COMMISSIONER OF INCOME TAX Vs. PALAI CENTRAL BANK LTD

JUDGEMENT

(1.) THE Tribunal, Cochin Bench, has along with its statement of the case, forwarded the following question of law for our opinion, viz.:

(2.) THE assessment year with which we are concerned is 1963-64, that is, the year ended 31st March, 1963. The assessee is a banking company, namely the Palai Central Bank Ltd., which went into liquidation on 8th Aug., 1960. On that date, the official liquidator took charge of the assets and liabilities of the company. A balance sheet had been prepared on that date. Thereafter, for every year, the liquidator used to prepare an income and expenditure statement for submission to the Reserve Bank of India. For the year in question, namely, the asst. yr. 1963-64, the taxable income of the assessee was determined by the ITO at Rs. 5,79,678. The officer was of the view that this amount would attract liability for super profits tax. As the assessee had not submitted any return under the SPT Act, a notice under s. 9(a) of the Act calling for the return was issued. The assessee submitted the return showing the chargeable profits as "nil". The return was sought to be supported by the contention that there was no chargeable profit after considering the " standard deduction" allowable to the assessee and hence no liability to super-tax. It was the assessee's contention that if the standard deduction be calculated on the share capital and reserve as on the date of liquidation, there would be a deficiency of Rs. 23,411. The ITO overruled this contention pointing out that the official liquidator was making disbursements to creditors in instalments from the commencement of liquidation proceedings, and it is unreasonable to believe that the general reserves and other reserves stood at the same figures as they were prior to the winding up of the company. He, therefore, granted the alternative minimum standard deduction of Rs. 50,000, and worked out the chargeable profit at Rs. 2,04,740. The AAC confirmed the said order of the ITO. On appeal, the Tribunal found that liquidation had not changed or affected the status of the company and that the surplus was chargeable to super profits tax only under s. 4 of the Act. It was of the view that s. 27 of the Act exempted a company from the provisions of the Act if it had no share capital; and that the exemption could not be confined to the companies under s. 12(b) or s. 25 alone, but would cover cases of a company going into liquidation which has no identifiable share capital. The Tribunal referred to the Supreme Court's decision in Girdhardas case (1967) 63 ITR 300 (SC), that in the hands of the liquidator there is only one fund which cannot be disintegrated into share capital in the liquidator's hands, and, therefore, the exemption under s. 27 of the Act was attracted. There was again another reason given by the Tribunal, namely, that even if the exemption under s. 27 is not attracted, the charging section, s. 4, would not apply to the company as the standard deduction was incapable of ascertainment. The Tribunal referred to the decision of the Supreme Court and held that as there was only one consolidated fund in the hands of the liquidator, it would not be possible to view the fund as entirely composed of profits or of capital. To the argument that on these two alternative assumptions, that the fund was composed of either the one or the other, the liability could be worked out, the Tribunal answered that the submission was unacceptable and that it cannot be assumed that the company had no capital at all. At the instance of the Revenue, it submitted the question of law for our opinion. Sec. 2(5) of the Act defines chargeable profits as follows :

(3.) THE above reasoning makes it clear that the principle of the decision in Burrell's case (supra) was got over under the Indian IT Act, 1922, by the amendment effected by the Finance Act, 1956, to the provisions of the Indian IT Act, 1922. There is no such corresponding amendment to the provisions of the SPT Act. In this view again, the reasoning of the Tribunal, following the principle in Burrell's case (supra), appears to be correct. We answer the question referred in the affirmative, that is, in favour of the assessee and against the Revenue. There will be no order as to costs.