1981 (1) TMI 28 - HC - Income Tax

High Court Upholds Tax Adjustment on Equitable Grounds

The High Court upheld the Tribunal's decision to adjust tax between an individual and a family based on equitable grounds and legal precedents. The Court ... Appeal To Tribunal, HUF Issues involved: The judgment involves the premature reference by the Commissioner of Income-tax under s. 66(1) of the Indian I.T. Act, 1922, regarding the assessment of dividend and salary income distributed by a company to an individual and a Hindu joint family. The key issues include the inclusion of salary and dividend income in the assessment of the family, the grossing up of dividend income, and the appropriate adjustment of tax between the individual and the family.Assessment of Individual and Family: The individual received salary income and dividend income from the company, which were assessed for the year 1956-57. The total income assessed for the individual included salary and dividend income, with the dividend income grossed up under the provisions of the Indian I.T. Act, 1922. The family's assessment for the same year included the salary income of the individual as family income, along with the dividend income. However, the family assessment did not include credit for the difference between gross and net dividends, resulting in a total income assessment for the family without this credit.Appeals and Tribunal Decision: The family appealed to the AAC and then to the Tribunal, contesting the inclusion of salary income in the family assessment and seeking the grossing up of dividend income. The Tribunal affirmed the inclusion of salary income in the family assessment and rejected the plea for credit of the difference in dividend amounts. The Tribunal also dismissed the family's appeal based on the Supreme Court's decision that grossing up benefits apply only to registered shareholders, not real owners.Additional Ground of Appeal: Before the Tribunal's final decision, the family raised an additional ground seeking an adjustment of tax already realized in the individual's assessment, based on equitable grounds. The Tribunal accepted this additional ground and directed the appropriate adjustment of tax between the individual and the family, citing a Supreme Court decision in support.Commissioner's Grievance and Tribunal's Direction: The Commissioner challenged the Tribunal's direction for tax adjustment between the individual and the family, raising concerns about potential difficulties in implementing the order. The Tribunal's direction was based on equitable principles and previous legal precedents, but the Commissioner expressed apprehensions about the practical implications of the adjustment.Conclusion: The High Court found that the Tribunal was justified in directing the tax adjustment between the individual and the family, based on equitable considerations and legal precedents. However, the Court deemed premature the reference of certain questions related to the adjustment process, leaving it to the parties to address these issues in future proceedings. The Court did not provide answers to the premature questions and disposed of the reference without costs.