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TMI Blog1985 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the Income-tax Appellate Tribunal was justified in law in holding that the provisions of section 104 are attracted for the assessment year 1966-67 ? " The assessee is a private limited company. It is a company to which the provisions of s. 104 of the Act are applicable. The assessment years involved are 1965-66 and 1966-67, the relevant previous years being the years ending on April 18, 1965 and April 18, 1966, respectively. It appears, the assessee had earned large income on the sale of import entitlements which had not been accounted for in the books of account. In regard to this income, the assessee entered into a settlement wit the Commissioner under s. 271(4A) of the Act admitting the income as under : Rs. 1962-63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Supreme Court in Gobald Motor Service (P.) Ltd. v. CIT [1966] 60 ITR 417, the AAC held that the action taken by the ITO was justified. He observed: " ... I would have been prepared to accept the appellant's contention that it had come forward for a settlement only to have its tax liabilities settled if such concealed income had not been credited in its books of account. However, this is not the case here. As much as Rs. 3,56,000 (or more) appears to have been credited in the books during the assessment year 1966-67. The Income-tax Officer has merely proceeded from the income admitted by the appellant for various years..." The assessee next came in appeal before the Tribunal. The Tribunal also rejected the appeals in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of determining the surplus for distribution as dividend, then there is no doubt and indeed it was not disputed that the order of the Tribunal is justified. But Mr. Swaminathan, learned counsel for the assessee, submitted that the income disclosed under the settlement should not be taken into consideration, since the assessee invoked the provisions of s. 271(4A) of the Act only to buy peace and the amount agreed upon for the purpose of additional tax in the settlement should not be considered as real income. Before considering this contention, we may briefly summarise the purpose of and the power conferred by s. 104 of the Act. The object of this section was to prevent avoidance of tax by the shareholders of company in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch case. In considering whether there was any available distributable profit, the ITO must, therefore, act as a prudent businessman and take into consideration all losses, liabilities, etc. In so considering, he must apply an " arm-chair-principle " to find out whether the act of the company was unreasonable from the commercial point of view. In Gobald Motor Service (P.) Ltd.'s case [1966] 60 ITR 417, the Supreme Court has observed that the deliberately concealed income which came to be included in the assessable income of the assessee for income-tax purposes is liable to be included in the commercial profits of the assessee. This principle is no less important in the present case. Here is a case where the assessee had deliberately omit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised before the Supreme Court in Gobald Motor Service (P.) Ltd. v. CIT [1966] 60 ITR 417. There it was observed (p. 422) : " He urged that it was quite apparent from, the order of the Incometax Officer that none of the considerations pointed out by this court had been considered. We agree with him that the Income-tax Officer did not consider the question like a prudent businessman. But, as we have already said, the assessee did not raise this point either before the Appellate Assistant Commissioner or the Appellate Tribunal. If this point had been raised, the facts relating to the considerations mentioned in the observations of Subba Rao J. would have been brought on the record. We feel that it is now too late to permit him to raise thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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