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Commissioner of Income-tax Vs. Madanlal Sohanlal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 417 of 1975
Judge
Reported in(1981)24CTR(Cal)272,[1982]137ITR29(Cal)
ActsIncome Tax Act, 1961 - Section 147; ;Indian Income Tax Act, 1922 - Sections 2(6A) and 12(1B)
AppellantCommissioner of Income-tax
RespondentMadanlal Sohanlal
Appellant AdvocateB.L. Pal and ;P. Majumdar, Advs.
Respondent AdvocateNone
Excerpt:
- .....is a registered firm and the reference relates to the assessment year 1955-56. there was a private limited company under the name and style of m/s. hall & anderson ltd., whose entire shares were purchased in the name of the assessee-firm, m/s. madanlal sohanlal, some time in september, 1946, for rs. 80,00,000. later on, a public limited company under the same name of m/s. hall & anderson ltd. was floated which purchased the entire assets and liabilities of the said private limited company for rs. 80,00,000 some time in december, 1946. under the instructions of the private limited company which were later on confirmed by the directors of the private limited company, the sale proceeds of rs. 80,00,000 in respect of the sale of the assets of the private limited company were received by the.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the following two questions have been referred to this court :

' 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessment could not be reopened under Section 147(a) of the Income-tax Act, 1961

2. Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 297(2)(b) and Section 297(2)(d)(ii), the Appellate Tribunal was justified in holding that the sum of Rs. 12,26,206 could not be assessed as the income of the assessee for the year under consideration '

2. The assessee is a registered firm and the reference relates to the assessment year 1955-56. There was a private limited company under the name and style of M/s. Hall & Anderson Ltd., whose entire shares were purchased in the name of the assessee-firm, M/s. Madanlal Sohanlal, some time in September, 1946, for Rs. 80,00,000. Later on, a public limited company under the same name of M/s. Hall & Anderson Ltd. was floated which purchased the entire assets and liabilities of the said private limited company for Rs. 80,00,000 some time in December, 1946. Under the instructions of the private limited company which were later on confirmed by the directors of the private limited company, the sale proceeds of Rs. 80,00,000 in respect of the sale of the assets of the private limited company were received by the assessee-firm which was also authorised to give receipt in full discharge and settlement of the amount due to the private limited company by the public limited company. The ITO was of the view that the amount of Rs. 80 lakhs which was outstanding on the first day of the previous year relevant to the assessment year to the extent to which the company possessed accumulated profits were dividends within the meaning of Section 12(1B) read with Section 2(6A)(e) of the Indian I.T. Act, 1922. He was further of the view that the assessee did not disclose in the course of the original assessment proceedings all material facts necessary for the assessment on account of which this income liable to tax had escaped assessment. He, therefore, reopened the assessment under Section 147(a) of the Income-tax Act, 1961, and in the reassessment made an addition of Rs. 12,26,206 asdividends in view of the provisions of Section 12(1B) read with Section 2(6A)(e) of the Indian I.T. Act, 1922. As the first question relates to the reopening, it would be material to set out the reasons recorded on the basis of which the Commissioner of Income-tax gave his satisfaction. The said reasons were as follows:

' The assessee-firm held the entire shares of M/s. Hall & Anderson Pvt. Ltd. It received Rs. 80,00,000 on behalf of the Private Ltd. Co. when the assets of this company were sold to M/s. Hall & Anderson (Public) Ltd. This amount has been shown in the assets side of the Pvt. Ltd. Company's balance-sheet as an advance recoverable in cash from a director. This advance included accumulated profits of Rs. 12,26,206 relating to the private limited company. Since the assessee-firm being the only shareholder of the company, should be regarded as the director in receipt of the said advance which has not yet been paid to the company so far. I have reasons to believe that deemed dividend of Rs. 12,26,206 by virtue of Section 12(1B) read with Section 2(6A)(e) of the Indian I.T. Act, 1922, escaped assessment and action under Section 147 of the I.T. Act, 1961, is necessary to tax the firm and its partners for the assessment year 1955-56. '

3. Aggrieved by this assessment order, the assessee went up in appeal before the AAC. The AAC, however, agreed with the ITO and dismissed the appeal. On the point of reopening, the AAC observed, inter alia, as follows:

' Since the entire ordinary and preference shares of the private limited company were acquired by the assessee-firm which was the only sharaholder of the company, it is the firm which should be regarded as the director in respect of the advance or loan of Rs. 80,00,000. The balance-sheet was audited by Price Waterhouse Peat & Co., Calcutta, on 15th September, 1949. The private limited company considered the asset of Rs. 80,00,000 as doubtful and the loan or advance remained unpaid on the first day of the previous year relevant to the assessment year 1955-56. The privated limited company had accumulated profit to the extent of Rs. 12,26,206, Therefore, Rs. 12,26,206 is treated as dividend income of the assessee under Section 12(1B) of the I.T. Act, 1922, which was not disclosed by the assessee in the course of assessment proceedings for the assessment year in question.'

4. He also agreed with the ITO that the sum of Rs. 12,26,206 was correctly included under Section 12(1B) read with Section 2(6A)(e) of the Indian I.T. Act, 1922.

5. The assessee, thereafter, went up in appeal before the Income-tax Appellate Tribunal. The Tribunal was of the view that all the particulars were disclosed by the assessee to the revenue authorities and, therefore, if the ITO did not take proper action at the time of the originalassessment and was not informed of what legal inferences should have been drawn from the facts disclosed and how the law should be applied to the facts of the case, Section 147(a) of the I.T. Act, 1961, was not attracted. The Tribunal further held that if an assessment was reopened in view of Section 297(2)(b) read with Section 297(2)(d)(ii) of the I.T. Act, 1961, the assessment should be made in accordance with the provisions of the new Act, and since under, the 1961 Act there was no provision similar to Section 12(1B) of the Indian I.T. Act, 1922, there was no question of any amount being treated as dividend under the provisions of Section 12(1B) of the 1922 Act, and the Tribunal, therefore, held that the addition was not proper also. Upon this the aforesaid two questions have been referred to this court. So far as the first question is concerned it is well settled that it is the obligation of the assessee to disclose truly and fully all basic material facts relevant for the assessment. It is not for the assessee to disclose what inferences should be drawn from the basic facts relevant for the assessment. In the instant case we have noted that all the basic facts had been disclosed. Indeed, from the reasons recorded by the ITO it is quite apparent that there was no new basic fact as such which was not disclosed in the original return, although the ITO had subsequently made another legal inference or conclusion from the basic facts or material facts which were there in the original return and which did not come into possession subsequently. In that view of the matter, in our opinion, the Tribunal was justified in the view it had taken that Clause (a) of Section 147 of the I.T. Act, 1961, could not be attracted. Furthermore, in our opinion, it has to be borne in mind that whether in a particular case the basic and material facts had been disclosed or not is primarily a question of fact and unless an appropriate question is raised challenging the finding of fact in the sense that the finding was based on no evidence or was perverse in law, the view taken by the Tribunal that Section 147(a) was not attracted, could not be assailed in a reference. The Tribunal was justified in the view it took. We, therefore, answer the first question in the affirmative and 'in favour of the assessee.

6. So far as the second question is concerned though it does not survive in the view we have taken, as it would be of an academic nature, it appears to us that the Tribunal was in error in the view it took on this aspect of the matter. In this connection reference may be made to the observations of the Supreme Court in the case of Govinddas v. ITO : [1976]103ITR123(SC) , where the Supreme Court observed that the words 'all the provisions of the new Act shall apply accordingly' in Clause (ii) of Section 297(2)(d) of the I.T. Act, 1961, merely refer to the machinery provided in the new Act for the assessment of the escaped income. These did not import any substantive provisions of the new Act which created rights or liabilities. The word ' accordingly ', in the context, meant nothing morethan ' for the purpose of assessment' and it clearly suggested that the provisions of the new Act which were made applicable were those relating to the machinery of the assessment. The substantive law to be applied for determining the liability to tax must necessarily be the law under the old Act, for, that is the law which applied during the relevant assessment years and it is that liability which must govern the liability of the parties. At p. 134 of the report, the Supreme Court observed as follows :

' The argument of the revenue authorities, therefore, was that when notices under Section 148 were issued for reopening the assessments of the Hindu undivided family, all the provisions of the new Act became applicable and they included Sub-section (6) of Section 171 and, therefore, that sub-section was applicable for recovery of the tax reassessed on the Hindu undivided family pursuant to the notices under Section 148. This argument is without force. It is based on a misconstruction of the words 'all the provisions of this Act shall apply accordingly ' in Clause (ii) of Section 297(2)(d). These words merely refer to the machinery provided in the new Act for the assessment of the escaped income. They do not import any substantive provisions of the new Act which create rights or liabilities. The word 'accordingly', in the context, means nothing more than 'for the purpose of assessment' and it clearly suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment. The substantive law to be applied for determining the liability to tax must necessarily be the law under the old Act, for, that is the law which applied during the relevant assessment years and it is that law which must govern the liability of the parties. Though Sub-sections (1) to (5) of Section 171 merely lay down the machinery for assessment of a Hindu undivided family after partition, Sub-section (6) of Section 171 is clearly a substantive provision imposing a new liability on the members for the tax determined as payable by the joint family. The words 'all the provisions of this Act shall apply accordingly' cannot, therefore, be construed as incorporating by reference to Sub-section (6) of Section 171 so as to make it applicable for recovery of the tax reassessed on the Hindu undivided family in cases falling within Clause (ii) of Section 297(2)(d). This contention of the revenue authorities must accordingly be rejected.'

7. Therefore, had it been necessary for us to answer, we would have answered question No. 2 in the negative and in favour of the revenue. But, as we have mentioned, it no longer survives.

8. As the assesses is not appearing, there will be no order as to costs.

Sudhindra Mohan Guha , J.

9. I agree.


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