RAVINDRA D AMIN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IT Ref. No. 360 of 1980 is made at the instance of the assessee and the other reference is made at the instance of the Revenue. The questions which are referred to this Court under s. 256(1) of the IT Act, 1961 are as under : At the instance of the assessee :

(2.) ONE Dahyabhai Motibhai Amin also known as Dahyabhai Motibhai Manasvi, the assessee in IT Ref. No. 360 of 1980 and his brother Purshottamdas Amin were running a flour mill in partnership in early 1940s. This firm was dissolved and the business was taken over by new partnership firm consisting of Rasiklal D. Amin and Jashbhai P. Amin. In 1959, Jashbhai retired and, therefore, Rasiklal carried on the said business as a sole proprietor. In 1962, the business was converted into a private limited company known as Kohinoor Flour Mills Private Limited. It appears that 3690 shares were allotted to Rasiklal and 1851 shares were allotted to Manasvi. It also appears that Rasiklal was residing outside India and the affairs of the company were managed by Manasvi. Sometime after the formation of the company, Rasiklal returned to India and found that the company was mismanaged. He, therefore, filed a petition in this Court alleging mismanagement and claimed that management should be handed over to him as he was the major shareholder. Jashbhai who was earlier doing the business with Rasiklal also filed a suit against Rasiklal on the ground that Rs. 6 lacs were payable to him but Rasiklal had failed to discharge that obligation. Manasvi, the father of Rasiklal also filed a suit against Rasiklal claiming that Rasiklal was merely a nominee of Manasvi and his joint family and the shares which stood in the name of Rasiklal really belonged to the joint family. Ultimately, there was a compromise between the parties and a consent order was obtained from this Court. Because of that, Dahyabhai Motibhai, that is Manasvi and his family, had to pay Rs. 6 lacs to Rasiklal for relinquishment of his right, title and interest in the undivided properties of Manasvi, that is, Dahyabhai Motibhai Amin. The said amount was to be paid immediately. It appears that as Manasvi did not have that much cash with him, it was further agreed that in order to enable Manasvi and his other sons to pay to Rasiklal the said amount of Rs. 6 lacs, the company, that is, Kohinoor Flour Mills Private Limited should give Rs. 6 lacs directly to Rasiklal and other arbitrators who had earlier given an award in this behalf and debit the same by way of loan to Manasvi, that is, Dahyabhai Motibhai Amin. This happened during the year 1967 -68. Therefore, during the assessment proceedings for the year 1968 -69, a question arose as to whether the said amount of Rs. 6 lacs be treated as deemed dividend as per s. 2(22)(e) of the Act.

(3.) WHILE holding the amount of Rs. 5,21,964 as deemed dividend and income of the assessee, the ITO also initiated proceedings against the company, viz., Kohinoor Flour Mills Private Limited under s. 194 r/w s. 201 of the Act for its failure to deduct tax while making the said payment. The ITO found that the assessee -company was a defaulter and, therefore, directed the company to pay interest amounting to Rs. 1,22,828 for the said default. The company preferred an appeal to the AAC who upheld the order passed by the ITO and dismissed the appeal. The company then preferred an appeal to the Tribunal.