COMMISSIONER OF INCOME TAX KERALA, ERNAKULAM versus V.DAMODARAN,TRIVANDRUM

Citation: [1980] 1 S.C.R. 944 · Decided: 15-10-1979 · Supreme Court of India · Bench: N.L. UNTWALIA · Disposal: Case Partly allowed

Judgment (excerpt)

944 
A 
B 
COMMISSIONER OF INCOME TAX 
KERALA, ERNAKULAM 
v. 
V.DAMODARAN,TRIVANDRUM 
October 15, 1979 
[N. L. UNTWALIA AND R, $. PATHAK, JJ.] 
•• 
.. 
Indian Jncome ' Tax Act, 1922-Sections 2(6A) (e)-lnterpretation of 
h 
"accumulated profits" if include current profits-Section 256(i)-Scope of. 
The assessee was the Managing Director of -a Company ~rigin~lly ass-essed 
C 
on a total income of Rs. 43407/- for the assessment year 1959-60. Thereafter 
the Income-Tax Officer came to know that th.e assessee had been withdrawing 
moneys from the Company and that those amounts were liable to be treated. 
as dividend under section 2(6A)(e) of the Act, hoe re-opened the assessment. 
In the assessment proceedings that followed, the assessee claimed that the 
accumulated profits of the Company amounted to Rs. 
1050 only and that 
amount alone could be considered as dividend und~ section 2 ( 6A )( e) of the 
D 
Act. The figure was worked out on the basi& that Rs. 11,000 as a provision. 
· for tax and Rs. 6,900 as a provision for dividend had to be adjusted against 
the balance of Rs. 18,950 in the Profit and Loss Account. The Income Tax 
Officer rejected the contention of the assessee. The Appellate Assistant Com-
missioner dismissed the appeal filed by the assessee. 
The Income Tax Appel-
late Tribunal in second appeal, upheld th~ claim of the assessee that the words. 
"accumulated profits" in section 2(6A)(e) of the Act could not be construed 
E 
as including current profit but it reje<cted the contention that the two suma 
of Rs. 11,000 and Rs. 6,900 had to be taken into accouot in determining the 
figure of the ''accumulated! profits". 
It determined the "accumulated profits" 
at Rs. 18,950. The Revenue obtained a reference to the High Court on the· 
question : ''Whether the Appellate Tribunal was legally correct in holding that 
the accumulated profit will not iQ.Clude "current profits" for the purpose of 
section 2(6A) of the Act." 
G 
A second question was referred to the High Court at the instance \if the· 
8880Ssee : "Whether the Tribunal was right in holding thot Rs. 18,95() consti-
mted accumulated profits for the purpose of section 2(6A) of the Act." The 
High Court answered both the questions in favour of the assessee, the firs~ 
question in the affirmative and the second question in the negative. 
On appeal to this Court, 
HELD: !. "Current profits" that is to say, profits earned by the Com-
pany during the Year in which the loans were advanced to the assessee cannot 
.. )...-
be regarded as included within the "accumulated profits" of a C-Ompany with-
« 
in the meaning of section 2(6A) (e) of the Act. (947G-948E] 
Commissioner of Income-Tax, Madras v. M. V. Murugappan & Ors. (1970)-
H 
77 I.T.R. 818. followed. 
/ 
2. The Appellate Tribunal was not competent to refer the second question, 
and the 1reference to that Ol<tent must be considered void. .section 256(1) of 
•
C.l.T. v. V, DAMODARAN (Pathak, !.) 
945 
the Jacome Tax: Act, 1961 entitles the assessee or the Commissioner, as the 
case may ·be, to apply to the Appellate Tribunal to refer to the High Court 
any qnestion of law arising out of the order made by the Appellate Tribunal 
under section 254. It is clear that the statute expressly contemplates an appli-
A 
cation in that behalf by ai party desiring a reference to the High Court. 
The 
application has to be filed within a prescribed period of limitation. 
lf 
t~·- ,,--fe'· 
application is reje-,;;ted by the Appellate Tribunal, it is the applicant thus re-
fused who is entitled to apply to the High Court. 
The form of.: reference 
application prescribed by rule 48 of the Income Tax Rules, 1962 specifically 
reqtiires the app1ic['jnt to state the questions of law which he desires- to be 
referred to the High Cour!. 
Jn every .case, .it .is only the party applying for 
a ·reference .\vbo· is entitled to· s,pecify .the questions of la\v \Vhich should be 
referred. 
No~here rlOOs ·the 
st<:lti.te confer ·a. right in the flon~a"ppliCali.t ca: 
phrase used here for conveniem:e) 't~ ask for a 'refC'ren'ce of questions Of law· 
on the application made by the applicant. 
[950 A, C-D •E, F,G and 952 E] 
. 
The party who is aggrieved and \\'ho desires a refei·ence to the H{gh C6urt 
must file a reference application for that purpose: ·Ji is not open to him to. 
n1akC a refcr'eli:ce 'iipf,l!citiori · file'd, by the other party the· ba~i.s of .his clciim that, 
a l'juestion ·of· !aW sought by him should be referred.

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