1994 (9) TMI 39 - HC - Income Tax

Interpretation of compromise order on group income assessment criteria clarified by High Court.

The High Court considered the interpretation of a compromise order regarding the income of two distinct groups within a transport company for assessment ... Finding Of Fact, Income From Undisclosed Sources, Income Tax Act, Question Of Law Issues:Interpretation of a compromise order regarding the income of two groups in a company for assessment purposes.Analysis:The High Court was tasked with determining whether the income derived by two distinct groups within a transport company, as per a compromise order issued by the court, should be assessed separately for each group or as part of the company's income. The court outlined the background of the case, where internal disputes led to the division of management into two groups, referred to as Group V and Group K. Each group was granted autonomy over specific aspects of the company's operations, including income and expenditure. The groups managed assets allocated to them and filed separate tax returns, which were accepted provisionally. However, the assessing authority consolidated the income of both groups, arguing that it belonged to the company as a whole. The Appellate Tribunal disagreed, emphasizing that the income generated by each group was rightfully theirs under the court's order. The Tribunal highlighted that the company's existence under the Companies Act did not automatically entitle it to the income earned by the groups. The Tribunal's decision was based on the premise that the income was never received by the company, and the assets were managed by the groups as per the court's directive.The Revenue contended that the Tribunal's decision contradicted the legal concept of a company with a distinct legal identity, asserting that the income generated by the groups belonged to the company, and the groups merely received a share of the company's income. Conversely, the assessee's counsel argued that the income never entered the company's possession and was diverted to the groups from the outset due to the court order. The court, however, found that regardless of the assessment approach, the Revenue would not incur any loss since the tax levied on each group individually would yield the same result as taxing the entire income at the company level. Consequently, the court deemed the question raised in the reference to be academic and declined to provide a definitive answer, returning the reference unanswered.