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TMI Blog2014 (6) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... t the relevant period when unaccounted investment was made, the same has to be assessed in the hands of the assessee - He has rightly affirmed the order of the Income-tax Officer assessing the unaccounted investment at the hands of the assessee – Decided in favour of Revenue. - Income Tax Reference No 96 of 1984. - - - Dated:- 10-2-2014 - ASHOK BHUSHAN AND MAHESH CHANDRA TRIPATHI, JJ. JUDGEMENT Heard Sri R. K. Upadhyaya, learned counsel for the Revenue and Sri R. S. Agarwal, learned counsel appearing for the assessee. This reference has been made by the Income-tax Appellate Tribunal, Allahabad, under section 256 of the Income-tax Act, 1961, referring the following question for consideration of this court : Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in holding that the building in question belonged to M/s. Hotel Ganges Ltd. and, therefore, it was also responsible to explain the source of investment in its construction ? For noticing the facts, it shall suffice to refer to paragraphs 3 to 7 of the statement of facts which are as under : 3. The assessee is an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided, however, that in case the second party is unable to float the said company or the said company is unable to ratify this agreement, the second party shall be at liberty to nominate any other person or body corporate in this behalf. 5. As soon as possible after this agreement is ratified by the company to be floated by the second party the said company and the first party shall enter into a partnership agreement to carry on the business, inter alia, of hotelling, restaurants, caterers, etc., and the contribution of the first party in the said partnership shall be the said vacant plot of land measuring 353 sq. yds. situate at 51/50 Nayaganj, Kanpur, and the contribution of the said company in the said partnership shall be the cost of constructing the building on the said premises and developing and furnishing the same and/or any other expenses made for the purpose of hotel. A copy of the agreement dated April 7, 1974, is made as annexure 'A' forming part of the statement of the case. 4. In the meantime, the company called 'Hotel Ganges Ltd.' was incorporated on July 4, 1974. On July 27, 1974, a meeting of the board of directors of the company was held. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation officer. The valuation officer estimated the cost of construction of the building in the above three assessment years at Rs. 14,11,425. On this basis, the Income-tax Officer held that there was excess investment of Rs. 1,33,941 in the assessment year 1976-77 and Rs. 2,10,935 in the assessment year 1977-78. It was contended before him that the property was constructed on behalf of the limited company, Hotel Ganges Ltd. and ultimately the cost of building was brought into the books of the limited company as an asset and, hence, if any addition was called for, it could be only in the hands of the limited company and not in the hands of the assessee as an individual. The Income-tax Officer rejected these contentions on the ground that the funds for the construction had been arranged by the assessee, that they had come from his account in the books of M/s. Sadiram Ganga Pd. and that in the relevant account years M/s. Hotel Ganges Ltd. had no other source of income. He, thus, held that whatever was the unexplained amount it had to be considered in the hands of the assessee. He, therefore, made an addition of Rs. 1,33,941 in the assessment year 1976-77 and Rs. 2,10,936 in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Kanodia debited thereof from time to time. This would show that Sri D. P. Kanodia was arranging for the funds for the construction and if ultimately it is found that some unaccounted investment was made in this building, then he will have to be responsible for such an unaccounted investment and it can be rightly taxed in his hands. The other two entities in whose hands such income could be considered for taxation could be the Hindu undivided family of M/s. Sadiram Ganga Prasad but it has to be treated as not responsible in view of clause (1) of the agreement referred to above. So far as the company or the Hotel Ganges Ltd. is concerned, this was completely out of the picture because up to January 2, 1976, (correct date is April 13, 1976) the company has not obtained even the certificate for commencement of business and it has no source of income till then. Even after that up to March 31, 1976, the company had absolutely no sources of income and the expenditure incurred has been transferred to the building account. The only funds available to the company was share capital of Rs. 700 and funds received from Shri D. P. Kanodia (individual) which was taken by him from the Hindu un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T reported in [1970] 78 ITR 766 (All) and Addl. CIT v. Syntex Fabrics Ltd. reported in [1991] 191 ITR 52 (All). We have considered the submissions of learned counsel for the parties and perused the record. The facts of the case as have been stated in the statement of case clearly indicate that under the agreement dated April 2, 1974, it was the second party who was to employ his own resources available with the second party for purposes of construction of a building. The second party is the assessee. The facts further reveal that it was the second party who borrowed the amount from the Hindu undivided family, M/s. Sadiram Ganga Prasad for carrying out the construction of the hotel and a separate account, namely, D. P. Kanodia building fund account was opened and the amounts advanced to the assessee were debited thereof from time to time. The Commissioner of Income-tax (Appeals) has found that since it was D. P. Kanodia who was arranging for the fund for construction and when it was found that some unaccounted investments were made in the building, it is the assessee who has to be held responsible for such unaccounted investment and the said investment has rightly been taxed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod from December 11, 1942, to December 10, 1943, could be legally assessed in the hands of the assessee-company which was incorporated on December 11, 1943. The question (second question), as noted above, was answered in favour of the assessee. Recording its conclusion, this court held as under (page 287) : We have already held that in the case before us though the assessee-company came into existence almost a year afterwards, the assessment proceedings were started at a time when the assesseecompany had already decided to accept what had been done on its behalf by the promoters and take over the property and business and the income made therefrom from December 11, 1942, and it was in the same position as a beneficiary for whom the income was earmarked as payable to it. The case is, therefore, to our minds governed by the principle laid down in Trustees of Sir Currimbhoy Ebrahim Baronetcy Trust v. CIT [1934] 2 ITR 148 (PC) and the income from December 11, 1942, to December 10, 1943, could be legally assessed in the hands of the assessee. The case of CIT v. Bijli Cotton Mills Ltd. (supra) was a case where the assessee-company had decided to accept the income m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s court in CIT v. Bijli Cotton Mills Ltd. (supra) in the facts of the present case. The said case was clearly distinguishable and had no application. Now, coming to the case of Security Printers of India (supra), the said case was a case of expenditure incurred before the incorporation of the company. This court held that the expenditure having been incurred wholly for the purposes of business, they should be allowed as deduction against the receipts of the same period. The following was laid down by this court in the said case (page 772) : It is no doubt true that the above expenditure was incurred before the incorporation of the assessee-company, but, as pointed out above, the corresponding receipts were entered in the accounts for the relevant previous year and included in the assessment for the year 195859. The principle laid down by this court in CIT v. Bijli Cotton Mills Ltd. is that the profits of a business commenced by the promoters which is taken over by the company on its incorporation is assessable in the hands of the latter. If the pre-incorporation profits are assessable in the hands of the company the expenditure incurred to earn such profits must ..... X X X X Extracts X X X X X X X X Extracts X X X X
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