TaxTMI 
TaxTMI 
1989 (6) TMI 29
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....ted were carrying on the business of banking under the Banking Regulation Act (Act 10 of 1949). These two banks, along with others, were nationalised with effect from July 19, 1969, under the Banking Companies Act. Under section 6 of that Act, the two banks were given compensation of Rs. 250 lakhs and Rs. 230 lakhs, respectively. For the assessment year 1970-71, the Indian Overseas Bank filed two separate returns for the periods January 1, 1969, to July 18, 1969 and July 19, 1969, to December 31, 1969. Before the Income-tax Officer, the Indian Overseas Bank claimed that the income, which had accrued during the period January 1, 1969, to July 18, 1969, was in the nature of a capital receipt in the hands of the assessee and was exempt from income-tax. It was further claimed that the income for this period was not liable to be taxed, since section 5(5) of the Banking Companies Act was inapplicable to the assessee-bank. As directed by the Income-tax Officer, the Indian Overseas Bank also furnished a combined return for both the periods, disclosing the entire income from January 1, 1969, to December 31, 1969. The Income-tax Officer took the view that the entire undertaking of the Indian....
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.... Bank and the Indian Bank, common questions arose for decision, they were dealt with together and disposed of by a common order of the Tribunal. Before the Tribunal, on behalf of the assessees, it was contended that in view of the circumstances under which the Indian Overseas Bank and the Indian Bank took over the establishment, business, etc., of the Indian Overseas Bank Ltd. and the Indian Bank Ltd., the income for the period up to July 18, 1969, was not taxable, in their hands. Considering the stand so taken by the assessees, the Tribunal pointed out that the assessees came into being only on July 19, 1969, and were not in existence on July 18, 1969, and even, theoretically, such a non-existing assessee cannot earn income prior to its coming into existence nor can any income accrue to it or be received by it prior to its coming into existence and that the receipt by the assessee or the other person of that income does not make the latter assessable, unless, in the hands of the assessee, it partakes of the character of income. It was also pointed out by the Tribunal that the mere assignment of income which had accrued to a person cannot be deemed to be the income of the assignee ....
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....nted out that there is no provision either in the Banking Companies Act or in the Act, specifically or even by implication, providing that any income earned by the existing bank during the period prior to the date on which the new bank came into existence, would be deemed to be the income of the corresponding new bank and that when the existing bank had already earned income or income had accrued to it, it became part of the assets of the existing bank and in the corresponding new bank, such assets alone have been vested by reason of the provisions of the Banking Companies Act and payment of compensation had also been provided for in respect of the deprivation of the assets of the existing bank and that clearly indicated that the income from the banking business carried on by the erstwhile bank could not be regarded as the income of the corresponding new bank. Learned counsel strongly relied upon the decisions reported in CIT v. Agarwal and Co. [1952] 21 ITR 293 (Bom); E. D. Sassoon and Co. Ltd. v. CIT [1954] 26 ITR 27 (SC) and CIT v. Bangalore Transport Co. Ltd. [1967] 66 ITR 373 (SC). Learned counsel further submitted, in support of the conclusion of the Tribunal that, under sect....
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.... carried on the business of banking up to July 18, 1969, and the income earned subsequent to that date by the assessee-banks, had been computed. It is in the background of the aforesaid provisions and the drawing up of the accounts that the liability of the assessees for tax on the income earned by the erstwhile banks between January 1, 1969, and July 18, 1969, has to be considered. The assessees were not in existence prior to July 19, 1969. We are, therefore, unable to appreciate how any income as such could have been earned or accrued or even arisen with reference to the assessees. There is no dispute that between January 1, 1969, and July 18, 1969, the erstwhile banks had carried on the business of banking and properly, therefore, the income should be regarded as having accrued or arisen or received only by the erstwhile banks during that period and not by the assessees, for, the same income cannot during the same period be stated to have been earned by the assessees. The accrual or arising of income, being anterior to its receipt, would be the appropriate point of its chargeability to tax. It may also be that receipt of income may operate as the point of chargeability, in whic....
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....he profit relating to the pre-nationalisation period was capitalised as a capital reserve not available for distribution. Payment of compensation to the erstwhile banks, as per the Second Schedule and also the circular referred to above, clearly establish that the income earned by the erstwhile banks between January 1, 1969, and July 18, 1969, was treated as part of the assets of the erstwhile banks and compensation had been provided to the erstwhile banks in respect of the deprivation of their assets, inclusive of the income earned up to July 18, 1969. We may usefully refer in this connection to the decision reported in CIT v. Bangalore Transport Co. Ltd. [1967] 66 ITR 373 (SC), which, in our view, is squarely applicable to this case. In that case, a public motor transport service had been operating in the City of Bangalore by the Bangalore Transport Co. Ltd., and by reason of the provisions of the Bangalore Road Transport Service Act, 1956, the undertaking of that company vested in the Government of Mysore on October 1, 1956, and the company was paid compensation for loss of its undertaking, assets and documents. The company, in respect of the previous year ending March 31, 1957,....
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....CIT [1954] 26 ITR 27 (SC) relied on by learned counsel for the Revenue. Therein, the assignee of rights under contract of service was held liable to pay tax on the whole of the commission inclusive of the period when the transferor had rendered service to the mill on the ground that the contract of service was entire and indivisible and the remuneration became due only on completion of a definite period of service and at stated periods and only at the end of each such period of service, the remuneration became payable as a debt and, therefore, no remuneration was payable to the managing agents for the broken periods. It was further held that the assignee obtained under the deed of assignment only an expectancy of earning a commission in the event of the condition precedent by way of complete performance of the obligation of the managing agents and the managing agency agreement being fulfilled and a debt arose in favour of the managing agents only at the end of the stated period of service contingent on the ascertainment of net profits and, therefore, the assignee was liable to pay the tax on the entire amount of commission for the period, inclusive of the period during which servic....