COMMISSIONER OF INCOME TAX Vs. RAJ KUMAR SINGH

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Allahabad has referred the following four questions under Section 256 (1) of the Income-tax Act (hereinafter referred to as "Act") relating to the assessment year 1986-87 for opinion to this Court:

(2.) The brief facts of the case are that the assessee-opposite party (hereinafter referred to as "assessee") was a contractor and was working as sub-contractor with M/S Jai Prakash Associates (P) Ltd. It filed a return for the assessment year 1986-87 on 31,7.1986. The said return, was revised on 3 1.6.1988 showing an income of Rs.6,99.000/-, An assessment was completed on 21.2. 1989 at Rs 72,16,000/- after full scrutiny of the case. Thereafter, on 3.12.1990, the Commissioner of Income-tax, after scrutinizing the assessment order, came to the conclusion that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. Consequently, he issued a notice on 3.12.1990 and after hearing the assessee and its objection raised against the notice, passed an order on 22.2.1991 under Section 263 of the Act, setting aside the assessment order with certain directions to the Assessing Officer to re-frame the same on the basis of those directions. It is against this order that the assessee filed an appeal before the Tribunal,

(3.) The first and the main point for passing an order Under Section 263 was that the assessee firm held 1,83,940 shares of Rs.100/- each of M/s Jai Prakash Associates (P) Ltd. and the firm received interest free advances from the said company amounting to Rs.3,64,36,043/- as on 31.12.1985. The surplus out of profit as on 31.12.1985 in the case of M/S Jai Prakash Associates (P) Ltd. is alleged to be Rs.3.65,33,900/-. The Commissioner of Income-tax was of the opinion that this interest free advance of Rs.3.64,36,046/- was taxable in the hands of the assessee firm by way of dividend income within the meaning of Section 2 (22) (e) of the Income Tax Act, 1961 and accordingly, directed the Assessing Officer to levy the tax on the amount in the hands of the assessee firm. The Tribunal allowed the appeal and held as follows.