Calcutta High Court
Commissioner Of Income-Tax vs Sohanlal Jajodia on 10 June, 1986
Equivalent citations: [1987]164ITR626(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. The facts found or admitted and the proceedings leading up to these references are, inter alia, that Sohanlal Jajodia, the assessee, was assessed to income-tax for the assessment year 1955-56, the accounting year ending some time in April, 1955. The said assessment was reopened by a notice dated April 10, 1963, The assessee was a partner of Madanlal Sohanlal & Co., a registered firm. In 1946, the firm had purchased the entire shares of M/s. Hall & Anderson (P.) Ltd., a private limited company. Thereafter, a public limited company in the same name, namely, Hall & Anderson Ltd., was floated and the assets of the private limited company were sold to the public limited company for Rs. 80 lakhs. The said amount was received by the firm on behalf of the private limited company. In the balance-sheet of the private limited company as on March 31, 1947, the said amount of Rs. 80 lakhs was shown " as an advance recoverable in cash from a director ".
2. In the assessment, the Income-tax Officer found that on the date of the transfer of the shares of the private limited company to the public limited company, the former had accumulated profits to the extent of Rs. 12,26,206 consisting of balances in the reserve and the profit and loss accounts. As all the shares of the private limited company had been acquired by the firm which was the only shareholder of the company, the Income-tax Officer held that the firm should be regarded as a director in respect of the said advance or loan of Rs. 80 lakhs and as the said amount included the accumulated profits of Rs. 12,26,206, the latter amount became a deemed dividend under Section 2(22)(e) of the Income-tax Act, 1961, and became assessable in the hands of the firm as deemed dividend. It was recorded that the said amount has already been so assessed. The Income-tax Officer held further that as the assessee was a partner of the firm and a director of the private limited company, the said amount should also be treated as deemed dividend in his hands and assessed as such as a protective measure.
3. Being aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that as he had already held the amount to be assessable in the hands of the firm, the assessment of the same amount in the hands of the assessee was not justified. He deleted the addition.
4. Being aggrieved, the Revenue preferred a further appeal before the Income-tax Appellate Tribunal. The Tribunal found that as the assessment of the assessee had been reopened under Section 147 of the Income-tax Act, 1961, by a notice under Section 148, of the said Act, the reassessment would be governed both in respect of the procedure and substantive law by the later Act of 1961. The Tribunal found that as there was no provision corresponding to Section 12(1B) of the Indian Income-tax Act, 1922, in the Income-tax Act, 1961, the said amount could not be treated as deemed dividend in the hands of the assessee,
5. The Tribunal found further that it appeared from the assessment order that the Income-tax Officer had proceeded on the basis of Section 2(22)(e) of the Income-tax Act, 1961. Inasmuch as the advance in the instant case was made during the previous year relevant to the assessment year 1947-48, the assessment could not have been made under Section 2(22)(e).
6. The Tribunal found further that there was no material to show that any amount had been received by the assessee for or on behalf of the private limited company even in the capacity of a trustee. The mere fact that there was a mention in the balance-sheet of the private limited company that on March 31, 1947, an amount of Rs. 80 lakhs was recoverable from a director did not mean that the said amount had been advanced by the private limited company as a loan or advance to the assessee and there was no material to support such conclusion. The Tribunal found that the assessment had been made on the basis of conjectures and surmises. The Tribunal rejected the appeal of the Revenue.
7. On an application of the Revenue under Section 256(1) of the Income-tax Act, 1961, the following questions have been referred, as questions of law arising out of the order of the Tribunal, for the opinion of this court. The questions which have been referred in the above Reference No. 354 of 1975 are as follows :
" 1. Whether, on the facts and in the circumstances of the case and on a correct interpretation of sections 297(2)(b) and 297(2)(d)(ii) of the Income-tax Act, 1961, the Tribunal was justified in holding that the provisions of Section 12(1B) of the Indian Income-tax Act, 1922, could not be invoked in this case ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Rs. 12,26,206 could not be assessed as the income of the assessee for the year under consideration ? "
8. On an application of the Revenue under Section 256(2) of the Income-tax Act, 1961, this court directed the Tribunal to refer the following questions also stated to be questions of law arising out of the order of the Tribunal for the opinion of this court. These two questions have come up in Income-tax Reference No. 560 of 1979:
" 1. Whether, on the facts and in the circumstances of the case, the Tribunal had, ignored relevant evidence or had relied on irrelevant materials to hold that the sum Rs. 80,00,000 was not paid to the assessee by M/s. Hall & Anderson Pvt. Ltd. by way of loan or advance and whether such finding of the Tribunal was otherwise unreasonable or perverse ?
2. Whether, on the facts and in the circumstances of the case, the reference to Section 2(22)(e) of the Income-tax Act, 1961, in the order of assessment made by the Income-tax Officer was a curable error which should have been overlooked by the Tribunal ? "
9. At the hearing, the learned advocate appearing for the Revenue drew our attention to the following sections of the Indian Income-tax Act, 1922, and the Income-tax Act, 1961.
10. Indian Income-tax Act, 1922 :
" Section 2(6 A), 'dividend' includes-
(a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ;...
(e) any payment by a company, not being a company in which the public are substantially interested within the meaning of Section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits. "
" Section 12(1B): Any payment by a company to a shareholder by way of advance or loan which would have been treated as a dividend within the meaning of Clause (e) of Sub-section (6A) of Section 2 in any previous year relevant to any assessment year prior to the assessment year ending on the 31st day of March, 1956, had that clause been in force in that year, shall be treated as a dividend received by him in the previous year relevant to the assessment year ending on the 31st day of March, 1956, if such loan or advance remained outstanding on the first day of such previous year. "
11. Income-tax Act, 1961 :
" Section 2(22).--'dividend' includes--...
(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company of otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. "
12. Construing the said sections, the learned advocate for the Revenue submitted that in the instant case, the payment had been made by the private limited company to its shareholders in 1947 and had Section 12(lB)of the Act of 1922 been in force in the assessment year 1947-48, the same would have to be treated as a dividend. As the said amount had remained outstanding in the books of the company in the previous year relevant to the assessment year ending on March 31, 1956, the same could be treated as dividend in the hands of the shareholders.
13. The learned advocate submitted that the mention of Section 2(22)(e) of the Income-tax Act, 1961, in the order of the Income-tax Officer was a curable error and the Tribunal should have held that the Income-tax Officer had proceeded on the basis of the relevant section of the 1922 Act.
14. In support of his contentions, the learned advocate for the Revenue cited a Full Bench decision of the Punjab High Court in R.A. Boga v. Appl. Asst. Commr. of I.T., [1977] 110 ITR 1, for the proposition that misquoting the relevant provision of law would not vitiate an assessment order.
15. The learned advocate next submitted that the Tribunal was in error in holding that the assessment proceedings having been reopened under Sections 147 and 148 of the Income-tax Act, 1961, both the procedural as also the substantive provisions of law as contained in the Act of 1961 would apply to the reassessment proceedings. The Tribunal has also erred in holding that there was no provision corresponding to Section 12(1B) of the Indian Income-tax Act, 1922, in the Income-tax Act of 1961 and, therefore, the assessment could not be made.
16. In support of his contentions, the learned advocate for the Revenue cited a decision of this court in CIT v. Madanlal Sohanlal, [1982] 137 ITR 29, where it was held by this court, following a decision of the Supreme Court in Govinddas v. ITO, [1976] 103 ITR 123, that where an assessment was reopened under Sections 147 and 148 of the Income-tax Act, 1961, the substantive law to be applied for determining the liability to tax must necessarily be the law under the old Act for that was the law, viz., the old law, which would govern the liabilities of the assessee.
17. The learned advocate for the Revenue next submitted that it was found by the Income-tax Officer that the assessee was a partner of the firm and a director of the private limited company and, therefore, the amount which reached the hands of the assessee from the private limited company in respect of the accumulated profits should be treated as deemed dividend in his hands. It was submitted that the Tribunal failed to appreciate this aspect of the matter and, in particular, the Tribunal failed to appreciate that the said amount advanced was recoverable from the director in cash.
18. The learned advocate for the assessee contended to the contrary. He did not dispute that, in view of the decision of this court and that of the Supreme Court, in making the reassessment, the substantive provisions of the Indian Income-tax Act, 1922, would apply but he submitted that on merits and the facts found, it must be held that the said amount could not be treated as deemed dividend in the hands of the assessee. He submitted that the Tribunal had considered all the facts on record and the decision of the Tribunal could not be held to be perverse.
19. In the facts and circumstances, it appears to us that the contentions raised on behalf of the assessee on the merits of the order are, not without substance. It cannot be said that the Tribunal ignored any relevant evidence or relied on irrelevant material in holding that the said sum of Rs. 80,00,000 was not paid to the assessee by the private limited company. No evidence whatsoever was brought on record by the Revenue to show that any payment was made by the private limited company to the assessee. On the contrary, the clear evidence was that the amount was paid by the private limited company to the firm. The accounts of the firm showed that the same had been advanced to a director and was recoverable in cash. There was no evidence to connect this entry with the assessee.
20. In any event, in this advisory jurisdiction, we are not sitting in appeal over the order of the Tribunal. In our view, there was sufficient material before the Tribunal to come to the conclusion that no payment had been made by the private limited company or the said firm to the assessee and there is no reason why we should interfere with this finding of fact.
21. For the above reasons, we answer the questions referred as follows :
In Income-tax Reference No. 354 of 1975, question No. 1 is answered in the negative and in favour of the Revenue. Question No. 2 is answered in the affirmative and in favour of the assessee.
22. In Income-tax Reference No. 560 of 1979, question No. 1 is answered in the negative and in favour of the assessee. Question No. 2 is answered in the affirmative and in favour of the Revenue.
23. We would like to add that it appears to us that even if Section 12(1B) of the Indian Income-tax Act, 1922, was applicable in the instant case, the assessment could have been made only on a shareholder. It is nobody's case that the assessee was a shareholder or a registered shareholder of the private limited company at the material time. On the contrary, the finding is that all the shares of the private limited company were being held by the firm which has been assessed in respect of the said amount of Rs. 12,26,206.
24. In view of the aforesaid, the costs of the Income-tax Reference No. 354 of 1975 is awarded to the assessee. In the other Reference No. 560 of 1979, each party will pay and bear its own costs.
Monjula Bose, J.
25. I agree.