2003 (3) TMI 61 - HC - Income Tax

Assessing Officer upheld under section 68; company not 'in public interest' under section 2(18), 65% tax rate affirmed

Calcutta HC upheld the Assessing Officer's additions under section 68, finding the assessee failed to prove creditworthiness and genuineness of ... Addition as introduction of share capital under section 68 - Onus to prove - creditworthiness and the genuineness of the transaction - Tax rate applicable at 55% or 65% - meaning of section 2(18) - HELD THAT:- We have gone through the order of the Assessing Officer at pages 9-13 of the paper book. It appears that the assessee had failed to establish any of these three ingredients in respect of the said amount. The Commissioner (Appeals) modified the order and accepted the balance simply because income-tax file numbers of the other subscribers were disclosed. It appears from pages 36-37 of the paper book containing the order of the Commissioner (Appeals) that these few persons who had subscribed shares were not income-tax assessees. Therefore, only these were added. We are of the view that the order passed by the Assessing Officer was in accordance with law and that of the Commissioner (Appeals) cannot be sustained to the extent, which is contrary to the finding of the Assessing Officer. We, therefore, hereby set aside the order of the learned Tribunal and that of the Commissioner (Appeals) and affirm the order of the Assessing Officer and answer question No.1 in favour of the Revenue in the negative. It appears that the Assessing Officer has applied 65 per cent. rate of taxes since the assessee was not a company within the meaning of section 2(18) of the Income-tax Act. But both the Commissioner (Appeals) and the learned Tribunal had applied 55 per cent. as rate of taxes on the basis that the assessee was a company in which the public was interested. Mr. Som had led us through section 2(18) of the Act. We find that this company cannot be brought within the purview of clauses (a) and (aa). Nor can it be brought within the scope of clause (ab) since it has share capital. Neither can it come under clause (ac) in the absence of any declaration. Neither it can be brought within the scope of clause (b). Therefore, it cannot be said to be a company in which the public was interested. Therefore, both the Commissioner (Appeals) and the learned Tribunal had erred in law in reducing the rate of taxes and reversing the order of the Assessing Officer. We, therefore, set aside the order of the learned Tribunal and that of the Commissioner (Appeals) with regard to the reduction of the rate of taxes to 55 per cent. and affirm the order of the Assessing Officer fixing the rate at 65 per cent. and answer question No. 2 in the negative in favour of the Revenue. Issues:1. Addition of Rs. 3,93,000 as introduction of share capital under section 68 of the Income-tax Act, 1961.2. Tax rate applicable at 55% or 65% for the assessee.Analysis:Issue 1:The first issue pertains to the addition of Rs. 3,93,000 as share capital introduction, deemed ingenuine under section 68 of the Income-tax Act, 1961. The court emphasized the necessity to establish the identity of subscribers, their creditworthiness, and the genuineness of the transaction. Referring to previous cases, the court highlighted that the burden of proof lies on the assessee to substantiate these aspects. In this case, the assessee failed to provide adequate evidence, leading to the addition of the said amount. Despite the disclosure of income-tax file numbers, it was noted that the subscribers were not income-tax assessees. The court held that merely furnishing income-tax file numbers is insufficient to discharge the burden of proof. While acknowledging the initial onus discharged by the assessee, the court criticized the lack of further cooperation during the enquiry process. The court concluded that the Assessing Officer's decision was lawful, overturning the Commissioner (Appeals) and Tribunal's rulings. The Tribunal's reliance on a precedent was deemed erroneous, as it was overruled by a Full Bench decision, rendering it obsolete.Issue 2:The second issue concerns the tax rate application, either at 55% or 65%, for the assessee. The Assessing Officer initially applied a 65% tax rate due to the assessee not meeting the definition of a company under section 2(18) of the Income-tax Act. However, both the Commissioner (Appeals) and the Tribunal reduced the tax rate to 55%, claiming the company was of public interest. The court scrutinized section 2(18) of the Act and concluded that the company did not fall under the specified clauses to be considered of public interest. Consequently, the Commissioner (Appeals) and Tribunal were found to have erred in reducing the tax rate. The court upheld the Assessing Officer's decision to apply a 65% tax rate. Thus, both questions were resolved in favor of the Revenue, and the reference was disposed of accordingly.