COMMISSIONER OF INCOME TAX Vs. MADANLAL SOHANLAL

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following two questions have been referred to this court :

(2.) Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 297(2)(b) and Section 297(2)(d)(ii), the Appellate Tribunal was justified in holding that the sum of Rs. 12,26,206 could not be assessed as the income of the assessee for the year under consideration ? " 2. The assessee is a registered firm and the reference relates to the assessment year 1955-56. There was a private limited company under the name and style of M/s. Hall & Anderson Ltd., whose entire shares were purchased in the name of the assessee-firm, M/s. Madanlal Sohanlal, some time in September, 1946, for Rs. 80,00,000. Later on, a public limited company under the same name of M/s. Hall & Anderson Ltd. was floated which purchased the entire assets and liabilities of the said private limited company for Rs. 80,00,000 some time in December, 1946. Under the instructions of the private limited company which were later on confirmed by the directors of the private limited company, the sale proceeds of Rs. 80,00,000 in respect of the sale of the assets of the private limited company were received by the assessee-firm which was also authorised to give receipt in full discharge and settlement of the amount due to the private limited company by the public limited company. The ITO was of the view that the amount of Rs. 80 lakhs which was outstanding on the first day of the previous year relevant to the assessment year to the extent to which the company possessed accumulated profits were dividends within the meaning of Section 12(1B) read with Section 2(6A)(e) of the Indian I.T. Act, 1922. He was further of the view that the assessee did not disclose in the course of the original assessment proceedings all material facts necessary for the assessment on account of which this income liable to tax had escaped assessment. He, therefore, reopened the assessment under Section 147(a) of the Income-tax Act, 1961, and in the reassessment made an addition of Rs. 12,26,206 as dividends in view of the provisions of Section 12(1B) read with Section 2(6A)(e) of the Indian I.T. Act, 1922. As the first question relates to the reopening, it would be material to set out the reasons recorded on the basis of which the Commissioner of Income-tax gave his satisfaction. The said reasons were as follows:

(3.) Aggrieved by this assessment order, the assessee went up in appeal before the AAC. The AAC, however, agreed with the ITO and dismissed the appeal. On the point of reopening, the AAC observed, inter alia, as follows: