1977 (2) TMI 54 - AT - Income Tax

Issues Involved:
1. Re-opening of the assessment under Section 147(a).
2. Inclusion of dividend income.
3. Application of Section 52(2) for capital gains.
4. Benami shareholding.
5. Disallowance of interest payments.

Issue-Wise Detailed Analysis:

1. Re-opening of the assessment under Section 147(a):
The assessee challenged the re-opening of the assessment for the year 1964-65 under Section 147(a), arguing that all necessary details were furnished during the original assessment, including the capital gains of Rs. 37,500. The Tribunal found that the assessee had indeed disclosed all material facts necessary for the assessment, and there was no omission or failure on her part. The Tribunal concluded that the re-opening under Section 147(a) was not justified as the assessee was not aware of the dividends declared on 7th February 1964, and therefore, could not have disclosed this information. The Tribunal held that the re-opening of the assessment was improper.

2. Inclusion of dividend income:
The Income Tax Officer (ITO) included dividends of Rs. 27,405 and Rs. 3,410 in the re-assessment. The assessee argued that these dividends were not received as income but as part of the purchase price of shares transferred. The Tribunal agreed with the assessee, noting that the dividends were received by the purchaser and forwarded to the assessee in part satisfaction of the instalment price. The Tribunal concluded that the dividends did not accrue to the assessee and should not be included in her income.

3. Application of Section 52(2) for capital gains:
In the re-assessment for 1964-65, the ITO applied Section 52(2) to increase the capital gains by Rs. 49,250, asserting that the shares sold for Rs. 1,12,500 had a fair market value of Rs. 1,61,750. The Appellate Assistant Commissioner (AAC) deleted this addition, and the Tribunal upheld the AAC's decision. The Tribunal found no basis for applying Section 52(2) as the shares were sold at the agreed price, and there was no evidence of under-valuation.

4. Benami shareholding:
The ITO claimed that 682 shares were held by benamidars of the assessee's late husband, and included the dividends from these shares in the re-assessment. The Tribunal found no evidence to support the ITO's claim. The Tribunal noted that the shares were procured for sale as per the agreement and there was no finding in the earlier assessment of the late husband that these shares were held as benami. The Tribunal held that the department failed to establish that these shares belonged to the late husband and deleted the dividends from the re-assessment.

5. Disallowance of interest payments:
For the assessment years 1965-66, 1967-68, and 1968-69, the ITO disallowed interest payments on the grounds that the borrowed monies were not utilized for earning income. The AAC upheld these disallowances. The Tribunal, however, found that most of the borrowed sums were utilized for investments and that disallowance in the past was only partial. The Tribunal directed that a reasonable disallowance of 50% of the total interest claimed should be made, instead of disallowing the entire amount.

Conclusion:
The Tribunal allowed the appeal for the year 1964-65, holding that the re-opening under Section 147(a) was improper and the inclusion of dividend income was unjustified. The Tribunal also upheld the deletion of the additional capital gains under Section 52(2) and found no evidence to support the claim of benami shareholding. For the years 1965-66, 1967-68, and 1968-69, the Tribunal partly allowed the appeals, directing a reasonable disallowance of 50% of the interest payments instead of the entire amount.

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