MUSASONS PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, under Section 256(1) of the Income-tax Act, 1961, has referred the following question of law for the opinion of this court :

(2.) THE assessee is a private limited company deriving income mainly from (a) business in cigarettes ; and (b) investment in shares of other companies. While making the original assessment, the Income-tax Officer adopted the sum assessable under the head "Dividends" at the gross amount of dividend received by the assessee-company. THE audit party which went through--the file of the assessee-company noticed that a part of the loans borrowed by the assessee-company went towards investment in shares. THE audit party accordingly informed the Income-tax Officer that he should have apportioned the interest payments between the dividend income and business income instead of accepting the assessee's claim for deduction of the entire interest payment against business income alone. Acting on this information, the Income-tax Officer reopened the assessment under Section 147(b) and reduced the income assessable under the head "Dividends" by the following amounts : <FRM>JUDGEMENT_47_ITR111_1978Html1.htm</FRM>

(3.) IT is not disputed before us that the entire borrowals were not utilised for the purpose of business and part of the borrowals was utilised for making investment. If so, if the dividends were assessed without deducting the interest referable thereto, it would inevitably follow that the ultimate tax payable on the total income was lower than the actual tax payable because the rate of tax payable on inter-corporate dividend was certainly lower than the rate applicable to the other income. Consequently, it is clear that the requirements of Section 147(b) as to the income having escaped assessment is satisfied in the present case.