1989 (5) TMI 120 - AT - Income Tax

Account Books Additions To Income Assessment Year Chargeable To Tax Contribution To Gratuity Fund Income From Business Income From Property Income Returned Religious Trust Supreme Court

Summary

Issues:
Interpretation of sub-sec. (4) of sec. 11 of the Income-tax Act, 1961.

Detailed Analysis:
The judgment involves six appeals by a public limited company concerning the interpretation of sub-sec. (4) of sec. 11 of the Income-tax Act, 1961. The company, engaged in passenger transport in Andhra Pradesh, had its assessments completed for the years 1967-68, 1968-69, and 1969-70. Initially, the claim for exemption under sec. 11 was not accepted, but after a legal battle, the corporation was granted the exemption by the High Court and the Supreme Court. However, the Income-tax Officer invoked sub-sec. (4) of sec. 11 to determine the income for the mentioned years based on certain additions to the income returned by the assessee.

The Income-tax Officer's computations involved disregarding certain additions to the income returned by the assessee and comparing the gross income from business with the income shown in the profit and loss account. The Officer made adjustments for various items, such as compensation to private operators, amounts written off, and contributions to funds. The appeals against these assessments were disposed of by the Commissioner (Appeals) in 1987.

Subsequently, the Commissioner invoked sec. 263 of the Act and directed the Income-tax Officer to withdraw certain deductions made in the assessments. The assessee challenged these orders, arguing that the application of sub-sec. (4) of sec. 11 was unwarranted as there was no tax evasion involved. The assessee contended that sub-sec. (3) of sec. 11 already addressed the non-application of income for charitable purposes.

After careful consideration, the tribunal held that the initiation of action under sub-sec. (4) of sec. 11 was not justified in this case. The tribunal emphasized that sub-sec. (4) was intended to uncover tax evasion through manipulation of account books, not for the application or expenditure of income by the business undertaking. The tribunal referenced a decision by the Calcutta High Court to support this interpretation.

The tribunal also referred to the speeches of the Finance Minister and other lawmakers to clarify the intent behind sub-sec. (4) of sec. 11. It was highlighted that the provisions were meant to address suppression of income or manipulation of accounts to conceal income. The tribunal concluded that there was no evidence of manipulation or tax evasion by the assessee in this case.

Consequently, the tribunal ruled in favor of the assessee, stating that the Income-tax Officer had wrongly compared gross income with net income and that the directions under sec. 263 were not in line with sec. 11(4). As a result, all the appeals by the assessee were allowed, and the directions under sec. 263 were quashed.