TMI Blog1985 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... 190 on that account. The company's balance-sheet showed that it had a reserve of Rs. 5,45,550 out of accumulated profits. The Income-tax Officer, therefore, found that the amount of Rs. 4,28,190 was a dividend taxable under section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act, 1922. With the previous approval of the Commissioner of Income-tax, therefore, he reopened the assessment of the assessee under section 147 of the Income-tax Act, 1961. Pursuant to the notice in that behalf dated March 24, 1964, the assessee filed a return declaring an income of Rs. 44,503. He submitted that inasmuch as he had disclosed all primary facts necessary for the assessment at the time of the original assessment, the reopening of the assessment proceedings was invalid. He also submitted that the provisions of section 2(6A)(e) were not applicable as one of the objects of the company was to lend moneys. By his order dated March 27, 1968, the Income-tax Officer stated thus : " The assessee who is a shareholder of M/s. Fazalbhoy Ibrahim Co. Ltd. owns 565 shares of Rs. 1,000 each of the said Ltd. Co. His account in the books of the Ltd. Co. shows that he had borrowed huge amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the facts were similar to the facts involved in the case of the assessee's brother. The Tribunal, following its judgment in the case of the assessee's brother, confirmed the order of the Appellate Assistant Commissioner and dismissed the appeal. It is necessary to see what was contended before the Tribunal in the cast of the assessee's brother and the findings of the Tribunal thereon. It was submitted on behalf of the assessee's brother that the disclosure made at the time of the original assessment was full and true and that there had been no omission or failure on his part. It was accordingly submitted that the Income-tax Officer had no jurisdiction to reopen the assessment. The Tribunal found that the assessee's brother had disclosed that he was a shareholder of the company and that he had taken a loan from it. This was sufficient to keep the Income-tax Officer on the track to find out whether the provisions of section 2(6A)(e) of the Indian Income-tax Act, 1922, were attracted. The disclosure made by the assessee's brother at the time of the original assessment was, therefore, a full and true disclosure of all material facts necessary for his assessment. So far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment of Rs. 3,00,000 made in the name of the assessee's father-in-law on the basis that it was a benami transaction in which there had been a deliberate attempt to conceal. The assessee appealed and contended before the Appellate Assistant Commissioner that the proceedings under section 34(1A) were not validly initiated. He also raised a contention on merits. The Appellate Assistant Commissioner rejected both contentions. The assessee went in second appeal to the Tribunal and again contended that the Income-tax Officer had erred in starting action under section 34(1A) and that his notice in that behalf was bad in law and without proper authority. He also raised a contention on merits. The Tribunal called for a remand report. While its order set out both the assessee's contentions, the remand report was required only with regard to the merits. After receipt of the remand report, the Tribunal dealt with the appeal, but its order did not consider the contention regarding the validity of the action under section 34(1A). In the reference that was made, the question on this aspect that was originally raised was whether the Tribunal had erred in law or exercised its discretion unju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue did not produce this memorandum. Nowhere upon the record is there even so much as a statement of the Income-tax Officer (Central) indicating the reasons for and the materials upon which he formed the belief that the assessee's income had escaped assessment. In the absence of the memorandum, and even of such a statement, we do not know for what reasons and upon what material the Income-tax Officer (Central) formed such belief. Hence, we are unable to decide whether he could reasonably have entertained it. We are, therefore, not satisfied that the Income-tax Officer (Central) had reason to believe that the assessee's income had escaped assessment and that the proceedings under section 34(1A) of the Indian Income-tax Act, 1922, were validly initiated. " In the instant case, the Revenue was not called upon to discharge the burden that the notice under section 147(a) of the Income-tax Act, 1961, had been issued with jurisdiction by producing the reasons recorded at the time the Income-tax Officer sought the Commissioner's sanction for issuing it until the hearing of the reference before us. In Divekar's case [1986] 157 ITR 629 (Bom), this point had been taken in the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment was a question of fact " and the Tribunal's decision concluded it. In the case before us there is no dispute as to the material that was placed by the assessee before the Income-tax Officer. It is an admitted position that the balance-sheet of the company was not placed before the Income-tax Officer. The question, in the circumstances, is whether, given the material placed before the Income-tax Officer, there was a failure on the part of the assessee to disclose fully and truly all facts relevant to the assessment. This is a question not of fact but of law. Reliance was also placed upon a judgment of the Supreme Court in CIT v. Kamal Singh Rampuria [1970] 75 ITR 157. The assessee was minor. Returns of income were being filed by his father. The minor had a share of income from a firm and income by way of interest from another firm in which moneys bequeathed to him by his mother had been invested. These moneys had originated from the minor's father. In the minor's return, the father showed only his share income. The interest income was shown in the father's return. The minor was assessed only on the share income. A reference for an earlier year was decided subsequent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive contentions to set out the provisions of sections 2(6A)(e) and 12(1B) of the Indian Income-tax Act, 1922. The said section provided as follows: 2. (6A) 'dividend ' includes-... (e) any payment by a company, not being a company, in which the public are substantially interested within the meaning of section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf, or for the individual benefit, of a shareholder, to the extent to which the company in either case possesses accumulated profits. 12. Other sources .. ....... (1B) Any payment by a company to a shareholder by way of advance or loan which would have been treated as a dividend within the meaning of clause (e) of sub-section (6A) of section 2 in any previous year relevant to any assessment year prior to the assessment year ending on the 31st day of March, 1956, had that clause been in force in that year, shall be treated as a dividend received by him in the previous year relevant to the assessment year ending on the 31st day of March, 1956, if such loan or advance remained outstanding on the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of " underassessment ", that would be sufficient to give jurisdiction to the Income-tax Officer to issue reassessment notices. The decision in Calcutta Discount Company's case [1961] 41 ITR 191 (SC), has been referred to and cited with approval in numerous subsequent decisions of the Supreme Court. It is unnecessary to refer to all but one of them which has carried the principle a little further. In Malegaon Electricity Co. P. Ltd. v. CIT[1970] 78 ITR 466, the Supreme Court observed (at p. 471) that in the case before them it could be said that the Income-tax Officer, if he had been diligent, could have got all the necessary information from his records, but that was not the same thing as saying that the assessee had placed before the Income-tax Officer fully and truly all material facts necessary for the purpose of assessment. It was contended by counsel on behalf of the assessee that the decision applicable to the facts of this case was that of three learned judges of the Supreme Court in V. D. M. Rm. M. Rm. Muthiah Chettiar v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Act. Mr. Sonde, learned counsel for the assessee, very fairly drew our attention to the judgment of two-judge Bench of the Supreme Court in CIT v. Smt. P. K. Kochammu Amma, Peroke [1980] 125 ITR 624. In this judgment, the two learned judges observed that they did not think, for the reasons they stated, that the decision in Muthiah Chettiar's case [1969] 74 ITR 183 (SC) laid down the correct law on the subject. The judges noted that Muthiah Chettiar's case [1969] 74 ITR 183 (SC) was directly in point and concluded the determination of the question before them. But before referring to that case, they examined the question on principle. They noted that section 271, sub-section (1), clause (c) of the Income-tax Act, 1961, provided for the imposition of a penalty on an assessee if it was found, inter alia, that he had concealed the particulars of " his income ". The question then was . What was the scope and content of the words " his income "? The answer obviously depended on what was the income which the assessee was liable to disclose for the purposes of assessment. Section 139 of the Income-tax Act, 1961,1, provided for the filing of a return of income by an assessee and sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Kochammu Amma's case [1980] 125 ITR 624 (SC) is the Calcutta Discount Company judgment [1961] 41 ITR 191 (SC) referred to. Section 16(3) of the Indian Income-tax Act, 1922, provides that in computing the total income of any individual for the purpose of assessment, there shall be included the income of a wife or a minor child from a partnership in which the assessee is a partner. The phraseology of section 12(1B) of the said Act is somewhat different in that it prescribes that any payment by a company to a shareholder by way of advance or loan which would have been treated as a dividend within the meaning of clause (e) of sub-section (6A) of section 2 of the said Act in any previous year relevant to any assessment year prior to the assessment year ending on the 31st day of March, 1956, had that clause been in force in that year, shall be treated as a dividend received by him in the previous year relevant to the assessment year ending on the 31st day of March, 1956, if such loan or advance remained outstanding on the first day of such previous year. In other words, under section 16(3) of the Indian Income-tax Act, 1922, (a) the income is receivable by the assessee's spouse or mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Central Board of Revenue on May 10, 1955 in regard to the introduction of section 2(6A)(e) and section 12 in the Indian Income-tax Act, 1922. After explaining the objective of the amended provisions, the circular informed the assessing authorities that the Minister for Revenue and Civil Expenditure had given an assurance in Parliament that outstanding loans and advances which were otherwise liable to be taxed as dividends would not be subjected to tax if they were refunded to the companies before June 30, 1955. As it was likely that some of the companies and their shareholders who had entered into genuine transactions of loans and who would be affected by the new provisions might not be aware of the assurance given by the Minister, the Income-tax Officers were asked to invite the attention of all the companies assessed by them to the new provisions and to the assurance of the Minister. Based upon this circular, it was contended that it was the obligation of the Income-tax Officer to treat a loan as a deemed dividend under section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act, 1922, and that where income was deemed to be such by reason of such fiction, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed all the material facts necessary for the assessment at the time of the original assessment, the Income-tax Officer could not take proceedings under section 147(a) of the Act of 1961 ". It was submitted that the Tribunal had found as a fact that the Income-tax Officer was at the time of the original assessment ignorant of the provisions of section 2(6A)(e) of the Indian Income-tax Act, 1922. We cannot agree. Clearly, this is no finding of fact but, to use the Tribunal's own word, an " impression ". In this view of the matter, we answer the question posed to us in the negative and in favour of the Revenue. The Tribunal shall now decide upon the merits of the case, namely, whether the loan to the assessee was made by the company in the ordinary course of business; whether the company was carrying on money-lending business; and if so, whether it constituted a substantial part of its business income. The Tribunal shall then decide whether the loan amount or any part thereof can be treated as a deemed dividend under section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act, 1922. The Tribunal shall also be free to consider all other submissions in this behalf that are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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