1986 (7) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee was an "industrial company" within the meaning of clause (c) of sub-section (6) of section 2 of the Finance (No. 2) Act, 1971.
2. Whether the amount of Rs. 3,82,905 could be subjected to tax u/s 28(iv) of the Income-tax Act, 1961.
3. Whether the amount of Rs. 89,888, part of the total sum of Rs. 3,82,905, could be considered a benefit, reward, or bounty arising out of the business.

Issue-wise Summary:

1. Industrial Company Status:
The Tribunal upheld the view that the assessee-company was an "industrial company" as defined u/s 2(6)(c) of the Finance (No. 2) Act, 1971. However, the High Court found that the Tribunal did not properly interpret the provisions and failed to appreciate the evidence. The court emphasized the need to interpret the expression "engaged in the manufacture or processing of goods" before examining the evidence. The Tribunal's conclusion that the assessee-company was intimately connected with the activities of the Bhavnagar firm was deemed unjustified. The High Court declined to answer the question and left it to the Tribunal to reconsider the evidence and decide the matter appropriately.

2. Taxability of Rs. 3,82,905 u/s 28(iv):
The Tribunal held that the amount of Rs. 3,82,905, which was transferred to the Capital Reserve Account, did not fall within the mischief of section 28(iv) of the Act. The Tribunal observed that there was no nexus between the business of the assessee and the benefit derived from the amount. The High Court agreed with the Tribunal's reasoning that the amount had no connection with the business of the assessee-company and did not represent the value of any benefit or perquisite arising from the business. Therefore, the amount was not includible in the total income of the assessee-company u/s 28(iv). The High Court answered this question in the affirmative and against the Revenue.

3. Taxability of Rs. 89,888:
Since the High Court answered question No. 2 in the affirmative, question No. 3 did not survive. The court noted that if the amount of Rs. 3,82,905 could not be subjected to tax u/s 28(iv), it was immaterial whether Rs. 89,888 could be considered a benefit or perquisite arising from the business.

Conclusion:
The High Court confirmed the Tribunal's view that the amount of Rs. 3,82,905 was not includible in the total income of the assessee-company u/s 28(iv) and declined to answer the question regarding the "industrial company" status, directing the Tribunal to reconsider the evidence and decide the matter appropriately.