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D.M. Neterwalla Vs. Commissioner of Income-tax, Bombay City-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 98 of 1969
Judge
Reported in[1980]122ITR880(Bom)
ActsIncome Tax Act, 1922 - Sections 2(6C) and 33; Income Tax Act, 1961 - Sections 131
AppellantD.M. Neterwalla
RespondentCommissioner of Income-tax, Bombay City-i
Appellant AdvocateM.M. Khanna, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
direct taxation - allotment of shares - sections 2 (6c) and 33 of income tax act, 1922 and section 131 of income tax act, 1961 - whether by allotment of shares did assessee receive income within meaning of section 2 (6c) (iii) - allotment of shares to assessee in pursuance of inter se arrangement between assessee-director and other promoters of company - allotment of promoter's shares to promoters including assessee by company - benefit given to assessee when allotment of shares made by board of directors of company - value of benefit required to be considered as income of assessee within section 2 (6c) in case assessee at relevant time was one of directors of company. - - 15. on behalf of the department, it was submitted that only two conditions were required to be satisfied under.....desai, j. 1. this is a reference at the instance of the assessee under s. 66(1) of the indian i.t. act, 1922. we are concerned in this reference with the assessment year 1957-58, the accounting year being the financial year 1956-57. the assessee is a civil engineer who was for some time engaged in the execution of civil works and military contracts. from september, 1946, however, he stopped all such activities and thereafter took up appointment as director and manager of western india theatres ltd. he was a wholetime director of the said company till september 30, 1 956; on this date he gave up that appointment with a view to work for a new concern proposed to be formed, viz., cambata ferro-manganese private ltd., two private companies, viz., messrs. cambata industries private ltd., and.....
Judgment:

Desai, J.

1. This is a reference at the instance of the assessee under s. 66(1) of the Indian I.T. Act, 1922. We are concerned in this reference with the assessment year 1957-58, the accounting year being the financial year 1956-57. The assessee is a civil engineer who was for some time engaged in the execution of civil works and military contracts. From September, 1946, however, he stopped all such activities and thereafter took up appointment as director and manager of Western India Theatres Ltd. He was a wholetime director of the said company till September 30, 1 956; on this date he gave up that appointment with a view to work for a new concern proposed to be formed, viz., Cambata Ferro-Manganese Private Ltd., two private companies, viz., Messrs. Cambata Industries Private Ltd., and Messrs. Shavax C. Cambata Private Ltd., had obtained permission from the Government to put up a ferro-manganese plant under a licence dated October 18, 1954, issued by the Ministry of Commerce and Industry under r. 15(4) of the Registration and Licensing of Industries Undertaking Rules, 1953. The said companies had also obtained a licence subsequently, dated September 2, 1955, for importing plant and machinery for the said project. These two companies had also completed negotiations for the purchase of machinery from a firm at Oslo and had entered into another contract with Messrs. Continental Ore Corporation, New York, for the purposes of the project. The assessee was neither a director nor a shareholder of these two companies nor was he concerned with the management thereof. However, he was one of the promotes and proposed director-in-charge of the new company to be formed, vis., Messrs. Cambata Ferro-Manganese Private Ltd.

2. On October 11, 1956, a solicitors' firm acting on behalf of the promoters preferred an application to the Controller of Capital Issues; a copy of the said application is to be found annexed as annex. 'A' to the statement of case. In the said application, apart from the assessee, the following four persons were down as promoters of the proposed company, 1. K. S. Cambata, 2. D. S. Cambata. 3. R. S. Cambata and 4. S. S. Cambata (See para. 5(a) of the letter). In the said application it was proposed that there would be a normal capital of Rs. 150 lakhs (see para. 8), of which the subscribed capital was to the extent of Rs. 65 lakhs. Of these shares it was proposed that 1,150 ordinary shares of Rs. 1,000 each would be allotted free of payment to the promoters in consideration of their agreement not to start a competitive business at any time (see para. 9(b) of the letter). Subsequently, the Controller of Capital Issues authorised the issue of capital and information of the company; but as against the proposal to allot 1,150 shares of Rs. 1,000 each to the promoters, the Controller sanctioned the issue of only 600 such shares which were to be free of payment.

3. The said company was thereafter incorporated on December 7, 1956, and the first seven directors of the said company were the following seven persons, namely, 1. K. S. Cambata, 2. D. S. Cambata. 3. R. S. Cambata, 4. S. S. Cambata, 5. Khan Bahadur G. B. Taraporwala, 6. D. M. Neterwalla, the assessee, and 7. N. E. Petigara.

4. The board of directors of the said company met on February 25, 1957. The assessee was present at the said meeting as a director. A resolution was passed on that day appointing the assessee as director-in-charge on certain remuneration, and the resolution directed the solicitors of the company to draw up necessary agreement. The board also proceeded to allot the promoters' shares and BX HH b1 these 600 shares were allotted as under :

1. K. S. Cambata 2602. Mrs. M. S. Cambata 703. R. S. Cambata 704. D. S. Cambata 705. S. S. Cambata 706. D. M. Neterwalla 60

5. A copy of the minutes of the meeting of the board of directors held on February 25, 1957, has been annexed to the statement of case as annex. 'B'.

6. The matter came up for consideration before the ITO of the assessee for the assessment year 1957-58. It was contended before the ITO by the representative of the assessee that shares worth Rs. 60,000 had been given to the assessee for his work in connection with the floatation of the company and that this confirmed by the company in its letter dated November 8, 1958. In this letter, according to the order of the ITO, the company had stated that 60 ordinary shares of the face value of Rs. 1,000 each were allotted to the assessee without any consideration as fully paid promoters' shares. According to the ITO, the assessee was required to be considered as an employee of the company and such amount received without consideration by him as an employee was taxable under s. 7 of the Act as benefit received for services, coming within Expln. 2 to s. 7(1) of the Indian I.T. Act, 1922.

7. The assessee carried the market in appeal to the AAC, who agreed with the conclusion of the ITO. According to the AAC, it could not be denied that the assessee was an employee of the company. It appears to have been contended before the AAC that on the date of date of allotment the promoters' shares had no market value. Accordingly, it was submitted that the allotment of these shares should not be taxed. In his order rejecting the contentions advanced on behalf of the assessee the AAC referred to the provisions of s. 2(6C)(iii) and held that as the assessee was a salaried director, the allotment would constitute his income which was liable to taxed under the head 'Salary' under s. 7. In the penultimate paragraph of his order the AAC when on to what in the opinion of the AAC was the consideration for allotment of shares. As far as the question of value was concerned, the AAC held that the fact value should be taken to be the value of the shares since the assessee had himself shown such value in his return filed for wealth-tax.

8. The matter was thereafter carried in second appeal to the Tribunal. The Tribunal considered the observations made by the AAC in the penultimate paragraph of his order and found that the AAC had proceeded to make these observations without any factual basis for the same. As a matter of fact the departmental representative himself characterised the statements to be found in the AAC's order as perhaps not correct. The Tribunal accordingly was of the opinion that the order of the AAC was not based on proper appreciation of the facts of the case. It accordingly restored the appeal to the file of the AAC with the direction that it would be required to be disposed of de novo in accordance with law after giving the assessee an opportunity of placing all facts and evidence on record.

9. The remand order of the Tribunal was thereafter considered by the AAC, who remanded the matter to the ITO seeking a report from the ITO as to the facts which were indicated in the Tribunal's remand order.

10. By his letter dated May 29, 1961, which was accompanied by summons under s. 131 of the I.T. Act, 1961, the ITO addressed a letter to Messrs. Cambata Ferro-Manganese Private Ltd., and sought information on various points as indicated in the said letter. This information was supplied by the company to the ITO by its letter dated November 5, 1965. In the said letter, it was, inter alia, mentioned that in October and November, 1956, the assessee was generally managing the affairs of the proposed company and for these two months the amount of Rs. 2,500 per month had been paid to him by Messrs. Cambata Industries Private Ltd., and the said amount was subsequently reimbursed to that company after the formation of Messrs. Cambata Ferro-Managanese Private Ltd., (subsequently re-named as Messrs. Universal Ferro & Allied Chemicals Ltd.). The ITO had asked the company as to what was the consideration for the allotment of 600 shares to the promoters, according to the company :

'These shares were allotted to the promoters in consideration of, Inter alia, their agreement not to start competitive business at any time, this was the main consideration. The other consideration may be to adjust their rights inter se in respect of moneys and labour put in by them till the formation of the company. We may, however, mention here that so far as Mr. Neterwalla is concerned, he was the whole-time director of Western India Theatres Ltd., till September, 1956, and as such has not rendered any material service for the promotion of the company, the sixty shares allotted to him are in consideration of his agreement not to start competitive business at any time.'

11. The ITO had asked the company further as to when and at what stage the assessee had joined for the promotion of the company; and in reply to this question the company stated that the assessee had joined the company in October, 1958, when everything in connection with the promotion of the company had been the except is incorporation. In his remand report these facts were emphasised by the ITO, who also in the said report indicated his own view as to the assessability of the amount.

12. The matter was thereafter considered de novo by the AAC. In para. 11 of the order of the AAC, the arguments advanced on behalf of the appellant-assessee have been summed up as follows :

'11. The arguments advanced on behalf of the appellant may now be summed up, the shares have been allotted to the appellant as a promoter of the company. The receipt of such promoters' shares does not amount to a receipt of income. It is also not a benefit or perquisite as the appellant had not derived any immediate pecuniary gain. It would amount only to a potential further advantage. The shares have not also been allotted without consideration, the consideration being the promoters' agreement not to do or take any interest in any competing business of the company. The assets have been released by the company in respect of these shares. The appellate is not an employee of the company. These shares have been allotted in pursuance of the agreement among the promoters as contained in the application to the Controller of Capital Issues. The company was not in existence at that time and the appellant cannot be said to have been an employee of the company at the time when the company itself was not in existence and when the appellant, having been in the employ of the Western India Theatres Ltd., could not have rendered any material service at that time to the company which came into existence later. It is also stated that the appellant was not appointed because he was a qualified civil engineer and he had ceased to act in that capacity in 1946 and he could not have had any knowledge or experience regarding the technical aspects of the business of the manufactures of ferro-manganese.'

13. The AAC upheld the contention advanced on behalf of the assessee that he could not be considered to be an employee of the company. According to him, further, the appellant-assessee became entitled to these shares as a promoter and his capacity arose at a time when he was not an employee of the company. Accordingly, he held that the sum of Rs. 60,000 was not includible in the income of the appellant in the assessment year. He, accordingly, directed deletion of the same.

14. The department thereafter proceeded in appeal to the Tribunal. The first contention advanced on behalf of the department was that the AAC was in error in holding that the sum of 60,000 representing the value of the promoters' shares allotted to the assessee could not be assessed as salary income. On this contention, the Tribunal was not persuaded to hold that the AAC was wrong. However, an alternative contention was sought to be raised before the Tribunal which was that in any case the assessment of the amount was justified in view of the provisions contained in s. 2(6C)(iii) of the Indian I.T. Act, 1922. As far as the alternative contention was concerned, it was urged on behalf of the assessee that the department was not entitled to raise such a contention before the Tribunal. The view of the Tribunal was that the department cannot be shut out from urging that the amount was taxable under s. 2(6C)(iii). The preliminary objection raised on behalf of the assessee to the raising of the alternative contention was, therefore, rejected by the Tribunal. It then proceeded to consider the alternative contention.

15. On behalf of the department, it was submitted that only two conditions were required to be satisfied under s. 2(6C)(iii) for making an assessment and that both these conditions were satisfied in the present case. The first condition was that the assessee should receive a benefit from a company and, secondly, he should be a director of the company at the time of receipt of such benefit. Against these submission the assessee's counsel submitted that the shares had been received by the assessee not in the capacity of a director but as promoter. According to his submission, further, 'the allotment of the said shares of the face value of Rs. 6 lakhs was a condition precedent to the formation of the company and was, inter alia, in consideration for agreement not to start competitive business at any time, and that the distribution of the said 600 shares was not at the volition of the company but in accordance with the arrangement arrived at between the promoters to adjust their rights and interests inter se. Further, the transaction took place before the company was formed and the allotment of shares had nothing to do with the assessee as director of the company and the allotment of the shares was of the nature of a gift made to the assessee. It was further argued that the assessee himself was one of the promoters and how could be receive something from a body of which the formed a part ?' We have extracted this passage from the statement of case which sets out the arguments made on behalf of the assessee before the Tribunal. Having heard the rival submissions, the Tribunal upheld the department's alternative contention. It held that the assessee had got the shares of the value of Rs. 60,000 without paying for them. It held that the assessee had received a benefit and that this was when he was a director. In the opinion of the Tribunal nothing more is required to bring the assessee's case within the ambit of the special definition of income to be found in s. 2(6C)(iii). Accordingly, it allowed the department's appeal and directed the ITO to include the sum of Rs. 60,000 in the assessee's income. However, this income was to be considered not under the head of s. 7, viz., 'Salary' but as income under 'Other sources'. It is from this order of the Tribunal that the following three questions have been referred to us :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in permitting the department to raise for the first time the contention that the said amount of Rs. 60,000 representing the face value of the promoters' shares was income under section 2(6C)(iii) of the Act

(2) Whether, on the facts in the circumstances of the case, by the allotment of the shares of the face value of Rs. 60,000 did the assessee receive income within the meaning of section 2(6C)(iii) of the Act

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the shares of the face value of Rs. 60,000 were the assessee's income under the head 'Other sources' ?'

16. As far as question No. 1 is concerned, Mr. Khanna on behalf of the assessee has drawn our attention to a decision given by a Division Bench of this High Court (to which I was a party) in CIT v. Gilbert & Barker Manufacturing Co. : [1978]111ITR529(Bom) , and has very fairly stated that as far as this court is concerned, in view of the said decision the question would be required to be answered in the affirmative and in favour of the revenue. He pointed out, however, that the two decision of the Supreme Court, on which he had placed reliance before the Tribunal at the time of maintaining his preliminary objection, had not been brought to the attention of the Division Bench. It was, however, conceded that as far as this court was concerned, the point appears to be concluded by the decision in Gilbert & Barker Manufacturing Co.'s case : [1978]111ITR529(Bom) and question No. 1 would be required to be answered in accordance with the said decision.

17. As far as question No. 3 is concerned, it was stated that the Principal question which was being passed was question No. 2 and if question No. 2 was answered against the assessee, question No. 3 was not independently pressed and the income, if held to be assessable, would have to be assessed under the head 'Other sources'. It was, however, strenuously contended that the Tribunal was in error in holding that the assessee had received income within the meaning of s. 2(6C)(iii). It is this contention that we must how proceed to examine. Section 2(6C)(iii) of the Indian I.T. Act, 1922, reads as follows :

'2(6C). 'Income' includes -......

(iii) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by any other person who has a substantial interest in the company (that is to say, who is concerned in the management of the business of the company, being the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent. of the voting power), and any sum paid by any such company in respect of any obligation which but for such payment would have been payable by the director or other person aforesaid ?'

18. If for our purposes the unnecessary words are omitted, then the relevant portion of s. 2(6C)(iii) which requires consideration would read as under :

'Income includes the value of any benefit or perquisite, whether convertible into money or not, obtained from a company by a director.'

19. The definition of 'income' under s. 2(6C)(iii) is an inclusive definition and may include within its concept items which ordinarily may not constitute income. As far as the aforesaid portion of the phraseology of s. 2(6C)(iii) is concerned, there must be -

(1) a benefit or perquisite, Whether convertible into money or not;

(2) which is obtained from a company;

(3) by a director; and, if these conditions are satisfied;

(4) the value of such benefit or perquisite will, by the definition, constitute income.

20. Now, it is very pertinent to note that as against the decision of the Tribunal, no question has been framed in the reference complaining of the inclusion of the entire amount of Rs. 60,000 as the assessee's income. The Tribunal appears to have proceeded on the basis that the amount of Rs. 60,000 was the value of the benefit which the assessee had received by the issue and allotment of the promoters' shares to him and further proceeded to include the entire amount of the value of these shares in his income. Since no question complaining against that computation of the benefit has been raised, it would follow and would have to be assumed that there was no complaint against the valuation of the said benefit at Rs. 60,000.

21. It has, however, been very strenuously urged that in order to quality as income within the definition of s. 2(6C)(iii) the assessee must have received the alleged benefit or perquisite in his capacity as a director; and since, admittedly, he was allotted these shares as one of the promoters it was submitted by counsel on his behalf that there was no income within the meaning of the statutory provision contained in s. 2(6C) BCEF(iii). Before dealing with the other aspect arising from the arguments advanced at the bar, it will become necessary to consider this argument, for, if we are inclined to accept the same, then the question will be required to be answered in favour of the assessee and against the revenue.

22. Our attention was drawn to three decisions of various courts in India which had occasion to consider the provisions of s. 2(6C)(iii) in connection with benefits given to directors. The question came up for consideration before the Delhi High Court in CIT v. Nar Hari Dalmia : [1971]80ITR454(Delhi) . The assessee before the Delhi High Court was a part-time director of a private company which had undertaken, Pursuant to a resolution of the company, a foreign tour accompanied by his wife. The cost of the tour came to Rs. 29,793 and the company paid the amount to the assessee. The amount was not allowed as expenditure incurred by the company in the company's assessment. In the reassessment proceedings against the assessee for the relevant year the sum of Rs. 23,793 was brought to tax in the hands of the assessee as his income within the meaning of s. 2(6C)(iii) of the Indian I.T. Act, 1922. The High Court, which was dealing with the reference at the instance of the Commissioner held that the amount was liable to income-tax in the hands of the assessee. In its judgment, the High Court proceeded to set out the statutory provision and observed as under (p. 458-59) :

'On a reading of this section it is clear that the legislature has extended the meaning of the word 'income' and has not let it remain restricted to the connotation of that word. In a taxing statute definitions have to be strictly construed and if on a reading of the relevant provision it is clear that the legislature wished to include in the definitions concepts different from the ordinary notions, the meaning as intended by the relevant provision would have to be given to the word sought to be defined. From a reading of the above provisions there is no manner of doubt that the legislature contemplated inclusion of various forms of benefits, whether received in cash or otherwise, to be included in the term 'income'. Sub- clause (iii) speaks of the value of any benefit or perquisite to be construed as income. This value may be in terms of cash or in enjoyment. Even a benefit or perquisite enjoyed can be translated in terms of money so long as that benefit or perquisite is of material things of life. That the respondent received cash benefit is obvious when he undertook the foreign tour. The amount received for the foreign tour undertaken by him cannot be regarded as a perquisite inasmuch as the term 'perquisite' generally connotes something which an employee received from the employer in addition to salary. The respondent was a part-time director and it is nobody's case that he was paid any salary. The plain perusal of sub-clause (iii) of section 2(6C) would show that any benefit or perquisite obtained from a company by a director would answer to the description of income. It is immaterial whether the benefit or perquisite is convertible into money or not. Although the amount in question paid to the respondent may not amount to a perquisite we have no doubt in our mind that the amount received by him was a benefit received by the respondent from the company of which he was a director. As such, he amount constituted income in his hands. We are not impressed by the argument of Mr. Mitra that the benefit obtained by a director from the company can be considered to be income only if it is expressly mentioned that the benefit was being given to him because of his being a director. The definition makes it manifest that it is enough that a directors of a company receives a benefit from the company and it is not essential to expressly say so that the benefit was being conferred upon him to enable him to act as a director. In the present case, all the same, we find that the respondent received the benefit because of his being a director of the company, which, as its name would show, is a private company. Further, had the company not paid the amount to the respondent, he would have had to meet the express of the foreign tour himself, which admittedly he did not. The obtaining of the benefits, in these circumstances, clearly brings this benefit within the ambit of the definition of 'income'.

23. We were also referred at the bar to CIT v. A. R. Adaikappa Chettiar : [1973]91ITR90(Mad) , where a Division Bench of the Madras High Court took the view that in order to attract s. 2(6C)(iii) the benefit or perquisite obtained should be by some sort of arrangement with the company. According to the Madras High Court,' the words 'benefit or perquisite obtained' to be found in the section, would take in, in its opinion, only such benefit or perquisite which the company had agreed to provide and which and person concerned column claim as of right based on such agreement. 'The court was considering the user of certain cars of a company by its directors who were also members of the managing agency firm. Counsel for the assessee laid special stress on the following observations to be found in the judgment of the Madras High Court at page 100 :

'The learned counsel for the revenue invites this court to assume that the assessee had used the cars of the company in their capacity as directors and not in their capacity as managing agents as found by the Income-tax Officer who made the assessment on the mills. But, it is not possible for us to ignore the finding given by the Income-tax Officer which formed the basis for the reopening of the assessments of the assessees and to assume that the assessees had made use of the cars of the company only in their capacity as directors. There were many other directors apart from the assessees. Therefore, it is not possible for us to hold that the assessees had made use of the company's cars in their capacity as directors of the mills. It must, therefore, be held that section 2(6C)(iii) cannot be brought in aid in this case where the unauthorised user of the cars of the company, if any, was by the assessees as managing agents of the mills and not in their capacity as directors.....'

24. The third decision to which our attention was drawn at the bar was that of the Allahabad High Court in Lakshmipat Singhania v. CIT : [1974]93ITR162(All) , where it was held that s. 2(6C) of the Indian I.T. Act, 1922, was in absolute terms and as soon as a person receives a benefit from a company and he happens to be a director of the company, the value of such benefit will be deemed to be his income. According to the Allahabad High Court, there was no further requirement of any kind and it was not necessary that the benefit should have been received by him under an enforceable right. It was contended specifically before the Division Bench of the Allahabad High Court that s. 2(6C) would only apply it the benefit is received by a person in his capacity as a director and not merely because he happens to be a director. The court found no force in this contention. According to it, as soon as a person receives a benefit from a company and he happens to be a director of that company, s. 2(6C) would be attracted and the value of such benefit would be deemed to be his income. In our view, the phraseology employed by the legislature in the statutory provision under construction is clear and unambiguous and we are in respectful agreement with the view expressed by the Allahabad High Court in Lakshmipat Singhania's case : [1974]93ITR162(All) . It would appear that the legislature did not consider the capacity of the recipient as material and this would to a certain extent be borne out by the provision to be found in s. 2(6C)(iii) which makes income the value of the benefit received by way person having a substantial interest in the company. In the case of such a person having substantial interest as statutorily defined, the capacity in which he was given the benefit or perquisite would be immaterial. The mere fact that the holds a substantial interest would be sufficient in order to render the value of the benefit or perquisite an income. The same consideration must be lavished on a director. If he is a director, then irrespective of the capacity in which he receives the benefit or perquisite, the value of such benefit or perquisite must be considered to be and regarded as income.

25. Our attention was also drawn in this connection to a decision of the House of Lords in Rendell v. West (Inspector of Taxes) [1965] 58 ITR 73. In our opinion, the provisions of the English Act the considerably different from the statutory provisions with which we are concerned and the observations in the aforesaid decision would seem to have little relevance to the point under consideration.

26. It was sought to be argued on behalf of the assessee that even if the fact that the he was allotted these shares as a promoter is considered irrelevant by the court and s. 2(6C)(iii) sought to be applied merely because he was a director of the company at the date of allotment, even then s. 2(6C)(iii) would have no application inasmuch as there was no benefit he could be said to have received. This contention was sought to be justified on two alternative footings. In the first place, it was urged that the promoters' shares allotted to the assessee on February 25, 1957, could not be fairly regarded as having any worth or value; and if that be so, there was no question of any benefit accruing to the assessee by reason of such allotment of promoters' shares. The alternative submission was that in any case the allotment of the shares was for consideration and if the company had made allotment of the promoters' shares to the assessee for consideration, there was no question of any benefit or perquisite being given to him. As far as the first of theses two contentions is concerned, we are afraid that the assessee cannot be permitted to urge any such contention before us inasmuch as he had not invited the Tribunal to give a finding as to the value or worth of these shares on the date of allotment or in the assessment year in question. It does not appear to have been the assessee's case at that stage that the shares had no value whatsoever or had insignificant value. This will also be borne out by the fact that the assessee had not in the reference objected to the valuation made by the Tribunal of this benefit at Rs. 60,000. If that be so, how can he be now heard to say before us, although he has raised no such question before the Tribunal that is fact the promoters' shares were not worth anything and they merely had a potential or future value which was required to be ignored One must observe that this was a matter on which the assessee was required to seek a finding from the Tribunal. It is clear that he has not sought such finding. He has accepted and not objected to the valuation put by the Tribunal and he cannot now be permitted to base any such contention on an assumed nil or insignificant value of the promoters' shares as on the date of the allotment or in the assessment year.

27. The same approach is required to be followed as far as the next submission is concerned, viz., that there was consideration for the allotment of the shares. Before us it was sought to be urged that the entire block of promoters' shares was allotted to the Cambatas and to the assessee by the company for the promotional work done by the Cambatas and that as far as the assessee was concerned, he was given 60 shares of the face value of Rs. 60,000 by reason of the internal arrangement between the promoters. In the alternative, it was submitted that even if the allotment to the assessee is considered in isolation (although it was urged that this would not be proper), there was consideration which had been specifically mentioned by the company, viz., the agreement not to carry on competitive business. Now, here again we are faced with the difficulty that contradictory arguments appear to have been advanced before the Tribunal. The passage from the statement of case which we have extracted earlier in this judgment indicated the contention raised on behalf of the assessee that the share were in the nature of a gift made to the assessee. If it was the contention of the assessee that the allotment of shares to him was supported by consideration as known to law, though no actual payment of money had been made, it was necessary in our opinion that a specific contention should have been urged before the Tribunal and a finding of the Tribunal specifically invited on the question of such allotment being for consideration and, therefore, not being in the nature of a benefit given to the assessee. It is not proper that before the Tribunal the argument would be advanced on the footing that the promoters' shares were allotted to the assessee by way of a gift and before the High Court the argumen would be based that there was consideration for the allotment of shares, which would indicate that the promoters' shares were allotted not by way of gift but in consideration either of the promotional work done by the promoters considered as one entity or by reason of the restrictive agreement suffered by the assessee. In our opinion, the assessee cannot be permitted to urge such an argument before us when the entire tenor of his contentions before the Tribunal had been totally different.

28. This brings us to be final argument which was advanced on behalf of the assessee before us. It was submitted than the allotment of shares, even though it may be regarded as a benefit or perquisite and considered as having been received by the assessee when he was a director, was not one which he had received from the company. It was submitted that the assessee had received the allotment of 60 promoters' shares in pursuance of an arrangement between himself and the Cambatas who were promoters of the company, and it could not be said that the assessee had been given this benefit or perquisite by the company. This argument is certainly borne our from the passage in the statement of case which we have extracted earlier. It is true that the allotment of 60 shares to the assessee was in pursuance of an inter se arrangement between the assessee and the other promoters of the company. But from this it would not follow that the allotment of the shares to the assessee is by the promoters. The allotment of the promoters' shares to the promoters including the assessee is by the company. If these shares can be regarded as a benefit, this benefit is given to the assessee when the allotment of shares is made by the board of directors of the company. It is our opinion a very clear benefit to the assessee from the company. If that is so, then, if at that time the assessee happened to be a director of the company, the provisions of s. 2(6C)(iii) are attracted and the value of the benefit will be required to be considered as income of the assessee. We are not concerned with what is the value of the benefit received by the assessee inasmuch as the quantum of Rs. 60,000 is not made the subject of any challenge.

29. These were the only arguments advanced before us. It may, however, be indicated that the arguments which have been advanced before us have been advanced in a somewhat unsatisfactory manner and the pleas have been rolled up and confused. We have found it a little difficult to follow all the arguments and submissions made at the bar. We are constrained to statue so inasmuch as by reason of this difficulty we may be doing some injustice to some of the arguments available to the assessee which have not been made in the manner in which we have become accustomed to in the High Court.

30. In the result, the questions referred to us are answered as follows :

31. Question No. 1 : In view of the decision of this court in Gilbert & Barker Manufacturing Co.'s case : [1978]111ITR529(Bom) , in the affirmative and in favour of the revenue.

32. Question No. 2 in the affirmative and in favour of the revenue.

33. Question No. 3 in the affirmative and in favour of the revenue.

34. The assessee will pay to the Commissioner the costs of the reference.


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