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District Magistrate Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 42 of 1976
Judge
Reported in[1979]119ITR677(All)
ActsIncome Tax Act, 1961 - Sections 160(1) and 166; Income Tax Act, 1922 - Sections 41; Code of Criminal Procedure (CrPC) , 1898 - Sections 517
AppellantDistrict Magistrate
RespondentCommissioner of Income-tax
Appellant AdvocateS.C. Gupta, Adv.
Respondent AdvocateR.K. Gaulati and ;Ashok Gupta, Advs.
Excerpt:
- - the invitation for such deposits and the promise of exaggerated returns was bound to fail, with the result that on a complaint being received the police raided the premises of m/s......to take over the management of the bank under section 517, cr. p.c. thereafter, the disputed money received as deposits and the amount seized and realised by the district magistrate were invested in government securities which earned interest. the interest received was also deposited in fixed deposits and post office savings bank accounts. the account was to begin with in the name of 'the district magistrate, rampur', and thereafter in the name of 'the sessions judge', and then again in the name of 'the district magistrate, rampur'. these deposits made were, however, in the accounts of rampur bankers limited. the interest earned on these deposits were assessed in the various years, and the controversy in the present case is as to whether interest accruing on these deposits could be.....
Judgment:

C.S.P. Singh, J.

1. This reference relates to the assessment years 1957-58 to 1971-72. The questions referred are :

'Whether, in the circumstances of the case and on the finding of the High Court in Criminal Appeal No. 753 of 1960 (Sabir Ali Khan v. State of U.P.) that the property of depositors was obtained by the accused by fraud, the Tribunal was right in treating the property as the property of the company, viz., Rampur Bankers Ltd., and assessed as such

2. Whether the District Magistrate was or could be deemed to be a representative of the Rampur Bankers Ltd. in the circumstances of the case

3. Whether the District Magistrate while acting under orders of the High Court under Section 517, Cr. P.C. (present section 452 of the Code of Criminal Procedure, 1974) acts as representative of the company

4. Whether the District Magistrate, in the absence of any orders under the Indian Companies Act or of any Civil Court, be deemed to be an officer, representative or receiver of Rampur Bankers Ltd.

5. Whether the assets out of which the income arose could be deemed to be the assets of the Rampur Bankers Ltd ?'

2. The scope of the questions overlap; as such, it is necessary to reframe them. The following question will cover the controversy raised :

'Whether, in the facts and circumstances of the case, the interest received on deposits made by the District Magistrate was liable to be taxed as income of the Rampur Bankers Ltd. ?'

3. Rampur Bankers was a banking company, but it embarked on a wild scheme by assuring depositors of payment of Rs. 637'50 on a deposit of Rs. 100, the amount being payable in six monthly instalments. The invitation for such deposits and the promise of exaggerated returns was bound to fail, with the result that on a complaint being received the police raided the premises of M/s. Rampur Bankers and arrested persons connected with it. The directors were prosecuted and convicted for fraud and cheating. During the pendency of the trial, this court directed the District Magistrate to take over the management of the bank under Section 517, Cr. P.C. Thereafter, the disputed money received as deposits and the amount seized and realised by the District Magistrate were invested in Government securities which earned interest. The interest received was also deposited in fixed deposits and post office savings bank accounts. The account was to begin with in the name of 'the District Magistrate, Rampur', and thereafter in the name of 'the Sessions Judge', and then again in the name of 'the District Magistrate, Rampur'. These deposits made were, however, in the accounts of Rampur Bankers Limited. The interest earned on these deposits were assessed in the various years, and the controversy in the present case is as to whether interest accruing on these deposits could be taxed in the hands of the District Magistrate as receiver oradministrator of the assets of the Rampur Bankers. We are of the view that there was no error in assessing these amounts in the hands of the District Magistrate, who had taken over the assets of the Rampur Bankers, under the orders of the court. Under the Indian I.T. Act, 1922, Section 41 made provision for assessment being made on a person, who managed property on behalf of another, on being appointed by or under any order of the court. Section 41, Sub-section (2), gave an option to the ITO to make a direct assessment on the person on whose behalf the income was received by the manager or other persons enumerated under Section 40, Sub-section (1). Similar provision is to be found under Section 160(1) which defines a representative assessee. For the purpose of this case, the relevant provision is in Section 160(1)(iii). By Section 161 the liability of the assessee for tax in respect of income has been created on the representative assessee. Section 166 permits the ITO to make a direct assessment on the person on whose behalf income has been received by the representative assessee. As the District Magistrate had been appointed under orders of this court passed under Section 517 of the old Cr. P.C., he would fall either under the designation of a receiver or manager of the property. It is not necessary in this case to decide which of these categories would specifically apply to the appointment. This being so, both under Section 41 of the I.T. Act, 1922, and under the new Act, an assessment could be made on the District Magistrate. It was urged on behalf of the assessee that as the moneys were directed to be distributed to the various depositors the interest accruing on these deposits represented the income of the depositors and not that of the Rampur Bankers or the District Magistrate. There is a fallacy in this argument. Once money is deposited in a bank, the money held in deposit is that of the bank and it is only when a demand is made for the return of the money, and paid by the bank that the money received by the various depositors becomes their money. The depositors cannot claim any specific amount from the common fund of a bank as representing their deposit. In the present case, as the money had not been returned by the District Magistrate to the various depositors, the amount in deposit remained that of the Rampur Bankers, and the investment made, as also interest collected, of the banking company. The view taken by the Tribunal appears to be justified. We, accordingly, answer the question as reframed in the affirmative, in favour of the department, and against the assessee. The department is entitled to its costs, which are assessed at Rs. 200.


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