1963 (7) TMI 66 - HC - Companies Law

Requirements with respect to memorandum, Memorandum and articles of association Registration of

Issues Involved:
1. Jurisdiction of the Income-tax Officer to make a supplementary assessment under section 34 as amended in 1948.
2. Retrospective effect of section 34 of the Indian Income-tax Act, 1922, as amended in 1948, by section 31 of the Indian Income-tax (Amendment) Act (XXV of 1953).
3. Limitation period for making the supplementary assessment.
4. Full and true disclosure of material facts by the assessee within the meaning of section 34(1) of the Indian Income-tax Act, 1922, as amended in 1948.
5. Information furnished by the assessee entitling the Income-tax Officer to initiate proceedings under section 34(1)(b) as amended in 1948.
6. Nature of the assessee-investment company's holdings of stocks and shares and whether the realizations of excess over cost on sales thereof are the company's business profits chargeable to Income-tax.

Detailed Analysis:

Issue 1: Jurisdiction of the Income-tax Officer
The applicant did not press questions regarding the jurisdiction of the Income-tax Officer to make a supplementary assessment under section 34 as amended in 1948. Therefore, this issue was not answered by the court.

Issue 2: Retrospective Effect of Section 34
Similarly, the applicant did not press the question regarding the retrospective effect of section 34 of the Indian Income-tax Act, 1922, as amended in 1948, by section 31 of the Indian Income-tax (Amendment) Act (XXV of 1953). This issue was also not answered by the court.

Issue 3: Limitation Period for Supplementary Assessment
The applicant did not press the question regarding the limitation period for making the supplementary assessment. Consequently, this issue was not addressed by the court.

Issue 4: Full and True Disclosure of Material Facts
The court considered whether the reconciliation of the capital reserve account submitted by the assessee amounted to a full and true disclosure of all material facts necessary for the assessment. The Tribunal found that the reconciliation accounts did not clearly disclose profits from the sale of shares. The court noted that the Income-tax Officer was not necessarily put on notice that the profit and loss arose from trading transactions. The Tribunal concluded that the information contained in the company's letter dated 26th October 1949, was new information that justified reopening the assessment under section 34(1)(b). The court upheld this finding, stating that the reconciliation accounts were not sufficiently clear to the Income-tax Officer at the time of the original assessment.

Issue 5: Information Furnished by the Assessee
The court examined whether the information furnished by the assessee in the letter dated 26th October 1949, could be considered as information that entitled the Income-tax Officer to initiate proceedings under section 34(1)(b). The court held that the letter provided new information that was not before the Income-tax Officer during the original assessment. The court cited the Supreme Court's decision in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, which established that the Income-tax Officer must have information that leads to a belief that income has escaped assessment. The court concluded that the new information in the letter justified the reopening of the assessment.

Issue 6: Nature of the Assessee-Company's Holdings
The court considered whether the assessee-investment company's holdings of stocks and shares partook of the nature of circulating capital, and whether any realizations of excess over cost on sales thereof were the company's business profits chargeable to Income-tax. The Tribunal found that the company did not carry on active trade in buying and selling shares, but the sale of shares was a part of the company's business. The court referred to various case laws, including the Scottish Investment Trust Co. v. Forbes and Californian Copper Syndicate v. Harris, to determine whether the sale of shares was a normal step in carrying on the business. The court concluded that the sale of shares was a part of the company's business, and the profits from such sales were taxable as business profits. The court also noted that the memorandum of association allowed the company to sell and turn to account its property, including shares, and that the articles of association could not override the memorandum.

Conclusion:
- Questions Nos. 1, 2, and 3: Not answered as they were not pressed.
- Question No. 4: No, the reconciliation of the capital reserve account did not amount to a full and true disclosure of all material facts.
- Question No. 5: Yes, the information furnished in the letter dated 26th October 1949, entitled the Income-tax Officer to initiate proceedings under section 34(1)(b).
- Question No. 6: Yes, the company's holdings of stocks and shares partake of the nature of circulating capital, and any realization of excess over cost on sales thereof are the company's business profits chargeable to Income-tax.

The applicant was ordered to pay the costs to the respondent.

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