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TMI Blog1964 (10) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. These different businesses were at Bhavnagar, Mehsana, Palitana, Khambhala, Veraval, Porbandar and other places. Besides his income from these business activities, the assessee also derived income from securities and immovable property and used to receive dividends from shares held by him. For all these sources of income, the relevant previous year was common, namely, Samvat year 2010. Besides these concerns run by the assessee in different names, there were two other concerns in which the assessee was interested and which appear to have been practically run by him. These were Messrs. C. Prabhudas & Co. (Private) Ltd. and Saurashtra Iron Foundry and Steel Works Ltd. The first company, i.e., C. Prabhudas & Co. (Private) Ltd., with which we are concerned in this reference, was started in or about 1940 and all the one hundred and twenty shares in the company were, until July 5, 1947, held by the assessee, his brother, Harilal Ramji, and one Ramji Amarshi. However, though he was shown as a shareholder, Harilal had not shown in his returns these shares as his investments. According to the Income-tax Officer, Ramji Amarshi also was not shown as having been capable of contributing sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of ₹ 5,81,676. The company's office at Mehsana showed loans of ₹ 2,73,221 to the assessee and to C. Prabhudas & Co. (Private) Ltd., Mehsana. The aggregate of these loans came to ₹ 8,54,896 out of the reserve fund of ₹ 9,50,334. We are not concerned with the other company in the present reference and, therefore, it is not necessary to set out the facts concerning that company. While making the assessment of the assessee for the assessment year 1955-56 and in particular, while computing the assessee's income under the heading "business income", the Income-tax Officer made a detailed examination of the two companies and came to the conclusion that the businesses carried on by these two companies were really the assessee's businesses and that the two companies were the assessee's benamidars and on this basis he proceeded to compute the income of Messrs. C. Prabhudas & Co. (Private) Ltd., and added ₹ 25,258 which he assessed as the income of that company for the account year 2010 to the income from businesses of the assessee, computing the total income of the assessee at ₹ 3,14,070. After scrutinising the books of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut as he could not enhance the assessee's assessment without a notice, he issued such notice on the assessee. There is no dispute that the notice was served on the assessee. At the hearing of the appeal after the notice was so served, the assessee's representative conceded that the said amount of ₹ 2,37,150 would be liable to be taxed as dividend in the hands of the assessee. No objection was taken at that time as to the competence of the Appellate Assistant Commissioner under section 31(3) to enhance the assessment. The only question raised before that officer was that the assessee was entitled to the benefit of the concession granted by the Central Board of Revenue under a circular issued to the Income-tax Officers dated May 10, 1955. The Appellate Assistant Commissioner examined this contention in the light of the said circular and on the conclusion he came to, namely, that the assessee had not genuinely returned the loans by the date prescribed in the circular, namely, June 30, 1955, he rejected that contention and held that the assessee was not entitled to get the benefit of that concession. The assessee, thereafter, filed an appeal before the Tribunal where he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from that source, the 'Appellate Assistant Commissioner applied his mind to it and came to the conclusion that what was done by the Income-tax Officer was to include a wrong and smaller sum from that very source of income, viz., assessee's interest in C. Prabhudas & Co. Pvt. Ltd. It may be that, on one view, certain income might fall to be assessed under section 10 and, on another view, under section 12, but that would not make any difference for the purpose of making 'assessment', i.e., determination of total income so long as the source is the same. Hence, on the facts as placed before us, we reject the assessee's contention that the Appellate Assistant Commissioner was not competent to enhance the assessment as he did." In this view, the Tribunal rejected the assessee's contention and, upholding the order of the Appellate Assistant Commissioner of enhancement, dismissed the appeal. It is this order which is assailed in this reference. The provisions which are relevant for the purposes of the present enquiry are section 2(6A)(e), section 12(1B) and section 31(3) of the Act. Sub-clause (e) of section 2(6A) brings to tax as dividend in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut to the extent that the company possesses accumulated profits and provided such loans have remained outstanding at the commencement of the shareholder's previous year relevant to the assessment year 1955-56. Section 31 of the Act deals with the powers of the Appellate Assistant Commissioner and provides, inter alia, in sub-section (3) that that officer, in the case of an order of assessment, can confirm, reduce, enhance or annul the assessment. Construing the expression " enhance the assessment ", we have, in a recent judgment delivered on September 2, 1964, in Income-tax Reference No. 15 of 1963, observed that the power conferred on the Appellate Assistant Commissioner under sub-section (3), clause (a) is, no doubt, wide in the sense that he has the power to confirm, reduce, enhance or annul the assessment. In view of the language used in this sub-section, there can, therefore, be no doubt that the Appellate Assistant Commissioner has the power to enhance an assessment. But there can equally be no doubt that the power under clause (a) to confirm, reduce, enhance or annul assessment is in the case of an order of assessment made by an Income-tax Officer and not othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an answer to this question were urged before the Supreme Court. The revenue urged that the word "assessment" in section 31(3) meant the ultimate amount which an assessee must pay, regard being had to the charging section and his total income, and it was argued that the words "enhance the assessment" were not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. On the other hand, the assessee urged that the power to enhance the assessment extended only to matters considered by the Income-tax Officer and, if a new source was to be considered, the power of reassessment should be exercised. In considering these rival contentions, the Supreme Court took note of the previous judgments of the High Courts of Patna, Madras and Bombay and, while conceding that the view urged by the revenue was possible, it accepted the view which had held the field for nearly thirty-seven years. The Supreme Court observed: "The question is whether we should accept the interpretation suggested by the Commissioner in preference to the one which has held the field for nearly 37 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Bench, also observed that the power of the Appellate Assistant Commissioner was not restricted to the subject-matter of the appeal but also extended to the subject-matter of the assessment and added that the Appellate Assistant Commissioner was constituted under the section a revising authority, not in the sense of revising the subject- matter of the appeal only, but one in the sense that once the appeal was before him, he could revise not only the ultimate computation arrived at by the Income-tax Officer but could revise every process which led to the ultimate computation or assessment. In other words, he explained "what he can revise is not merely the ultimate amount which is liable to tax but is entitled to revise the various decisions given by the Income-tax Officer in the course of assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer." Though the Supreme Court in Shapoorji Pallonji Mistry's case (Supra) has observed that, though these observations were approved of in Commissioner of Income-tax v. McMillan & Co. [1958] 33 ITR 182 ; [1958] SCR 689, the Supreme Court must be held not to have expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the income from that particular source. In that case, the Income-tax Officer in making the assessment of the assessee, a non-resident, included payments received by cheques drawn on banks in British India for the price of goods sold to customers in British India. In an appeal by him against this assessment by the Income-tax Officer, the Appellate Assistant Commissioner directed the Income-tax Officer to compute the income afresh and to include a certain percentage of the profits derived by the assessee from goods purchased by him in British India. It was held there that as the Income-tax Officer had not considered the matter of profits from goods purchased in British India at all, it was not open to the Appellate Assistant Commissioner to go into the question of income or profit accruing to the assessee from purchases effected in British India and to give any direction to the Income-tax Officer in respect of the income from this source. The learned Advocate-General however submitted a two-fold argument. The first part of his argument was that the question posed by the Supreme Court to itself in Shapoorji Pollanji Mislry's case (Supra) at page 895 of the report was whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer conceded that his conclusion that the company was the benamidar of the assessee was wrong on the ground that even a one-man company is in law a separate entity and that the inclusion of the company's profits for the year of account could not be added in the computation of the assessee's total income. The learned Advocate-General argued that, though the order passed by the Income-tax Officer was held by the Appellate Assistant Commissioner to be erroneous and the Appellate Assistant Commissioner came to a different conclusion, namely, that though the company's profits during the account year could not be added to the assessee's total income but that the loans given by the company to the assessee and remaining outstanding could be taxed as dividend income of the assessee to the extent of the accumulated profits of the company under section 12(1B) read with section 2(6A)(e), the facts before the Appellate Assistant Commissioner were the same which were before the Income-tax Officer and which the Income-tax Officer had brought on record and that the only difference was that whereas the Income-tax Officer came to one conclusion which was subsequently conceded to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee solely and that that company had accumulated profits as a result of the company not having distributed dividends and further that the assessee had taken loans from out of such accumulated profits. On these facts, however, the Income-tax Officer came to the conclusion that the company was the assessee's benamidar, in other words, the business of the company was really the business of the assessee. On this basis, the Income-tax Officer brought to tax the current profits of the company, namely, ₹ 25,258, in the computation of the total income of the assessee. That amount however can be brought to tax in the assessee's hands only as profits or gains of business under section 10 of the Act. In that case, the source of income considered by the Income-tax Officer would be the business of the assessee as he had held that the company was the assessee's benamidar, and its business was in reality the business of the assessee. On the other hand, the Appellate Assistant Commissioner came to a totally different conclusion, though no doubt on the same facts. What he did was to consider the advances or loans taken by the assessee from out of the reserve fund create ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... footing added ₹ 25,243 only, that being the profits of the company during Samvat year 2010, clearly shows that he had not even applied his mind to the question whether the loans taken by the assessee from the company's reserve fund and which remained outstanding at the relevant date could, to the extent of its accumulated profits, be brought to tax in the assessee's hands as deemed dividend. The question that the Income-tax Officer considered was whether the current profits of the company during Samvat year 2010 could beheld to be the assessee's profits from business. The question that the Appellate Assistant Commissioner considered, on the other hand, was whether the payments made by the company to its shareholder as loans and which remained outstanding could be taxed as deemed dividend in the assessee's hands. One was, therefore, concerned with the profits which arose from the company's business in Samvat year 2010, the other was concerned, not with what the company did in Samvat year 2010, nor with the business carried on during that year by the company, nor with what the company did with its profits of that year, but what the company did in the past ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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