Whether a previous year is always twelve months; income assessed in the same year (as set, 1961 Act, AY 2017-18)

Is a previous year always twelve months?

No. A previous year is normally twelve months, but it can be shorter, and it never runs longer than the financial year in which it falls.

The general rule

Income of one year is charged to tax in the following year: the previous year is the financial year just before the assessment year (section 3), and tax for an assessment year is charged on the total income of its previous year (section 4(1)). For assessment year 2017-18 the previous year is therefore 1 April 2016 to 31 March 2017.

The exception is a new start. Where a business or profession is newly set up, or a new source of income comes into being, during a financial year, the first previous year runs from the date of setting up, or the date the source arises, to 31 March of that financial year (section 3, proviso). A business set up on 1 December 2016, for example, has a first previous year of four months, 1 December 2016 to 31 March 2017. From the next year on, its previous year is the full financial year.

Cases in which income is assessed in the same previous year

Normally a year's income waits until the next year to be assessed. Section 4(1), by its proviso, allows other provisions of the Act to charge tax on the income of a different period, and the Act does so in a few cases where the Revenue might otherwise lose the tax. Two of them:

Case 1: shipping business of non-residents (section 172). Where a ship owned or chartered by a non-resident carries passengers, livestock, mail or goods shipped at an Indian port, 7.5% of the amount paid or payable for that carriage to the owner or charterer, or to anyone on his behalf, in India or outside it, is deemed to be income accruing in India (section 172(2)). Before the ship leaves the port, its master files a return of the full amount so paid or payable for everything shipped at that port since the ship last arrived there, and the tax is assessed and paid then (section 172(3) and (4)), without waiting for the next assessment year. If the Assessing Officer is satisfied that the master cannot file before departure, and the master has arranged for another person to file the return and pay the tax for him, the officer may accept a return filed by that authorised person within thirty days of the ship's departure (section 172(3), proviso).

Case 2: persons leaving India (section 174). Where it appears to the Assessing Officer that an individual may leave India during the current assessment year, or soon after it ends, with no present intention of coming back, his total income from the end of that assessment year's previous year up to the likely date of departure is taxed in that same assessment year (section 174(1)). Each completed previous year, or part of one, in that period is taxed at the rates in force in that assessment year, with a separate assessment for each (section 174(2)), and the officer may estimate the income where it cannot be worked out readily (section 174(3)). To make the assessment, the officer may serve a notice on the individual requiring a return of his income for the period within the time the notice fixes, which may not be less than seven days. The return is in the form, and verified in the manner, of a return under section 142(1)(i), and sets out his total income for each completed previous year in the period and his estimated income for any part of a previous year (section 174(4)). This tax is in addition to any tax chargeable under any other provision of the Act (section 174(5)).

Other cases

The same early assessment applies to an association of persons, body of individuals or artificial juridical person formed for a particular event or purpose and likely to be dissolved (section 174A), to a person likely to sell or otherwise part with his assets to avoid tax (section 175), and, at the officer's discretion, to a business or profession that is discontinued (section 176(1)); a person who discontinues a business or profession must give the Assessing Officer notice of it within fifteen days (section 176(3)).