1964 (10) TMI 91 - HC - Income Tax

Jurisdiction limits: AAC cannot introduce new income sources in assessment; deeming loans as dividends ruled unauthorized.

Prabhudas Ramji Versus Commissioner of Income-tax

The court held that the Appellate Assistant Commissioner (AAC) did not have jurisdiction to enhance the assessment by introducing a new source of income ... - Issues Involved:1. Jurisdiction of the Appellate Assistant Commissioner to enhance the assessment.2. Applicability of Section 12(1B) read with Section 2(6A)(e) of the Income-tax Act.3. Interpretation of 'enhance the assessment' under Section 31(3) of the Income-tax Act.4. Consideration of new sources of income by the Appellate Assistant Commissioner.Detailed Analysis:1. Jurisdiction of the Appellate Assistant Commissioner to Enhance the Assessment:The primary issue was whether the Appellate Assistant Commissioner (AAC) had the jurisdiction to enhance the assessment by adding Rs. 2,37,150 as deemed dividend under Section 12(1B) read with Section 2(6A)(e) of the Income-tax Act. The Tribunal upheld the AAC's jurisdiction, stating that the Income-tax Officer (ITO) had processed the source of income, and thus, the AAC had the requisite jurisdiction to enhance the assessment.2. Applicability of Section 12(1B) read with Section 2(6A)(e) of the Income-tax Act:Section 2(6A)(e) treats payments made by a company as dividend if they are loans or advances to a shareholder, to the extent of accumulated profits. Section 12(1B) deems such loans or advances, outstanding as of the first day of the previous year relevant to the assessment year 1955-56, as dividend income for that year. The AAC applied these provisions to include the outstanding loans from the company to the assessee as deemed dividends, amounting to Rs. 2,37,150.3. Interpretation of 'Enhance the Assessment' under Section 31(3) of the Income-tax Act:Section 31(3) allows the AAC to confirm, reduce, enhance, or annul the assessment. The court referenced the Supreme Court's decision in Commissioner of Income-tax v. Shapoorji Pallonji Mistry, which held that the AAC's power to enhance is confined to the sources of income processed by the ITO. The AAC cannot introduce new sources of income not considered by the ITO.4. Consideration of New Sources of Income by the Appellate Assistant Commissioner:The ITO had considered the company's business as the assessee's business and added the company's current profits to the assessee's income, treating the company as a benamidar. The AAC, however, considered the loans from the company's accumulated profits as deemed dividends under Section 12(1B) read with Section 2(6A)(e). The court held that the AAC introduced a new source of income by considering the loans as deemed dividends, which the ITO had not processed. This action was beyond the AAC's jurisdiction as per the principle established in Shapoorji Pallonji Mistry's case.Conclusion:The court concluded that the AAC did not have the jurisdiction to enhance the assessment by introducing a new source of income not considered by the ITO. The answer to the referred question was in the negative, and the Commissioner was directed to pay the costs of the reference to the assessee.