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1996 (2) TMI 1 - SC - Income TaxAccrual of income - Taxation of pre-incorporation profits - in hands of promoters or company? - When did the pre-incorporation profit accrue ? - Did it accrue before incorporation ? - promoters and the assessee-company were different legal persons - HELD THAT:- Tribunal was right in saying that the relevant question was : what was the legal entity that had carried on the business before the assessee-company was incorporated and earned the income at the time of its accrual. A company becomes a legal entity in the eye of law only when it is incorporated. Prior to its incorporation, it simply does not exist. The assessee-company did not exist when the income with which we are here concerned was earned. It is, therefore, not the assessee-company which earned the income when it accrued and it is not liable to pay tax thereon. Who is liable to pay tax? - A company can enter into an agreement only after its incorporation. It is only after incorporation that a company may decide to accept that its promoters have carried on business on its behalf and appropriate the income thereof to itself. The question as to who is liable to pay tax on such income cannot depend upon whether or not the company after incorporation so decides. It is he [promoter] who carried on the business and received the income when it accrued who is liable to bear the burden of tax thereon. Decided in favour of assessee.
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