MODERN THEATRES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question that stand referred to us are these :

(2.) THE assessee, the Modern THEatres Ltd., Madras, is a public limited company producing and distributing films. It entered into several contracts with various distributors and exhibitors on the basis of written agreements with them. For the year ended 30th September, 1945, the previous year to the assessment year 1946-47, the assessee received consideration on the agreements from the various distributors. THE assessment proceedings were completed on June 15, 1947. In the year 1954, the than Income-tax Officer submitted a report to the Commissioner of Income-tax. He stated in his report that in the course of the investigation in connection with the assessment for 1950-51, it came to light that although the assessee had effected on outright sale of the distribution rights of the pictures and had also collected in full the sale consideration, the company had spread out the receipts over a period of three to five years on the plea that the distribution rights had been leased out on the basis of annual hire. It was also stated in the report that there had been benami transfers of lease of distribution rights. In relation to the year of assessment 1946-47, the Income-tax Officer also stated that the distribution rights of two new pictures Rajarajeswari and Burma Rani had been sold outright but that only a fifth part of the consideration had been brought to tax. Another instance of such concealment of the true nature of the transaction was, according to the Income-tax Officer, in relation to the transaction with Ganga Films Co. THE Income-tax Officer accordingly thought that there had been a suppression of the real income liable to be taxed. He sought the sanction of the Commissioner for re-opening the assessment of the year 1946-47 under section 34(1)(a). THE Commissioner granted sanction and thereafter a notice was issued to the assessee. THE Commissioner granted sanction and thereafter a notice was issued to the assessee. THE notice stated that the Income-tax Officer had reason to believe that the assessees income assessable to income-tax for the year ending 31st March, 1947, had : (a) escaped assessment, and (b) been under-assessed, and the subsequent proceedings resulted in the reassessment of the petitioner. THE allegation that there had been benami transactions was however dropped.

(3.) THE question stated above were referred by the Tribunal under section 66(1) of the Act. THE assessee came before us with an application under section 66(2) of the Act and sought for a reference of a further question. Accordingly to it, in the notice that was issued to it pursuant to the proceedings under section 34(1)(a), only two agreements were referred to and the Income-tax Officer sought to re-open the assessment only on the basis of any suppression of income in relation to these two agreements. But in the final order made by the Income-tax Officer, he included such income in respect of the other agreements as well. THE assessee contended that it was not open to the Income-tax Officer to have travelled beyond the scope of the notice issued under section 34(1)(a). On that contention this court directed the Tribunal to refer the following question as well and to submit a consolidated statement of the case. This question is :