assessment years are restored. orders of authorities below for asst. yr. 1978-79 is set aside and ITO is directed to recompute total income taking income under head `Salaries' in accordance with previous year ended July 1977. appeals are allowed. ORDER UNDER SECTION 255(4) OF INCOME TAC ACT, 1961 Since there is difference of opinion on following point, matter may be placed before President. Tribunal, for hearing and deciding point in accordance with majority of those hearing case : "Whether, on facts and in circumstances of case, statement filed along with return is sufficient to show that assessee has made up his account within financial year so as to have different previous year within meaning of s. 3(1)(b) of IT Act, 1961?" PER G. KRISHNAMURTHY, V.P. On difference of opinion between my ld. brothers, President of Tribunal has nominated me as Third Member to express my opinion under s. 255(4) of Act. point of difference referred to me is as under : "Whether on facts and in circumstances of case statement filed along with return is sufficient to show that assessee has made up his account within financial year so as to have different previous year within meaning of s. 3(1)(b) of IT Act, 1961?" 13. assessee in this case is individual who is managing director of company known as Sphinac Chemical Industries (P) Ltd. from where he gets salary. This salary was assessed to tax under head `Salaries' in three asst. yrs. 1976-77, 1977-78 and 1978-79. assessee, Mr. John Peter started earning salary from 1st Dec., 1975. accounting year of company ended on 31st July, 1976. assessee adopted previous year as in case of company's accounting year and salary for period from 1st Dec., 1975 to 31st July, 1976 was offered for assessment in asst. yr. 1977- 78. contention of Revenue is that for salary income, previous year can only be financial year and, therefore, income from salary for above period should be assessed for asst. yr. 1976-77. For other two years 1977-78 and 1978- 79, assessee adopting previous year as that of company's accounting year, returned salary for subsequent two years which Revenue negatived. Another point we may notice here is that ITO had accepted assessee's contention and completed assessments originally taking income from salary for year 1976-77 at nil and at Rs. 26,990 for asst. yr. 1977-78. Thereafter, ITO reopened assessments under s. 147(a) and revised total income at Rs. 38,601 for year 1976-77, Rs. 41,169 for asst. yr. 1977-78 and for asst. yr. 1978-79 income originally assessed was Rs. 44,940 adopting financial year and, therefore, there was no reassessment. 1 4 . On rejection of assessee's contention by AAC, further appeals were preferred before Tribunal and before Tribunal, contentions raised on behalf of assessee were that in respect of income from salary, assessee can choose any previous year other than financial year if accounts are maintained. accounts maintained by company in name of assessee and copy of which was furnished to ITO, constituted account maintained by assessee in that behalf and that account must be deemed to have satisfied requirement of s. 3(1)(b). further contention was that statement filed by assessee before ITO also constituted `account'. In any case, together these two constituted `account' maintained by assessee and since that account showed previous year different from financial year, that previous year must be adopted by ITO also. Reliance was placed upon decision of Andhara Pradesh High Court in case of K. Ramachandra (supra). 15. ld. A. M. in view of ruling of Andhra Pradesh High Court in K. Ramachandra Rao's case (supra), held that there could be previous year other than financial year for income from salary if assessee maintains accounts and make them up to date within financial year. ld. J. M. also agreed with this view. Thus, there is not difference of opinion between my ld. brother on point that if account are maintained and made up to particular date, then previous year for income from salary could be that year to which accounts are made up and not financial year. But, ld. A. M. was not prepared to accept latter part of assessee's submission that copy of account maintained by company in its books or statement of accounts furnished by assessee to ITO supported by salary certificate issued by company, constituted `accounts'. His objection was that assessee had not kept any books of accounts or similar record on basis of any previous year for his salary income. But dl. J. M. was of different opinion. ld. J. M. took view that when s. 3(1)(b) refers to `accounts' being made up to date, it could not refer to any regular books of account maintained by assessee because even in case before Andhra Pradesh High Court, there was no regular books of accounts maintained such as cash book and ledger and, therefore, `accounts' must be such that would furnish required information and that information was furnished by statement of account that assessee had filed before ITO. 16. It was this difference of opinion that I am called upon to receive. 17. point of difference as framed by my ld. brothers also points out whether statement filed along with return is sufficient to show that assessee has made up his accounts within financial year within meaning of s. 3(1)(b). It is to be noted at outset that Act does not anywhere define `accounts' and for that matter even method of account referred to elsewhere in several sections of Act. expression `accounts' used by Parliament in s. 3(1)(b), which I do not think I need quote here, is to be understood in same sense in which that expression is commonly understood by common man in business world as also by accountants all over. 18. generally accepted definition of accounting describes it as "........the art of recording, classifying, and summarising in significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting results thereof." 19. Accounting which has been referred to as language of business, is not end in itself; it is essentially service function designed to provide relevant information concerning entity for those who are interested in interpreting using that information. It , therefore, follows that accounting, it is to be useful, must be adapted to particular needs of enterprise and of those interested in it. Broadly, there are those who require information relating to past events and others who are equally concerned, if not more, with future and, thus need accounting date projected into periods ahead. In formation generated by accounting process is of interest to various groups directly or indirectly concerned with business unit. Parties interested in performance of business enterprise include among others, Governments which are mostly for purpose of taxing income or to fixing cost. Vitally affecting whole of accounting method is requirement that records must conform to rules of law. These rules arise by virtue of force outside enterprise itself and must be read into recording of events and transactions of which they apply. practice of accounting is influenced and guided by conventions, doctrine and various rules, methods and standards which have from experience proved acceptable and useful. It is difficult to reduce accounting practice to rigid set of rules. Rules governing formation of accounting axioms and principles derived from them have arisen from common experiences, historical precedent, statements by indificials and professional bodies and regulations of Governmental agencies. Thus, accounting process is based on conventions designed from experience to serve needs of those using accounting information. 20. From definition of `accounts', thus, seen above, it will be at once clear that it is art of recording, classifying and summarising in significant manner transactions and events that have taken place so as to provide relevant information to different users of accounts, constitute accounts and accounting. Thus, art of classifying transactions must necessarily depend upon need and skill of person maintaining accounts subject to convictions, methods and standards which have by experience proved acceptable and useful, taking into account regulations of governmental agencies, if any. If accounting or maintaining accounts is regarded as art of recording transactions, art of recording, classifying and summarising transactions relating to income from salary can be maintained in as many ways as human ingenuity can think of alternatives. It cannot, thus, be laid down rigid that recording of salary transactions must of necessity be always in particular way. object of accounts being to provide relevant information concerning salaries, accounts can be maintained in any manner provided relevant information is furnished and its authenticity is established. 21 . In case of assessee who has got income only from salary he can maintain t he salary particular on sheet of paper showing date of receipt of salary and amount received or he may maintain same in diary or he may purchase note book and record transactions therein. All these acts of recording amount to accounting of salary received. assessee is not obliged or need not maintain expenses made out of that salary. If at end of year, salary received is totally up and furnished by way of statement to ITO, that statement would constitute accounts made by assessee for income from salaries. Similarly, if assessee's account for purpose of salary is maintained by company and if copy of amount is furnished to assessee by company and if assessee adopt it and furnished to assessee by company and if assessee adopt it and records those transactions in book for purpose of record, that also would amount to maintaining account by assessee. Thus, there are myriad ways of maintaining accounts and in absence of any particular requirement of law under Act, it is not possible to contend that accounts should be maintained in manner as is commendable to mind of ITO. businessman may maintain such accounts as are necessary for purpose of his business. person receiving income from salary may maintain such record as is necessary to present to himself total amount received from salary. Similarly, person receiving income from dividend may maintain such records as would show income from dividend. Making up of account is now judicially noticed as closing up of accounts to profit and loss account for purpose for finding out profit or loss made at end of given period. record so maintained is totally up and furnished in support of income. So long as benefit of s. 3(1)(b) is available to all categories of income, then tee accounts to be maintained by assessee in respect of those categories of income must be left to assessee and to needs of that particular source of income. accounts presented by assessee to ITO, thus affords evidence in support of income returned. ITO may accept account as truly reflecting income or may reject it as unreliable. Rejecting accounts as unreliable and not reflecting true income or relevant income, is not to be confused with either method of accounting maintained by assessee or accounts themselves. Arriving at income on basis of that account is another thing and accepting results as disclosed by those accounts as reflecting true income is yet another thing. It is third part that is causing confusion in understanding meaning of expression as used in s. 3(1)(b). It is also judicially noticed that for entitling assessee to exercise option under s. 3(1)(b) in respect of any separate source of income, it is not necessary for him to have either separate book of account in respect of income from separate source or even to have separate part of book confined to income from that source. It is enough if account in respect of separate source of income has been maintained by assessee, and that account has been made up to date within twelve months ending on 31st day of March next preceding year for which assessment is to be made to entitled assessee to exercise option in question for first time in respect of separate source. CIT vs. Pariala Sales Corpn. (P) Ltd. (1970) 77 ITR 443, 448 (P & H). In this case question was whether assessee could have separate previous year for income from dividend. ITO treated dividend. ITO treated dividend declared by company on 29th Oct., 1962 as `Income from other sources' and included it in return for asst. yr. 1953-54 while contention of assessee was that it should be assessed for asst. yr. 1954-55 because relevant entry for that was made in assessee's books which were closed for year ending 31st Aug., 1953, which date fell within asst. yr. 1954-55. Accepting assessee's contention, Punjab and Haryana High Court held that since assessee, admittedly, accounted for this dividend in books of account maintained by it, it must be held to have maintained accounts and closed profit and loss account, and it satisfied requirements of s. 2(11(i)(a) of Indian IT Act, 1922. above observations made by High Court, in my view, support view that I am now taking. 22. Since it is common ground between my ld. brothers that in respect of income from salary if accounts are maintained, previous year different from financial year could be adopted, can it be said that statement of accounts furnished by assessee showing salary received and supported by certificate given by company in which he is employed, constitutes accounts for purpose of s. 3(1)(b)? Since there is not prescription of accounts in Act, it must be left to assessee to maintain accounts in manner as he chooses, and manner he chose to depict income from salary cannot be said to be not act of recording of transactions relating to salary, though it may be unskillful art of badly executed art, still it is art. I am, therefore, inclined to agree with view expressed by ld. J. M. and hold that assessee's contention must prevail. 23. matter will now go back to regular Bench which heard appeals for passing necessary orders in accordance with view of majority. *** JOHN PETER v. INCOME TAX OFFICER