1971 (7) TMI 22 - HC - Income Tax

Applicability of s. 2(6)(iii) - assessee controlling the company and also contributed over 33% of its capital Whether the sum spent by company after the personal necessities of the assessee is income u/s 2(6C)(iii) of IT Act 1922 - held that assessee comes within clause 2(6C)(iii) - mere deletion of a portion of that clause from section 2(24)(iv) of the new Act will not make any difference and will reflect what the legislature had always intended the law to be

Summary

Issues Involved:
1. Applicability of Section 2(6C)(iii) of the Income-tax Act, 1922, to benefits received before April 1, 1955.
2. Whether the assessee was "concerned in the management" of the companies.
3. Whether the benefits received by the assessee from the companies constitute income under Section 2(6C)(iii).

Issue-wise Detailed Analysis:

1. Applicability of Section 2(6C)(iii) to Benefits Received Before April 1, 1955:
The assessee contended that Section 2(6C)(iii) came into force on April 1, 1955, and therefore, benefits received before this date should not be governed by this provision. The court clarified that Section 20(i) of the Finance Act, 1955, specifies the effective date for amendments, which includes Section 2(6C)(iii). It was determined that the amendment applies to the assessment year 1955-56, regardless of the previous year ending on September 30, 1954. Thus, the Income-tax Officer rightly invoked Section 2(6C)(iii) for the assessment year in question.

2. Whether the Assessee was "Concerned in the Management" of the Companies:
The assessee argued that he was neither a director nor an office-bearer in the companies and thus could not be considered "concerned in the management" of the business. The Tribunal and the court examined the term "concerned in the management" and concluded that it includes both visible and imperceptible management activities. The court referenced various legal precedents to illustrate that "concerned" is a broad term encompassing direct or indirect involvement in the management. The court noted that the assessee controlled both companies and held substantial shares (1,800 out of 5,000 equity shares in Bharat Union Agencies P. Ltd.), thus satisfying the condition of being "concerned in the management."

3. Whether the Benefits Received Constitute Income Under Section 2(6C)(iii):
The Tribunal found that the assessee was the beneficial owner of a significant portion of shares in Bharat Union Agencies P. Ltd., meeting the second condition of Section 2(6C)(iii). Therefore, the sum of Rs. 53,398 spent by the company on the assessee's personal necessities was deemed his income. However, for Allen Berry and Co. P. Ltd., the assessee did not own any shares, failing the second condition, and thus the sum of Rs. 4,406 could not be treated as his income under Section 2(6C)(iii). The court also rejected the revenue's argument that recurring benefits should be treated as income, stating that such benefits were capital receipts and not taxable as income.

Conclusion:
The court answered the question in the affirmative, agreeing with the Tribunal's findings. The sum of Rs. 53,398 spent by Bharat Union Agencies P. Ltd. was considered the assessee's income under Section 2(6C)(iii), while the sum of Rs. 4,406 from Allen Berry and Co. P. Ltd. was not. The Commissioner was awarded costs, with counsel's fee set at Rs. 300.