High Court Of Calcutta
CIT vs. Nivedan Vanijya Niyojan Ltd.
Sections 2(18), 68
D.K. Seth & R.N. Sinha, JJ.
IT Ref. No. 110 of 1994
21st March, 2003
ORDER
D.K. SETH, J. :
Two questions have since been referred to in this case, namely : “1. Whether the learned Tribunal was justified in law in deleting the addition of Rs. 3,93,000 as introduction of share capital ?
2. Whether the Tribunal was justified in law in directing the AO to charge tax @ 55 per cent instead of 65 per cent although the assessee is not entitled for the same as per term and condition as per company law ?” So far as the first question is concerned, it relates to addition of Rs. 3,93,000 on account of the subscription of share capital being held as ingenuine transaction under s. 68 of the IT Act, 1961. The law with regard thereto has since been crystallized. Similar question was involved in IT Ref. No. 20 of 1996, Hindusthan Tea Trading Co. Ltd. vs. CIT [reported at (2003) 182 CTR (Cal) 585— Ed.] and IT Ref. No. 78 of 1995, CIT vs. Ruby Traders & Exporters Ltd. [reported at (2003) 182 CTR (Cal) 596—Ed.] disposed of by this Court on 11th & 12th March, 2003. The principal ingredient that has to be satisfied is to establish the identity of the subscribers and prove their creditworthiness and the genuineness of the transaction. We have gone through the order of the AO at pp. 9 & 13 of the paper book. It appears that the assessee had failed to establish any of these three ingredients in respect of the said amount. The CIT(A) modified the order to Rs. 83,000 and accepted the balance simply because income- tax file numbers of the other subscribers were disclosed. It appears from pp. 36-37 of the paper book containing the order of the CIT(A) that these few persons who had subscribed 8,300 shares were not income-tax assessees. Therefore, only these were added. Mr. Som had relied on a decision in CIT vs. Korlay Trading Co. Ltd. (1999)
152 CTR (Cal) 17 : (1998) 232 ITR 820 (Cal), where it was held that furnishing of income-tax file number is not sufficient to discharge the burden. The proposition may be correct. But when some material is produced, it is incumbent on the Revenue to enquire into the same. In this case after the initial onus was discharged by the assessee, the IT authority has made enquiries and had communicated the result of the enquiry to the assessee and required the assessee to produce the subscribers and establish its case. But the assessee did not do so. Therefore, we do not think that the CIT(A) had rightly approached the case. The principle is already laid down in the aforesaid two decisions namely, Hindusthan Tea Trading Co. Ltd. (supra) and Ruby Traders & Exporters Ltd. (supra).
The learned Tribunal, however, proceeded on the basis of the ratio decided in CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del). According to the learned Tribunal, if the subscribers were not available, in that event, it can be assessed at the hands of such subscribers, not at the hands of the assessee. But this decision was overruled by the Full Bench decision in CIT vs. Sophia Finance Co. Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB). Therefore, the ratio decided in Steller Investment (supra) is no more a good law. Though an SLP was preferred against Steller Investment (supra) and the SLP was dismissed [CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC)], yet the order of the apex Court while dismissing the SLP is not a ratio decided binding under Art. 141 of the Constitution of India, as we have held in the said decisions in Ruby Traders and Exporters (supra) and Hindusthan Tea Trading Co. (supra). The learned Tribunal, therefore, proceeded on the basis of a wrong proposition of law. Therefore, we are of the view that the order passed by the AO was in accordance with law and that of the CIT(A) cannot be sustained to the extent, which is contrary to the finding of the AO. We, therefore, hereby set aside the order of the learned Tribunal and that of the CIT(A) and affirm the order of the AO and answer the question No. 1 in favour of the Revenue in the negative. With regard to the question No. 2, it appears that the AO has applied 65 per cent rate of taxes since the assessee was not a company within the meaning of s. 2(18) of the IT Act. But both the CIT(A) and the learned Tribunal had applied 55 per cent as rate of taxes on the basis that the assessee was a company in which the public was interested. Mr. Som had led us through s. 2(18) of the Act. We find that this company cannot be brought within the purview of cls. (a) and (aa). Nor it can be brought within the scope of cl. (ab) since it has share capital. Neither can it come under cl. (ac) in the absence of any declaration. Neither it can be brought within the scope of cl. (b). Therefore it cannot be said to be a company in which the public was interested. Therefore, both the CIT(A) and the learned Tribunal had erred in law in reducing the rate of taxes and reversing the order of the AO.
7. We, therefore, set aside the order of the learned Tribunal and that of the CIT(A) with regard to the reduction of the rate of taxes to 55 per cent and affirm the order of the AO fixing the rate at 65 per cent and answer thequestion No. 2 in the negative in favour of the Revenue. This reference is, thus, disposed of.
R.N. Sinha, J. : I Agree.
[Citation : 263 ITR 623]
