2003 (3) TMI 61 - HC - Income Tax

1. Whether the learned Tribunal was justified in law in deleting the addition of Rs. 3,93,000 as introduction of share capital? - 2. Whether the Tribunal was justified in law in directing the Assessing Officer to charge tax at 55 per cent. instead of 65 per cent. although the a is not entitled for the same as per term and condition as per company s law? We answer question No.1 in favour of the Revenue in the negative. We answer question No. 2 in the negative in favour of the Revenue.

Summary

Issues:
1. Addition of Rs. 3,93,000 as introduction of share capital under section 68 of the Income-tax Act, 1961.
2. Tax rate applicable at 55% or 65% for the assessee.

Analysis:
Issue 1:
The first issue pertains to the addition of Rs. 3,93,000 as share capital introduction, deemed ingenuine under section 68 of the Income-tax Act, 1961. The court emphasized the necessity to establish the identity of subscribers, their creditworthiness, and the genuineness of the transaction. Referring to previous cases, the court highlighted that the burden of proof lies on the assessee to substantiate these aspects. In this case, the assessee failed to provide adequate evidence, leading to the addition of the said amount. Despite the disclosure of income-tax file numbers, it was noted that the subscribers were not income-tax assessees. The court held that merely furnishing income-tax file numbers is insufficient to discharge the burden of proof. While acknowledging the initial onus discharged by the assessee, the court criticized the lack of further cooperation during the enquiry process. The court concluded that the Assessing Officer's decision was lawful, overturning the Commissioner (Appeals) and Tribunal's rulings. The Tribunal's reliance on a precedent was deemed erroneous, as it was overruled by a Full Bench decision, rendering it obsolete.

Issue 2:
The second issue concerns the tax rate application, either at 55% or 65%, for the assessee. The Assessing Officer initially applied a 65% tax rate due to the assessee not meeting the definition of a company under section 2(18) of the Income-tax Act. However, both the Commissioner (Appeals) and the Tribunal reduced the tax rate to 55%, claiming the company was of public interest. The court scrutinized section 2(18) of the Act and concluded that the company did not fall under the specified clauses to be considered of public interest. Consequently, the Commissioner (Appeals) and Tribunal were found to have erred in reducing the tax rate. The court upheld the Assessing Officer's decision to apply a 65% tax rate. Thus, both questions were resolved in favor of the Revenue, and the reference was disposed of accordingly.