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TMI Blog1996 (2) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... des. It is he who carried on the business and received the income when it accrued who is liable to bear the burden of tax thereon. It may be that the transaction of appropriation by a company to itself of income earned by its promoters before its incorporation is also subject to tax; that is not in issue before us and we do not express any view in that behalf. For the reasons aforestated, we answer the question in the affirmative and in favour of the assessee. - TAX REFERENCE CASE NO. 11 OF 1982 - - - Dated:- 5-2-1996 - J.S. VERMA, S.P. BHARUCHA AND SUJATA V. MANOHAR, JJ . J. Ramamurthy, R. Satish and S.N. Terdol for the Appellant. JUDGMENT S.P. Bharucha, J. This is a reference under section 257 of the, Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-company then appealed to the Tribunal. The Tribunal observed that the real questions were: When did the pre-incorporation profit accrue? Did it accrue before incorporation? If so, which was the legal entity which carried on the business and earned the income at the time of accrual? The Tribunal held that, in lath, the promoters and the assessee-company were different legal persons and that the income which had accrued on October 29, 1972, was income that was earned by the promoters. Accordingly, the appeal of the assessee-company was allowed. The reference was made because of the decisions we now cite. In CIT v . Bijli Cotton Mills Ltd. [1953] 23 Comp. Cas. 114 (All), the respondent-company was' incorporated on December ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficiary, the beneficiary could be said to be in receipt of that income and could be taxed directly. If, on the other hand, the income came into the hands of the trustee and he had the right to dispose of it and it was only the balance left over that was payable to the beneficiary, then the income was taxable in the hands of the trustee. The latter decision had been upheld by the Privy Council. These decisions showed that under the Income-tax Act, it was not only legal ownership that had to be looked into, but the court could also go into the question of beneficial ownership and decide who should be held liable for tax after taking into account the question as to who, as a matter of fact, was in receipt of the income which was to be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss for the entire year. The High Court considered the judgment in the case of Bijli Cotton Mills Ltd. [1953] 23 Comp. Cas. 114 (All) and disagreed therewith. It said that under the Income-tax Act an assessee meant a person by whom income-tax or any other sum of money was payable thereunder. Tax had to be paid by an assessee under the head "Profits and gains of business, profession or vocation", in respect of the profits or gains of any business, profession or vocation carried on by him, Therefore, before a person could be assessed, it had to be shown that it was he who had, carried on the business, profession or vocation. The Calcutta High Court could not see how a person could be said to have carried on a business during a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration, it simply does not exist. The assessee-company did not exist when the income with which we are here concerned was earned. It is, therefore, not the assessee-company which earned the income when it accrued and it is not liable to pay tax thereon. The same result is reached by a somewhat different process of reasoning. A company can enter into an agreement only after its incorporation. It is only after incorporation that a company may decide to accept that its promoters have carried on business on its behalf and appropriate the income thereof to itself. The question as to who is liable to pay tax on such income cannot depend upon, whether or not the company after incorporation so decides. It is he who carried on the business and r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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