COMMISSIONER OF INCOME TAX Vs. RAMCHAND JETHMAL

JUDGEMENT

(1.) ADMITTEDLY the accounting year in respect of the assessee for the purpose of business and ordinary dividends for the period in question was the year ending 31st Oct., 1956. The assessee held 13,990 shares out of a total capital of 20,000 shares in Krishna Steel Industries (P) Ltd. (referred to as "Krishna" by the Tribunal) and it also held 8,890 shares out of 10,000 shares of Steel Industries (P) Ltd. (referred to by the Tribunal as "Hindustan"). Though the assessment of the assessee related to the accounting year ending 31st Oct., 1956, the ITO took the accounting year ending 31st March, 1957, as the previous year for the purposes of deemed dividends under S. 2 (6A)(e) of the IT Act, 1922. On the basis of the accounts of Krishna and Hindustan, the ITO found that in the account with Krishna company, though on 1st Jan., 1956, there was credit balance in favour of the assesse amounting to Rs. 8,59,435 and this continued till 5th Oct., 1956, there was a debit of Rs. 6,23,541 as on 31st Dec., 1956, though by the end of 31st March, 1957, the assesse had again become a creditor in the sum of Rs. 62,084. Similarly, in the case of Hindustan company, though till 14th Dec., 1956, the assessee continued to be a creditor of the company, from 15th Dec., 1956, there was a debit balance against the assessee which stood on 31st Dec., 1956, at Rs. 49,372 and on 31st March, 1957, the debit balance stood at Rs. 2,40,135. As already stated, treating the accounting year as oen ending on 31st March, 1957, the ITO treated a sum of Rs. 1,77,303 as deemed dividend under S. 2(6A)(e) of the IT Act, 1922, from Krishna Co., and in the case of Hindustan Co., a sum of Rs. 1,30,672 was treated as deemed dividend. In the view which we are inclined to take in this case, it is not necessary to refer to the details of the deemed dividends. This computation was challenged by the assessee unsuccessfully before the AAC and the assessee, therefore, filed an appeal before the Tribunal .

(2.) THE first question which was raised before the Tribunal on behalf of the assessee was that since the previous year was taken for the purposes of the assessment of the assessee as one ending 31st Oct., 1956, a different previous year could not be taken into consideration for the purposes of the deemed dividends. The Tribunal took the view that the fact that the shareholder was deemed to have received dividend income by operation of law and not by actual distribution by the company did not make any difference about the source from which it was derived, namely, the shares held by the assessee. Thus, the Tribunal found that even for the purposes of deemed dividends the computation should have been made on the basis of the Diwali year and if the Diwali year was adopted, then the entire amount of deemed dividents from Hindustan Co. would have to be left out of consideration. So also, since the entire amount in respect of the Krishan Co., pertained to the period 1st Jan., 1957, to 31st March, 1957, the amount of Rs. 1,77,303 would fall outside the proper accounting year and the Tribunal observed that, on this preliminary ground, the appeal filed by the assessee would have to be allowed. The finding on the question of the accounting year could really have disposed of the appeal, but the Tribunal proceeded to deal with the other contentions advanced by the assessee. The Tribunal found that S. 2(6A)(e) did not apply to the case of the assessee because the shareholder was only maintaining a pure current account and there was not even the slightest hint that the account was used to avoid taxation of dividends in the hands of the shareholder. Another contention raised before the Tribunal on behalf of the assessee was that the term "accumulated profits" in S. 2(6A)(e) would exclude current profits and the Tribunal accepted the contention of the assessee by observing thus :

(3.) WHEN the reference was taken up for hearing, it was pointed out by the learned counsel for the Revenue that in view of the finding given by the Tribunal that the amounts which were sought to be taxed by way of deemed dividents fell outside the previous year ended on 31st Oct., 1956, the controversy as to whether the amount of Rs. 2,74,716 could be properly brought to tax as deemed dividends or not does not at all arise. Mr. Joshi fairly did not dispute that the finding given by the Tribunal that even in respect of deemed dividends, it was the previous year ending 31st Oct., 1956, that had to be taken into account has not been challenged by way of raising a question for reference. Thus, it is obvious from the order of the Tribunal that though it had gone in the other contentions raised on behalf of the assessee and has recorded findings against the Revenue, the earlier finding recorded by the Tribunal that the amounts which are sought to be brought to tax by way of deemed dividends fell outside the Diwali year ending 31st Oct., 1956, and that for the puposes of deemed dividends, a different accounting year cannot be taken into consideration has been accepted by the Revenue . Since that finding cannot now be disturbed, it is not necessary for the purposes of the assessment year in question to go into the other questions on which the decision was rendered against the Revenue and the assessee respectively and which have been now brought to this Court by this reference. We have, therefore, declined to go into the merits of the correctness or otherwise of the decision of the Tribunal on the questions which have been referred in view of the finding recorded on the question as to what was the correct accounting period. In this view of the matter, we do not think it necessary to answer, in the peculiar facts of this case, the questions which have been referred to us because for the purposes of the assessment year in question a decision thereon is not necessary. Parties to bear their own costs. Arising out of the order of the Tribunal, since the Revenue wanted one more question to be referred they had taken out a motion dt. 20th Dec., 1968. Mr. Joshi states that he does not now press the motion. Motion disposed of as not pressed.