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Commissioner of Income-tax, Bombay City-ii, Bombay Vs. Ramchand Jethmal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 94 of 1968
Judge
Reported in[1978]115ITR384(Bom)
ActsIncome Tax Act, 1922 - Sections 2(6A) and 66
AppellantCommissioner of Income-tax, Bombay City-ii, Bombay
RespondentRamchand Jethmal
Excerpt:
direct taxation - dividend - sections 2 (6a) and 66 of income tax act, 1922 - whether after taking previous year endings on 31.10.1956 for purpose of assessment of assessee a different year could be taken into consideration for purpose of deemed dividends - tribunal took view of the fact that the shareholder was deemed to have received dividend income by operation of law and not by actual distribution by company did not make any difference about source from which it was derived - even for purpose of deemed dividends computation should be made on basis of diwali year ending on 31.10.1956. - - this computation was challenged by the assessee unsuccessfully before the aac and the assessee, therefore, filed an appeal before the appellate tribunal......the ito took the accounting year ending march 31, 1957, as the previous year for the purposes of deemed dividends under s. 2(6a)(e) of the i.t. act, 1922. on the basis of the accounts of krishna and hindustant, the ito found that in the account with krishna company, though on january 1, 1956, there was credit balance in favour of the assesse amounting to rs. 8,59,435 and this continued till october 5, 1956, there was a debit of rs. 6,23,541 as on december 31, 1956, though by the end of march 31, 1957, the assesse had again become a creditor in the sum of rs. 62,084. similarly, in the case of hindustan company, though till december 14, 1956, the assessee continued to be a creditor of the company, from december 15, 1956, there was a debit balance against the assessee which stood on.....
Judgment:

Chandurkar, J.

1. Admittedly the amounting year in respect of the assessee for the purpose of business and ordinary dividends for the period in question was the year ending October 31, 1956. The assessee held 13,990 shares out of a total capital of 20,000 shares in Krishna Steel Industries Pvt. Ltd. (referred to by the Tribunal as 'Hindustan'). Though the assessment of the assessee related to the accounting year ending October 31, 1956, the Ito took the accounting year ending March 31, 1957, as the previous year for the purposes of deemed dividends under s. 2(6A)(e) of the I.T. Act, 1922. On the basis of the accounts of Krishna and Hindustant, the ITO found that in the account with Krishna company, though on January 1, 1956, there was credit balance in favour of the assesse amounting to Rs. 8,59,435 and this continued till October 5, 1956, there was a debit of Rs. 6,23,541 as on December 31, 1956, though by the end of March 31, 1957, the assesse had again become a creditor in the sum of Rs. 62,084. Similarly, in the case of Hindustan company, though till December 14, 1956, the assessee continued to be a creditor of the company, from December 15, 1956, there was a debit balance against the assessee which stood on December 31, 1956, at Rs. 49,372 and on March 31, 1957, the debit balance stood at Rs. 2,40,135. As already stated, treating the accounting year as on ending on March 31, 1957, the ITO treat a sum of Rs. 1,77,303 as deemed dividend under section s. 2(6A)(e) of the I.T. Act, 1922, from Krishna Co., and in the case of Hindustan Co., a sum of Rs. 1,30,672 was treated as deemed dividend. In the view which we are inclined to take in this case, it is not necessary to refer to the details of the deemed dividends. This computation was challenged by the assessee unsuccessfully before the AAC and the assessee, therefore, filed an appeal before the Appellate Tribunal.

2. The first question which was raised before the Tribunal on behalf of the assessee was that since the previous year was taken for the purposes of the assessment of the assessee as on ending October 31, 1956, a different previous year could not be taken into consideration for the purposes of the deemed dividends. The Tribunal took the view that the fact that the shareholder was deemed to have received dividend income by operation of law and not by actual distribution by the company did not make any difference about the source from which it was derived, namely, the shares held by the assessee. Thus, the Tribunal found that even for the purposes of deemed dividends the computation should have been made on the basis of the Diwali year and if the Diwali year was adopted, then the entire amount of deemed dividends from Hindustan Co. Would have to be left out of consideration. So also, since the entire amount in respect of the Krishan Co., pertained to the period January 1, 1957, to March 31, 1957, the amount of Rs. 1,77,303 would fall outside the proper accounting year and the Tribunal observed that, on this preliminary ground, the appeal filed by the assessee would have to be allowed. The finding on the question of the accounting year could really have disposed of the appeal, but the Tribunal proceeded to deal with the other contentions advanced by the assessee. The Tribunal found that s. 2(6A)(e) did not apply to the case of the assessee because the shareholder was only maintaining a pure current account and there was not even the slighest hint that the account was used to avoid taxation of dividends in the hands of the shareholder. Another contention raised before the Tribunal ob behalf of the assessee was that the term 'accumulated profits' in s. 2(6A)(e) would exclude current profits and the Tribunal accepted the contention of the assessee by observing thus :

'There is no difficulty in accepting this contention and we may note that prior to the amendment in 1955, even for purposes of s. 2(6A)(e), current profits could not be taken to be covered by the term 'accumulated profits'.'

3. The Tribunal further found that the a substantial part of the income assessed was liable to be deleted on the ground that there were no accumulated profits out of which dividends were deemed to have been distributed. A further argument was raised before the Tribunal that accumulated profits for the purposes of s. 2(6A)(e) must be equated with only assessed profits and the Tribunal took the view that in ascertaining the accumulated profits for purposes of s. 2(6A)(e) there was no duty cast upon the department to rewrite the balance-sheet of the company be depreciating the assists at the full income-tax rates. In other words, the contention advanced on behalf of the assessee was rejected by the Tribunal. On this order of the Tribunal, two questions have been referred, one each at the instance of the revenue and the assessee. The question referred at the instance of the revenue is :

'Whether on the facts and in the circumstances of the case, a sum of Rs. 2,74,716 or lesser amount was assessable as dividends under s. 2(6A)(e) of the I.T. Act, 1922 ?' The question referred at the instance of the assesse is : 'Whether, on the facts and in the circumstances of the case and on a proper interpretation of the expression 'accumulated profits' in s. 2(6A)(e) of the Act, the Tribunal was right in holding that the Krishna and Hindustan had accumulated profits within the meaning of the section ?'

4. When the reference was taken up for hearing, it was pointed out by the learned counsel for the revenue that in view of the finding given by the Tribunal that the amounts which were sought to be taxed by way of deemed dividends fell outside the previous year ended on October 31, 1956, the controversy as to whether the amount of Rs. 2,74,716 could be properly brought to tax as deemed dividends or not does not at all arise. Joshi fairly did not dispute that the finding given by the Tribunal that even in respect of deemed dividends, it was the previous year ending October 31, 1956, that had to be taken into account has not been challenged by way of raising a question for reference. Thus, it is obvious from the order of the Tribunal that though it had gone in the other contentions raised on behalf of the assesse and has recorded by the Tribunal that the amounts which are sought to be brought to tax by way of deemed dividends fell outside the Diwali year ending October 31, 1956, and that for the purposes of deemed dividends, a different accounting year cannot be taken into consideration has been accepted by the revenue. Since that finding cannot now be disturbed, it is not necessary for the purposes of the assessment year in question to go into the other questions on which the decision was rendered against the revenue and the assessee respectively and which have been now brought to this court by this reference. We have, therefore, declined to go into the merits of the correctness or otherwise of the decision of the Tribual on the questions which have been referred in view of the finding recorded on the question as to what was the correct accounting period. In this view of the matter, we do no think it necessary to answer, in the peculiar facts of this case, the questions which have been referred to us because for the purposes of the assessment year in question a decision thereon is not necessary. Parties to bear their own costs.

5. Arising out of the order of the Tribunal, since the revenue wanted one more question to be referred they ahd taken out a motion dated December 20, 1968. Joshi states that he does not now press the motion. Motion disposed of as not prsessed.


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