1968 (1) TMI 2 - SC - Income Tax

Supreme Court Affirms Tax Inclusion Decision for Partnership Income

The Supreme Court upheld the Income-tax Officer's decision to include the assessee's share of income from the partnership in the assessable income for the ... Assessee is a public limited company registered under the Companies Act - order passed against the assessee under section 23A are justified and valid - Revenue's appeal allowed Issues Involved:1. Applicability of Section 23A of the Indian Income-tax Act, 1922, to the assessee for the assessment years 1950-51 and 1951-52.2. Inclusion of the assessee's share of income from the partnership with the Indian Steel Syndicate in the assessable income for the assessment year 1951-52.3. Timing and knowledge of the assessee regarding the share of profits from the partnership for dividend declaration purposes.Issue-wise Detailed Analysis:1. Applicability of Section 23A of the Indian Income-tax Act, 1922:The assessee, a public limited company, did not declare any dividend for the assessment years 1950-51 and 1951-52. The Income-tax Officer issued notices under Section 23A(1) of the Act, which allows the officer to deem the undistributed portion of the assessable income as distributed dividends if the dividends declared are less than 60% of the assessable income. The assessee contended that Section 23A was not applicable as the public were substantially interested in the company. The High Court held that the order under Section 23A was justified for the assessment year 1950-51 but not for 1951-52.2. Inclusion of the Assessee's Share of Income from the Partnership with the Indian Steel Syndicate:The key argument was whether the sum of Rs. 70,895, the assessee's share of income from the partnership, should be included in the assessable income for the assessment year 1951-52. The Income-tax Officer included this amount, and the High Court disagreed. The Supreme Court, however, held that under Section 2(11) of the Act, the assessee could have different previous years for different sources of income. The income from the partnership, which accrued between November 30, 1950, and March 31, 1951, should be included in the assessable income for the assessment year 1951-52. The Supreme Court emphasized that the provisions of Section 23A(1) must be construed in the context of Section 2(11), meaning that the company could have two previous years for different sources of income.3. Timing and Knowledge of the Assessee Regarding the Share of Profits from the Partnership for Dividend Declaration Purposes:The respondent argued that the share of the profit from the partnership was not known to the assessee before its annual general meeting on May 17, 1951. The Supreme Court rejected this argument, stating that income may accrue without actual receipt if the right to receive the income is established. The Court referenced the case of Commissioners of Inland Revenue v. Gardner Mountain and D'Ambrumenil Ltd., which held that commission earned in a particular year must be accounted for in that year, even if it is ascertained later. The Supreme Court concluded that the assessee's share of profits from the partnership for the period ending March 31, 1951, should be included in the assessable profits for the assessment year 1951-52.Conclusion:The Supreme Court held that the Income-tax Officer was correct in including the share of the assessee's income from the partnership in the assessable income for the assessment year 1951-52. The order under Section 23A for the assessment year 1951-52 was justified and valid. The judgment of the Bombay High Court was set aside for the assessment year 1951-52, and the appeal was allowed with costs.