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TMI Blog1996 (2) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of Rs. 24,862 cannot be included in the assessment of the assessee-company for the assessment year 1974-75 ?" 2. The assessment year is the assessment year 1974-75. The relevant accounting year ended on 30-9-1973. The assessee-company was incorporated on 30-10-1972. It filed a return for the assessment year 1974-75 disclosing an income of Rs. 1,79,690. The ITO assessed the assessee-company's total income at Rs. 2,04,530. In so doing, he included, inter alia, the sum of Rs. 24,862 as the assessee-company's pre-incorporation profit. He found that the promoters of the assessee-company had carried on business on its behalf and had received the sum of Rs. 80,534 for the period 1-10-1972 to 29-10-1972. After deducting expenses, the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt observed that it was true that under the law the respondent-company had come into existence only upon its incorporation and it was not possible to hold that the legal title in the business or its profits had vested in it before its incorporation. It was, however, well-settled that if the promoters of a company carried on business on behalf of a company which they intended to float, the company, on its incorporation, had a right to either accept what had been done on its behalf by the promoters or repudiate the same. If the company accepted what the promoters had done on its behalf it had a right to claim from them the entire income for the period during which the business was carried on for its benefit. Reliance was placed upon the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t decision of the Allahabad High Court in Security Printers of India (P.) Ltd. v. CIT [1970] 78 ITR 766. 5. The Calcutta High Court has taken a different view in CIT v. Tea Producing Co. of India Ltd. [1963] 48 ITR 200. The respondent-company was incorporated on 29-5-1951 with, inter alia, the object of taking over a tea estate as a going concern. It commenced business on 23-6-1951. In November 1951 it purchased the tea estate with effect from 1-1-1951 and the terms of the sale deed stated that all income and profits from 1-1-1951 would belong to the respondent-company and it would be liable for all tax dues from that date. For the accounting year ending 31-12-1951, the respondent-company showed a loss. The ITO held that the assessee was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehman (supra) and had taken the view that under the Act it was not only legal ownership that had to be looked into but the Court could go into the question of beneficial ownership and decide who should be held liable for tax after taking into account the question as to who was, as a matter of fact, in receipt of the income which was to be taxed. The Calcutta High Court pointed out that the observations of the Bombay High Court in this regard had been disapproved by the Privy Council in CIT v. Dewan Bahadur Dewan Krishna Kishore [1941] 9 ITR 695. 6. In our view, the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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