9911796707
TMI Blog2008 (6) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... een introduced in the books of accounts of the company on 16-01-1985, and in relying upon the decision of the Supreme Court in CIT Vs. City Mills Distributors (P) Ltd., reported in [1996] 219 ITR 1, and not taking into account the aspect of ratification by the company of the deposits in question, the genuineness of which could not be established during the assessment?" 2. The Assessment Year is 1987-88. The Assessment Order instead of recording the accounting period merely records Previous Year ending on 30-04-1986. The assessee, a Private Limited Company, filed its first return of income on 30-06-1987 declaring loss of Rs. 9,47,740/-. The Assessing Officer recorded: "It is noticed that during the year under consideration the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ye of law when it is incorporated and, therefore, the income earned by the promoters cannot be taxed in hands of the Assessee-Company. 5. The learned Standing Counsel for the appellant-Revenue submitted that the Tribunal has failed to consider the fact that this was the first return of income tendered by the Assessee-Company and, therefore, the Previous Year ended on 30-04-1986 was the only Previous Year relevant to the Assessment Year 1987-88; therefore, insofar as the Assessee-Company is concerned, the credits were found for the first time in the Previous Year relevant to the Assessment Year in question and were rightly brought to tax by the Assessing Officer. That, considering provisions of Section 3 of the Act, which defines "previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Year being charged to income tax as the income of the assessee of that Previous Year, provided (i) the assessee offers no explanation as to the nature and source of the credits, or (ii) the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory. The crux of the issue, therefore is, there have to be credits of any sum in the books of an assessee maintained for any Previous Year, only then the sum so credited can be brought to tax as the income of the assessee of that Previous Year. In other words, first of all there have to be credits in a Previous Year and only in the assessment relatable to that Previous Year, namely, year of credit, can the sum be brought to tax. 8. In the peculiar facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, credits in the books during the Previous Year, but credits in the form of liabilities in the hands of the predecessor entity came in the books of Assessee-Company for the Previous Year relevant to the Assessment Year in question. 11. In the circumstances, the position of law, as enunciated by the Apex Court in "Commissioner of Income Tax Vs. City Mills Distributors (P.) Limited, [1996] 219 ITR 1(SC), requires to be recapitulated. It is held: "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 the income at the time of its accrual. A company becomes a legal entity in the eye of law only when it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing loan only after its incorporation. Merely because the Company decides to accept the business carried on by the promoters as its own business, it cannot be presumed therefrom that the transaction on the appropriation of the income earned by the predecessor entity itself is subject to tax. What is taxable in law is the income earned and such taxability is at the point of time when it is first earned as income. For the sake of deeming a particular credit as income, the same legal position would obtain and there can be no different criterion for determining the same. 13. In the aforesaid set of facts and circumstances of the case, it is apparent that the credits in question totalling to Rs. 1,61,895/- were not accepted by the Assessee-Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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