1991 (6) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax under section 263.
2. Merger of the assessment order with the appellate order.
3. Declaration and inclusion of dividend income of Rs. 6,60,000.
4. Validity of the questions referred at the instance of the assessee.

Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax under section 263:
The Tribunal held that the assessment order passed under section 143(3) read with section 144B is an order of the Inspecting Assistant Commissioner of Income-tax. Therefore, the Commissioner of Income-tax lacked jurisdiction under section 263 to direct the inclusion of Rs. 6,60,000 as income from dividend for the assessment year 1978-79. The High Court upheld this view, concluding that the Commissioner did not have the jurisdiction to pass an order under section 263.

2. Merger of the assessment order with the appellate order:
The Tribunal ruled that the assessment order merged with the appellate order, irrespective of the subject matter of the appeal. Consequently, the Commissioner of Income-tax lacked jurisdiction under section 263. The High Court confirmed this, stating that the assessment order merged with the appellate order, thus negating the Commissioner's jurisdiction under section 263.

3. Declaration and inclusion of dividend income of Rs. 6,60,000:
The Tribunal examined the merits of the case, focusing on whether the sum of Rs. 6,60,000 could be considered as dividend income. It referred to the Calcutta High Court's order dated May 12, 1977, which directed the preparation and audit of accounts and retention of profits to pay a dividend not exceeding 13%. The Tribunal concluded that this order amounted to a declaration of dividend within the meaning of section 8 of the Income-tax Act, 1961. The High Court agreed, stating that the dividend must be deemed to have been declared, distributed, and paid to the assessee on August 24, 1977, when the accounts were finalized. Thus, the amount of Rs. 6,60,000 was liable to be included in the assessment for the assessment year 1978-79.

4. Validity of the questions referred at the instance of the assessee:
The Revenue contended that the questions referred at the instance of the assessee were not valid as the assessee did not file an independent reference application. However, the High Court, relying on the Supreme Court's decision in CIT v. V. Damodaran [1980] 121 ITR 572, held that the questions suggested by the assessee in the respondent's reply were properly referred. The Court noted that the assessee, not being aggrieved by the Tribunal's decision, could not file a reference application independently. However, once the Commissioner filed for reference, the assessee could raise questions in its reply. Thus, the Tribunal was justified in referring these questions.

Conclusion:
The High Court answered the questions referred at the instance of the Revenue in the negative and in favor of the Revenue. For the questions referred at the instance of the assessee, the High Court answered in the affirmative and in favor of the Revenue. The Court concluded that the dividend of Rs. 6,60,000 must be deemed to have been declared, distributed, and paid within the meaning of section 8 of the Income-tax Act, 1961, and thus included in the assessment for the year 1978-79. There was no order as to costs.