1978 (7) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in permitting the department to raise the contention that the amount representing the face value of the promoters' shares was income under section 2(6C)(iii) of the Indian I.T. Act, 1922.
2. Whether the assessee received income within the meaning of section 2(6C)(iii) by the allotment of shares of the face value of Rs. 60,000.
3. Whether the Tribunal was justified in holding that the shares of the face value of Rs. 60,000 were the assessee's income under the head "Other sources."

Issue-wise Detailed Analysis:

1. Permitting the Department to Raise the Contention:
The Tribunal allowed the department to raise the contention that the amount representing the face value of the promoters' shares was income under section 2(6C)(iii) of the Indian I.T. Act, 1922, for the first time. The court referenced the decision in CIT v. Gilbert & Barker Manufacturing Co. [1978] 111 ITR 529, which concluded that the department could raise such a contention. The assessee's counsel conceded that, based on this precedent, the question had to be answered in the affirmative and in favor of the revenue.

2. Receipt of Income Under Section 2(6C)(iii):
The core issue was whether the assessee received income within the meaning of section 2(6C)(iii) by the allotment of shares. The court examined the statutory provision, which includes the value of any benefit or perquisite obtained from a company by a director as income. The Tribunal had determined that the assessee received a benefit when he was a director, and the value of this benefit was Rs. 60,000. The court noted that no question was raised against the valuation of the benefit at Rs. 60,000. The assessee argued that he received the shares as a promoter, not as a director, and thus it should not be considered income under section 2(6C)(iii). However, the court referred to decisions from various High Courts, including CIT v. NarHari Dalmia [1971] 80 ITR 454 and Lakshmipat Singhania v. CIT [1974] 93 ITR 162, which supported the view that the capacity in which the benefit was received was immaterial as long as the recipient was a director. The court agreed with this interpretation, concluding that the benefit received by the assessee as a director fell within the ambit of section 2(6C)(iii).

3. Classification of Income Under "Other Sources":
The Tribunal had classified the income from the allotment of shares under the head "Other sources" rather than "Salary." The assessee's counsel conceded that if the income was deemed assessable, it should be classified under "Other sources." The court, therefore, answered this question in the affirmative and in favor of the revenue.

Conclusion:
The court concluded that:
- The Tribunal was justified in permitting the department to raise the contention under section 2(6C)(iii).
- The assessee received income within the meaning of section 2(6C)(iii) by the allotment of shares.
- The Tribunal was justified in classifying the income under the head "Other sources."

The court answered all three questions in the affirmative and in favor of the revenue, directing the assessee to pay the costs of the reference.