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Sangli Bank Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Pune
Decided On
Judge
Reported in(1983)6ITD92(Pune.)
AppellantSangli Bank Ltd.
Respondentincome-tax Officer
Excerpt:
1. all these appeals are filed by the sangli bank ltd., against which proceedings under section147(a) of the income-tax act, 1961 ('the act') were taken, in the following manner : 1. by notices issued under section 148(1) for the assessment years 1967-68, 1969-70 and 1970-71 in the name of 'the sangli bank ltd., sangli successor to and on behalf of the merged bank of phaltan ltd.' and for the assessment years 1972-73 to 1974-75, in the name of 'the principal officer, sangli bank ltd., sangli successor to and on behalf of the merged bank of phaltan ltd.' ; 2. for the assessment years 1967-68, 1968-69 and 1970-71 in the name of 'the sangli bank ltd., sangli successor to and on behalf of the merged bank of poona ltd.' and for the assessment years 1973-74 to 1975-76 in the name of 'the.....
Judgment:
1. All these appeals are filed by the Sangli Bank Ltd., against which proceedings under Section147(a) of the Income-tax Act, 1961 ('the Act') were taken, in the following manner : 1. By notices issued under Section 148(1) for the assessment years 1967-68, 1969-70 and 1970-71 in the name of 'The Sangli Bank Ltd., Sangli successor to and on behalf of the merged Bank of Phaltan Ltd.' and for the assessment years 1972-73 to 1974-75, in the name of 'The principal officer, Sangli Bank Ltd., Sangli successor to and on behalf of the merged Bank of Phaltan Ltd.' ; 2. for the assessment years 1967-68, 1968-69 and 1970-71 in the name of 'The Sangli Bank Ltd., Sangli successor to and on behalf of the merged Bank of Poona Ltd.' and for the assessment years 1973-74 to 1975-76 in the name of 'The principal officer, Sangli Bank Ltd., Sangli successor to and on behalf of the merged Bank of Poona Ltd.' ; and 3. for the assessment years 1969-70 to 1971-72 in the name of 'The Sangli Bank Ltd., Sangli successor to and on behalf of the merged Bank of Poona Investors Ltd.' and for the assessment years 1973-74 to 1975-76 in the name of 'The principal officer, Sangli Bank Ltd., Sangli successor to and on behalf of the merged Bank of Poona Investors Ltd.' The contentions raised in all these appeals are identical. They have been argued together. They are, therefore, consolidated for the sake of convenience and disposed of by this common order.

2. In order to appreciate the grievances of the assessee in these appeals, it would be useful to posit certain basic questions so that the background of facts and the context in which the dispute between the department and the assessee has arisen may become clear. Firstly, the question to be asked in our view is, what income is sought to be assessed The second question is, in whose hands is the income assessable and thirdly, whether the proceedings taken by the ITO to make the impugned assessments are legal and valid Bearing these questions in mind, we may now proceed to narrate the facts in detail.

3. The Reserve Bank of India made applications under Section 45(1) of the Banking Companies Act, 1949 to the Central Government for an order of moratorium in respect of the Bank of Poona Ltd., the Bank of Phaltan Ltd., Sangli, and the Poona Investors Bank Ltd., Poona. All these applications were made in 1961. The Central Government accepted these applications and issued orders of moratorium in respect of the three banks. The Reserve Bank thereupon proceeded by virtue of its powers in terms of Sub-section (4) of Section 45 of the said Act to prepare schemes for the amalgamation of the three banks with the Sangli Bank Ltd., Sangli, and in accordance with the procedure set out in that behalf forwarded the schemes for amalgamation to the Central Government for sanction. The Central Government by virtue of its powers under Sub-section (7) of Section 45 gave sanction to the schemes. The provisions of the three schemes of amalgamation being similar, it would be sufficient for the purposes of these appeals to set out the salient features of the scheme for the amalgamation of the Phaltan Bank Ltd. with the Sangli Bank Ltd., a copy of which is supplied in the assessee's paper book at pages 49 to 61. The provisions of the scheme, which came into force with effect from the date specified by the Central Government, i.e., 7-10-1961, which are relevant for the purposes of these appeals are Clauses (4), (5), (6) and (7) which are reproduced below : (4) I. The transferee bank shall in consultation with the transferor bank, value the property and assets and reckon the liabilities of the transferor bank in accordance with the following provisions, namely (a) Investments including Government Securities shall be valued at the market rates prevailing on the day immediately preceding the prescribed date provided that the securities of the Central Government such as Post Office Certificates, Treasury Savings Doposit Certificates and any other securities or certificates issued under the small savings scheme of the Central Government shall be valued at their face value or the encashable value as on the said date, whichever is higher.

(b) Where the market value of any Government security such as the Zamindari abolition bonds of other similar security, in respect of which the principal is payable in instalments, is not ascertainable or is for any reason, not considered as reflection of the fair value thereof or as otherwise appropriate, the security shall be valued at such an amount as is considered reasonable having regard to the instalment of principal and interest remaining to be paid, the period during which such instalments are payable, the yield of any security issued by the Government to which the security pertains and having the same or approximately the same maturity, and other relevant factors.

(c) Where the market value of any security, share, debenture, bond or other investment is not considered reasonable by reason of its having been affected by abnormal factors, the investment may be valued on the basis of its average market value over any reasonable period.

(d) Where the market value of any security, share, debenture, bond or other investment is not ascertainable only such value, if any, shall be taken into account as is considered reasonable, having regard to the financial position of the issuing concern, the dividends paid by it during the preceding five years and other relevant factors.

(e) Premises and all other immovable properties and any assets acquired in satisfaction of claims shall be valued at their market price.

(f) Furniture and fixtures, stationery in stock and other assets, if any, shall be valued at the written down value as per books or the realisable value as may be considered reasonable.

(g) Advances including bills purchased and discounted, book debts and sundry assets, will be scrutinised by the transferee bank and the securities, including guarantees, held as cover therefor examined and verified by the transferee bank. Thereafter, the advances including portion thereof, will be classified into two categories, namely, 'Advances considered good and readily realisable and/or bad or doubtful of recovery'.

II. Liabilities for purposes of this scheme shall include all contingent liabilities which the transferee bank may reasonably be expected or required to meet out of its own resources on or after the prescribed date.

III. Where the valuation of any asset cannot be determined on the prescribed date, it may, with the approval of the Reserve Bank of Jndia, be treated partly or wholly as an asset realisable at a later date.

In the event of any disagreement between the transferee bank and the transferor bank as regards the valuation of any asset or the classification of any advance or the determination of any liability, the matter shall be referred to the Reserve Bank of India, whose opinion shall be final, provided that until such an opinion is received, the valuation of the item or portion thereof by the transferee bank shall provisionally be adopted for the purpose of this scheme.

It shall be competent for the Reserve Bank in the event of its becoming necessary to do so, to obtain such technical advice as it may consider to be appropriate in connection with the valuation of any such item of asset or determination of any such item of liability, and the cost of obtaining such advice shall be payable in full out of the assets of the transferor bank.

The valuation of the assets and the determination of the liabilities in accordance with the foregoing provisions shall be binding on both the banks and the members and creditors thereof.

(5) In consideration of the transfer of the property and the assets of the transferor bank to the transferee bank, the transferee bank shall discharge the liabilities of the transferor bank to the extent mentioned in this and the succeeding paragraphs : (a) The outside liabilities other than deposits as on the prescribed date shall be paid or provided for in full.

(b) In respect of every savings bank account or current account or any other deposit including a fixed deposit, cash certificate, monthly deposit, deposit payable at call or short notice or any other deposit by whatever name called with the transferor bank, including interest to the extent payable under this scheme, the transferee bank shall open with itself on the prescribed date a corresponding and similar account in the name of the respective holder(s) thereof with a balance equal to the amount or the sum total of the amounts mentioned below, namely : (i) in the first place a sum of two hundred and fifty rupees or the balance in the account whichever may be less, less the amount, if any, paid during the period of moratorium, provided that the sum total of the amounts credited in terms of this Sub-clause in respect of the accounts standing in the name of any one person, and not jointly with that of any other person, shall not exceed two hundred and fifty rupees, less the amount, if any, paid during the period of moratorium.

(ii) in the next place the pro rata share available in respect of each of the accounts out of the assets referred to in paragraph (4) as valued for the purposes of this scheme, excluding the advances considered not readily realisable and/or bad or doubtful of recovery and any asset or portion of an asset not valued on the prescribed date, after deducting therefrom the amount needed for the payments or provisions mentioned at clause (a) and Sub-clause (i) of clause (b) above.

Explanation : The term 'pro rata' occurring in this paragraph and elsewhere in this scheme shall mean in proportion to the respective amounts r emaining due at the time of the payment or distribution.

(c) On the prescribed date, the entire amount of the paid-up capital and reserves of the transferor bank shall be treated as provision for bad and doubtful debts and depreciation in other assets of the transferor bank and the rights of the members of the transferor bank shall, in relation to the transferee bank, be as provided for in paragraph (6) below : (a) every account mentioned in clause (b) of the preceding paragraph, the balance in the account, if any, remaining uncredited in terms of Sub-clauses (i) and(ii) of that clause ; and (b) every share in the transferor bank, the amount which was treated as paid-up towards share capital by or on behalf of each shareholder immediately before the prescribed date and/or the amount paid on account of the calls made by the transferee bank in pursuance of clause (i) below : shall be treated as a collection account and shall be entered as such on the books of the transferee bank and payments against the account shall be made in the following manner, namely : (i) the transferee bank may, if it so considers necessary, call upon every person who on the prescribed date was registered as the holder of a share in the transferor bank (or who would have been entitled to be so registered) to pay within three months from such date as may be specified, the uncalled amount remaining unpaid by him in respect of such shares and the calls in arrears, if any, and the transferee bank shall take all available steps having regard to the circumstances of each case to demand and enforce the payment of the amounts due under this clause, together with interest at six per cent per annum for the period of the default ; (ii) the transferee bank shall, in respect of the advances, bills purchased and discounted, book debts and sundry debts and other assets, which are classified as 'Advances considered not readily realisable and/or bad or doubtful of recovery', or which are or may be realisable wholly or partly after the prescribed date in terms of paragraph (4) above, take all available steps having regard to the circumstances of each case to demand and enforce or obtain payment, provided, however, that if the amount of the debt exceeds Rs. 5,000 the transferee bank shall not except with the approval of the Reserve Bank of India : (a) enter into a compromise or arrangement with the debtor or any other person, (iii) the transferee bank shall in addition take all available steps having regard to the circumstances of each case to demand and enforce the payment of the amounts, if any, awarded as damages by the High Court against any promoter, director, manager or other officer of the transferor bank under Section 45L of the Banking Companies Act read with Section 45H thereof and also with Section 543 of the Companies Act, 1956 ; (iv) the transferee bank may, out of the realisations effected by it on account of the items mentioned in clauses (i), (ii) and (iii) above, make payment or provision in respect of any contingent liability to the extent that the provision made therefor under paragraph (5)(a) proves inadequate, as also, with the prior approval of the Reserve Bank of India, in respect of any liabilities which was not assessed in terms of paragraph (4) above and has arisen or been discovered on or after the prescribed date ; (v) the transferee bank shall, at such periodical intervals as may be possible or convenient, make out of the realisations effected by it on account of the items mentioned in clauses (i), (ii) and (in) above, after deducting therefrom the expenditure incurred for the purpose and the amount appropriated therefrom in terms of clause (iv) above, or out of the balance, if any, which may be available from out of the contingent liabilities as reckoned for the purposes of this scheme after the extent of such liabilities has been finally ascertained, payments pro rata in the manner and to the extent specified below : (a) in the first place the amounts due to the collection accounts of the depositors of the transferor bank till payment in full against all the accounts has been made ; and thereafter (b) in the next place the amounts, if any, due to the accounts of the former shareholders of the transferor bank : Provided that the transferee bank shall make the payments referred to in Sub-clause (a) above, (i) if the corresponding or similar account mentioned in clause (b) of paragraph (5) has not been closed or has not matured for payment, by credit to that account; and (ii) if the said account has been closed or has matured for payment, in cash ; Provided further that the transferee bank shall give to any person to whom any payment may be due against in account mentioned in Sub-clause (b) above such reasonable notice not exceeding three months and not being less than one month, as it may consider appropriate, of the payment being due, and (a) if during the period of this notice a request has not been received in writing for the payment of the amount due in cash and if the amount of the payment due is also not less than the highest closing price of an ordinary share in the transferee bank as quoted on any recognised stock exchange on or immediately before the date on which the notice is issued or where the ordinary share of the transferee bank is not quoted on any recognised stock exchange the price of the share as determined by the Reserve Bank of India, the transferee bank shall allot to the extent possible and disburse in cash the balance, if any, of the amount raised may be due ; (b) if the conditions mentioned in Sub-clause (a) above are not fulfilled, the transferee bank shall disburse the amount in cash : (a) the allotment of the shares or the payments aforesaid shall in each case be made before the end of six months from the date on which notice of the payment falling due is deemed to have been served in accordance with the provisions of this scheme, and (b) the share capital of the transferee bank shall be deemed to have been increased and it shall also be lawful for the transferee bank to issue the shares in the manner and to the extent specified for the purposes of this scheme ; (vi) the amounts due to the collection accounts referred to in this paragraph shall be deemed to be a liability of the transferee bank only to the extent provided for in this scheme ; (vii) on the expiry of twelve years from the prescribed date or such earlier period as the Central Government after consulting the Reserve Bank of India may specify for this purpose, any item referred to in clause (ii) of this paragraph which may not have been realised by that date shall be valued by the transferee bank in consultation with the Reserve Bank of India and the transferee bank shall distribute any amount or amounts determined in the light of that valuation, after deducting therefrom any sum necessary for meeting the liabilities referred to in clause (iv) of this paragraph which may remain unsatisfied as on that date, to the depositors and shareholders in the order and in the manner provided for in clause (v) of this paragraph.

(7) Notwithstanding anything to the contrary contained in any contract, express or implied, no interest shall accrue on account of a deposit or other liability in any account mentioned in paragraphs (5) and (6) after the date of the moratorium and interest shall be paid only in respect of the new accounts opened with the transferee bank in terms of paragraph (5) and credited in accordance with provisions of that or the next succeeding paragraph and only at such rates as the transferee bank may allow.

4. Now the dispute in these appeals relates to the interest payable by the transferee, the Sangli Bank Ltd. in terms of clause (7) and it is regarding this interest that the questions raised in the second paragraph of this order are required to be answered. The rate of interest was determined at the rate of 3 per cent initially and subsequently raised to 5 per cent. It is this interest that the department has sought to tax by setting in motion various proceedings, some of which were abortive. Shri S.E. Dastur, the learned counsel for the assessee, appearing before us charted out the history of these proceedings in order to make out his case regarding the illegality of the present proceedings under Section147(a). The first attempt to assess the interest was initiated by the ITO on 10-2-1969 for the years 1962-63 and 1964-65 to 1966-67. This was nullified by the AAC whose orders were upheld by the Tribunal. Then for those very years, the ITO issued notice under Section 148 of the Act for taking action under Section 147(a), against which the assessee filed writ petitions and thereupon the ITO withdrew the notices by his letter dated 6-3-1974.

The third attempt was made by notices issued under Section 148 on 23-3-1974 for the assessment years 1965-66 and 1966-67 in pursuance of which the assessments were made by orders dated 8-3-1978. These assessments were made in the name of 'The Sangli Bank Ltd., Sangli, legal representative/executor or manager on behalf of the shareholders of Bank of Poona Ltd., Sangli', the status taken as AOPs. The order for the assessment year 1965-66 was set aside in appeal by the Commissioner (Appeals) on 13-2-1979 with directions to the ITO to assess the bank as a trust in the status of 'artificial juridical person'. The order for 1966-67 was also set aside by the AAC following the order of the Commissioner (Appeals). Against these orders, the assessee came up in appeal before the Tribunal, but these appeals were rejected by confirming the orders of the first appellate authority. This order of the Tribunal is dated 3-6-1980. The reference applications moved by the assessee against this order were also rejected. Thus, so far as the assessment years 1965-66 and 1966-67 are concerned, the ITO had to follow the directions of the first appellate authorities to assess the bank in the capacity of a trust. Then came the aforesaid set of proceedings for the assessment years 1967-68, 1969-70, 1970-71 and for the years 1972-73 to 1975-76 which are challenged before us in these appeals.

5. Now these proceedings were all initiated by the ITO under Section 147(a), and the notices were issued to the Sangli Bank Ltd. in the style reproduced in the first paragraph, of this order. All these orders have been confirmed by the Commissioner (Appeals) by his order dated 23-10-1980.

6. To resume with the narration of facts it would be noted that in terms of clause (6) of the scheme, the Sangli Bank Ltd. was entrusted with the responsibility to open a collection account in its books crediting therein the balance due as provided in clause 5(b) to each depositor of the transferor banks and the value of the paid-up shares of each shareholder of the transferor banks. Further, it was on these collection accounts that the Sangli Bank Ltd. was liable to pay interest at the rate of 3 per cent initially and thereafter at the rate of 5 per cent. It is this interest which is the subject-matter of assessment in the impugned proceedings. A clear obligation was cast upon the Sangli Bank Ltd. to maintain the collection accounts for the depositors and shareholders of the transferor banks and it was the responsibility or liability of the Sangli Bank Ltd. under the schemes to make payments out of these collection accounts to such depositors and shareholders in the manner provided under clause 6(v), including the interest at the specified rates in terms of clause 7. A fiduciary capacity was, therefore, created for the Sangli Bank Ltd. in relation to these accounts. There can be no doubt whatsoever that the nature of the relationship between the Sangli Bank Ltd. and the depositors and shareholders of the transferor banks was that of trustee and beneficiaries with regard to the collection accounts and the interest payable by the bank thereof. As a trustee, therefore, the Sangli Bank Ltd. became clearly liable under the Act as a representative assessee within the meaning of clause (iv) of Section 160(1) of the Act. The terms 'trust' and 'trustee' as used in the said clause (iv) have to be understood in their broad and general sense and not given a narrow or technical meaning. For this proposition, we rely on the ruling of the Calcutta High Court in the case of Official Trustee of West Bengal v.CIT [1968] 67 ITR 218. On the question whether a dedication to a deity in the Hindu form is a trust. Their Lordships, affirming that it is, have quoted the following passage from B.K. Mukherjee, J. in his Tagore Law Lectures, The Hindu Law Religious and Charitable Trust: You will see that the 'trust' in its original was a highly artificial thing which had its foundation upon a dual system of law and a dual system of property which came into existence in England under peculiar political and historical conditions.

You could not possibly expect to find a trust in this form in the Hindu system. But the existence of dual ownership is not an essential ingredient in the conception of trust and if you take 'trust' in its broad and general sense as signifying a fiduciary relation under which a person in possession of or having control over any property is bound to use that property for the benefit of certain persons or specified objects. Obviously there are trusts in Hindu law. A shebait in charge of a temple, or a mohant having control over a religious institution, would be a trustee in this general sense.

Further, as for the meaning to be given to the term 'trustee', their Lordships observed on the same page : That the word 'trustee' is used in the larger sense in the said Act is clear from the Supreme Court decision in Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal [1958] 33 ITR 245, 251, 252 (SC).

In our view, therefore, the ITO was entitled to assess the interest income payable on the collection accounts in the hands of the Sangli Bank Ltd. as trustee.

7. We shall now proceed to examine how, in fact, the assessments have been made by the ITO and the contentions raised by Shri S.E. Dastur urging that the assessments are bad in law on the grounds that the ITO wrongly assumed jurisdiction under Section 147(a) and the notices issued by him under Section 148 on the assessee are illegal and invalid. His objections are founded on the proposition that the ITO's jurisdiction to make a valid assessment under Section 147(a) must be founded on a valid notice issued under Section 148. Now, in the instant cases the ITO issued notice to the Sangli Bank Ltd. as successor to and on behalf of the three merged banks. Therefore, Shri S.E. Dastur argues that it is in respect of the income of the merged banks that the ITO invoked the provisions of Section 147. Now, in fact, Shri S.E. Dastur submits, there was no such income arising to the merged banks ; but, even presuming such income had arisen to those banks it would have been assessable in the hands of the successor named by the ITO, i. e., the Sangli Bank Ltd. only in terms of Section 170 of the Act and such assessment could have been valid in terms of clause (b) of Section 170(1) in respect of the income of the previous year after the date of succession, that is, only for the previous year ending after 7-10-1961, or, at the most, in terms of Sub-section (2) of that Section for the previous year in which the succession took place and the previous year preceding that year. But those provisions would certainly not apply to the assessments before us and, therefore, the notices issued by the ITO are bad in law. His next attack is in terms of the provisions of Section 147(a) which necessarily require that the ITO must have reason to believe that income had escaped assessment. Since there was no income of the transferor banks for the years under appeal assessable in the hands of the Sangli Bank Ltd. as successor, it cannot be held that the ITO had any reason to believe that income had escaped assessment.

Shri S.E. Dastur next contends that in the facts and circumstances of the present case, there was no omission on the part of the assessee to file returns of income since on the ITO's own showing, no income for the years in question arose to the Sangli Bank Ltd. as successor to merged banks.

8. Indeed, there can be no quarrel whatever with Shri S.E. Dastur's contention that the interest income which is sought to be assessed was not and could not be the income of the merged banks. With effect from the prescribed date which in the case of Phaltan Bank Ltd. was 7-10-1961 and similarly for the other two banks, all the three banks were amalgamated with the Sangli Bank Ltd. and no question thereafter could arise of income arising to these amalgamating banks. Therefore, if the ITO sought by the notices which he issued under Section 148 to assess the income of the merged banks in the hands of the Sangli Bank Ltd., such notices would have to be held as misconceived. However, the question we may ask ourselves is whether by the mere fact that a certain description was given by the ITO in the impugned notices to the Sangli Bank Ltd., that description has to be understood and interpreted as so vitiating those notices as to make them utterly illegal and invalid. We do not read these notices in such narrow and rigid terms.

For the real question to be considered is whether by the description given in the notices the assessee could have been misled taking all the facts and circumstances of the case into consideration, as to what was its liability to tax and in respect of what income the liability arose.

On the facts of the case, we find that there could have been no manner of doubt created for the Sangli Bank Ltd. on receipt of notices under Section 148 as to the income which the ITO sought to assess by issuing those notices. The liability for payment of interest on the collection accounts was squarely fixed upon the Sangli Bank Ltd., in terms of the schemes. It would be stretching credulity too far if we were to hold that the Sangli Bank Ltd. was totally ignorant that such interest was income and, therefore, liable to assessment under the Act and further that it was the income of the beneficiaries in respect of which again liability vested upon the Sangli Bank Ltd. for the assessment year as trustee. In arriving at these inferences, we have in view the provisions of Section 292B of the Act which may be usefully reproduced here : No return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shail be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.

Applying these provisions to the facts of the cases before us, can it be held that the notices under Section 148 in question are in substance and effect in conformity with or according to the intent and purpose of the Act What is the intent and purpose of the Act With respect, we rely, for the answer to this question, on the dictum of Lord Cave in the case of Williams v. Singer 1921 AC 65 quoted with approval by the Supreme Court in the case of Executors of the Estate of J.K. Dubash v.CIT [1951] 19 ITR 182: ... the fact is that, if the Income-tax Acts are examined, it will be found that the person charged with tax is neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income, which it is sought to reach.

... The object of the Acts (Income-tax) is to secure for the State a proportion of the profits chargeable, and this end is attained (speaking generally) by the simple and effective expedient of taxing the profits where they are found. If the beneficiary receives them, he is liable to be assessed upon them. If the trustee receives and controls them, he is primarily so' liable. . . .

These principles as the learned authors Kanga and Palkhivala, observed at page 949 of their commentary on The Law & Practice of Income-tax, Volume 1, 7th edition, would apply with equal force under the Act and they underlie the provisions of Sections 160 to 167 of the Act. If the intent and purpose of the Act is to be understood in the context of the present cases, obviously that intent and purpose would be to assess the Sangli Bank Ltd. in respect of the interest income accruing on the collection accounts as trustee for the beneficiaries of those accounts as laid down in the three schemes. The Sangli Bank Ltd., therefore, was rightly held by the ITO in terms of the notices issued by him under Section 148 as the assessee against whom proceedings under Section 147(a) were correctly taken since the Sangli Bank Ltd. had failed to file returns of such income and this omission on the part of the Sangli Bank Ltd. provided reason to believe for the ITO that income had escaped assessment. The description given by him to the Sangli Bank Ltd. as successor to the merged banks may not have been correct, but that fact, to our minds, is not fatal as in substance and effect the notices, despite the descriptive flaw, were in conformity with the intent and purpose to assess the Sangli Bank Ltd. in respect of the interest income. In other words, the defect in the notices, in our view, was no more than an irregularity which the ITO could well have cured or set right in the course of the assessment proceedings which, in fact, he did by taking the status of the Sangii Bank Ltd. in the assessment order as trustee. We respectfully draw support for this view from the rulings cited as Mahabir Prosad Poddar v. ITO [1971] 82 ITR 299 (Cal.) and Chooharmal Wadhuram v. CIT [1968] 69 ITR 88 (Guj.) It is in this view and relying upon the clear provisions of Section 292B which we hold squarely apply in these cases, that we hold that the notices issued by the ITO under Section 148 were valid. Shri S.E.Dastur has cited in his favour several rulings which we may enumerate : Rama Devi Agarwalla v. CIT [1979] 117 ITR 256 (Cal.), CIT v. K.Adinarayana Murty [1967] 65 ITR 607 (SC), Madhav Motor Stores v. CIT [1978] 115 ITR 887 (Bom.), CITv. Kurban Hussain Ibrahimji Mithlborwala [1971} 82 ITR 821 (SC), CIT v. B. Ranga Reddy [1979] 118 ITR 897 (AP) and Bhagwan Devi Saraogi v. ITO [1979] 118 ITR 906 (Cal.).

We have carefully considered the ratios of the rulings and the principles set down therein, but on the facts we find that none of them is of assistance to the assessee in the case before us, particularly keeping in view the provisions of Section 292B which did not come in for consideration in any of the cases cited by Shri S.E. Dastur. In regard to the provisions of Section 292B, Shri S.E. Dastur's contention is that those provisions would have no application to a notice issued under Section 148, since it is by virtue of such notice alone, if it is valid and proper in every respect, that the ITO can legally acquire jurisdiction to take proceedings under Section 147. If the notice is issued to a wrong person and it is Shri S.E. Dastur's contention that such is the case before us since the Sangli Bank Ltd. has been named in the notice as successors to and on behalf of the merged banks, such a notice cannot be saved by the provisions of Section 292B. We do not find merit in this contention. As we have discussed above, our finding is that the notices in question were issued to the proper person, i.e., the Sangii Bank Ltd. and it is only in the description that the mistake was committed by the ITO which he corrected in the assessment proceedings by taking the status of the assessee as trustee for the shareholders of the merged banks. In our view, it is precisely this kind of defect in a notice against which the proceedings instituted thereby are saved if the notice is in substance and effect in conformity with or according to the intent and purpose of the Act and that condition, as discussed above, was fully satis-tied by the impugned notices. We, therefore, reject the contentions raised on this point by Shri S.E. Dastur. We, therefore, hold that the assessments made by the ITO as valid and legal and confirm the order of the Commissioner (Appeals) on this point.

9. Turning next to the merits of the assessments, the assessee's grievance is that charge of tax at the maximum rate on the interest accruing on the collection accounts is unwarranted. The ITO held that the provisions of Section 164(1) were applicable, inasmuch as this income was not specifically receivable on behalf or for the benefit of any one person or the individual shares of the persons on whose behalf or for whose benefit the interest income was receivable were inderminate or unknown and, hence, the asses-see was liable to tax thereon at the maximum marginal rate of 65 per cent. The Commissioner (Appeals) has upheld this action of the ITO on the ground that for the earlier assessment years for which the assessment orders had been set aside, dirctions were given by the appellate authorities for the ITO to give opportunity to the assessee to indicate the shares of the beneficiaries. The Commissioner (Appeals)'s objection is that despite such opportunity having been given for the years under appeal before us, the Sangli Bank Ltd. had not indicated the shares of the beneficiaries and had not distributed the income according to such shares and as such the ITO had no option but to charge tax at the maximum rate. We find these inferences drawn by the Commissioner (Appeals) to be wholly erroneous and unsustainable. In the first instance, it is quite incorrect to hold that the assesee had not distributed the income according to the shares of the beneficiaries In this connection,, Shri S.E. Dastur has invited our attention to the letter addressed by the Sangli Bank Ltd. to the ITO dated 26-4-1977, reproduced at pages 46 and 47 of the assessee's paper book. In terms the bank informed the ITO by this letter about the distribution to the shareholders made from time to time by way of repayment of their share capital. It is clearly stated in this letter that the shareholders of the Bank of Poona Ltd. had been repaid fully and distribution had also been made in the case of the shareholders of the Phaltan Bank Ltd. As for the Poona Investors Bank Ltd. it was intimated as to what amount of the liability had been paid out, the amount remaining due for payment on account of that liability and that since it was not fully cleared, no amount had till then been distributed to the shareholders.

10. The real issue, however, is whether the provisions of Section 164 were at all applicable in the assessee's case, i.e., whether it could be held that the interest payable on the collection accounts was not specifically receivable on behalf or for the benefit of any person or that the individual shares of the beneficiaries were indeterminate or unknown. We find that the schemes in terms of which the three banks were merged with the Sangli Bank Ltd. set out clear and detailed provisions as to what amounts were to be paid out to the beneficiaries, i.e., the depositors and shareholders of the merged banks with which we are concerned with reference to the interest payable on the collection accounts. So far as the identity of the beneficiaries is concerned, it would be futile to hold that there could be any doubt; all the depositors and shareholders of the merged banks were certainly known.

As regards their shares, we have only to refer to the relevant provisions of the scheme to ascertain that they were well defined and determinate. We have already noted in the earlier portion of this order that under clause (6) the Sangli Bank Ltd. was required to open a collection account for the depositors and the shareholders of the merged banks entering therein the amounts due to them, in terms of the schemes. Interest was payable on the collection accounts at the determined rates, i.e., 3 per cent initially and 5 per cent thereafter on these accounts. The manner and mode of payment against these accounts is also set out in detail in clause (6). It was also provided in the schemes that payments or distribution would be made pro rata and the term 'pro rata' was clearly explained in the scheme as "The term 'pro rata' occurring in this paragraph and elsewhere in this scheme shall mean in proportion to the respective amounts remaining due at the time of the payment or distribution". On these facts it would, in our view, be wholly erroneous to hold that the shares of the beneficiaries in respect of the interest due on the collection accounts were indeterminate or unknown. We, therefore, find that the assessee's case is fully covered under Section 160(l)(iv) read with Section 161 on the basis that the interest on the collection accounts was specifically receivable on behalf of the beneficiaries and that their shares were determinate and known. The provisions of Section 164 have, therefore, wrongly been applied by ,the 1TO and upheld by the Commissioner (Appeals). His order on this point is, therefore, set aside.


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