TMI Blog1952 (9) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate order of the Income-tax Tribunal and which are stated in the statement of the case are that Messrs, David Mills Ltd. were previous owners of the Bijli Cotton Mills at Hathras. Messrs. Shyamlal Chimanlal, a partnership firm, thought of acquiring the Bijli Cotton Mills for a sum of Rs. 15 lacs on behalf of a company, which they were going to get incorporated. Messrs. Shyamlal Chimanlal paid the stipulated price to Messrs. David Mills Ltd., purporting to do so on behalf of the company which they were going to float. On 10th December, 1942, they obtained possession of the Bijli Cotton Mills as representing the purchaser company which had not yet come into existence but which they specifically mentioned they had decided to get incorporated. On 11th December, 1943, the company was duly incorporated and on the 2nd of January, 1945, a formal conveyance was executed by Messrs. David Mills Ltd. in favour of the new company, called the Bijli Cotton Mills Ltd., Agra. On 14th March, 1948, the Income-tax Officer assessed the Bijli Cotton Mills Ltd., on the income from the 11th of December, 1942, to the 31st of December, 1943. This assessment could only be on the basis that the Bijli Cott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellate Tribunal held on the first point against the assessee and on the second point in favour of the assessee and it was thereafter that the assessee and the Commissioner made applications that the points mentioned above may be referred to this Court for its decision. Taking up the first question first, we have no doubt that the decision of the Tribunal was right and on appeal by the assessee the Assistant Commissioner was not confined to the reliefs claimed by the assessee. His powers under section 31(3) of the Income-tax Act are very wide. It is true that the Income-tax Officer has not been given a right of appeal, and a right of appeal is given only to the assessee objecting to the assessment, but this is for the obvious reason 1hat the Income-tax Officer cannot have a right to appeal against his own decision. If, therefore, the assessee does not appeal, the Income-tax Officer cannot bring the matter before the Appellate Assistant Commissioner and if a mistake has been made in the assessment which is prejudicial to the interest of the revenue the Commissioner under section 33B has been given the right to correct the error. Under section 33A the Commissioner has also been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls not for themselves but for a company which they were going to float. It also appears that when they took possession they made it clear that they were not taking possession of the Bijli Cotton Mills in their own right but on behalf of the private limited company which they were going to have incorporated. The company was no doubt incorporated almost one year afterwards, i.e., on the 11th of December, 1943, and the sale deed in its favour was not executed till the 2nd of January, 1946, by Messrs. David Mills Ltd. who were the owners. It further appears from the statement of the case that, after the assessee company was incorporated, the assessee chose to accept the profits made before its incorporation and treated the promoters as accountable for all profits made during the period 11th December, 1942, and 10th December, 1943. In the circumstances the question arises whether it can be said that the business was carried on by the assessee, during the relevant period. Learned counsel for the Department has laid great stress on the language of section 10 of the Indian Income-tax Act and has pointed out that under section 10 tax is payable by an assessee in respect of the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by him from it just as if the relationship of principal and agent or of trustee and cestui que trust had really existed between them and the company when the money was so obtained." In Omnium Electric Palaces v. Baines it was doubted whether this was strictly accurate and whether it did not merely confuse matters to attempt to identify the fiduciary duties of a promoter with ordinary out and out trusteeship. Buckley in his Companies Acts, 12th, edn. at page 108, dealing with this matter says: "The case of a promoter is a strong case of fiduciary relationship, inasmuch as the trustee or agent, so far from being selected by his cestui que trust or principal, actually creates the principal in whose affairs he acts." If, therefore, the promoters have not bought some property or business for their own use but on behalf of or for the benefit of a company which they were about to float, though the company when floated may have the option to accept the benefit of the contract entered into by the promoters, or buy the property purchased for its benefit, the promoters have no right to refuse to give the property or the business or the benefit derived therefrom to the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficiary, the beneficiary could be said to be in receipt of that income and could be taxed directly. If, on the other hand, the income came into the hands of the trustee and he had the right to dispose of it and it was only the balance left over that was payable to the beneficiary then the income was taxable in the hands of the trustee. These cases, however, make it clear that under sections 9 and 10 of the Income-tax Act, it is not only the legal ownership that has to be looked to but the courts can also go into the question of beneficial ownership and decide who should be held liable for the tax after taking into account the question as to who is as a matter of fact in receipt of the income which was going to be taxed. If we are correct in this view, then there can be no doubt that after the assessee had adopted the action of the promoters and had decided to take over the business the profits for the whole of the period, during which the promoters ran the business which they had to hand over to the company and which they could not claim that they had a right to keep for their own benefit, became income of the assessee. It will be of interest in this connection to quote the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Official Trustees, any receiver or manager appointed by or under any order of a Court, or any trustee or trustees appointed under a trust declared by a duly executed instrument in writing. In all these cases each trust can be treated as a separate entity and the income derived therefrom as one unit for purposes of assessment. We have already quoted the decision of the Privy Council in the case of Trustees of Sir Currimbhoy Ebrahim Baronetcy Trust where their Lordships have laid down in what cases a trustee can be directly assessed and made liable for income-tax payable on the income of the trust property and in what cases a beneficiary can be made directly liable. In a case where the income when it comes into the hands of the trustee becomes immediately earmarked as payable to the beneficiary and all that the trustee has to do is to hand over that income to the beneficiary, it appears reasonable that the beneficiary should be directly assessed. Where, however, the money is not immediately earmarked for the beneficiary and the trustee has a right under the trust to dispose of the income and it is only the balance if any that is payable to the beneficiary it cannot be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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