| Case ID |
0c290e70-5e37-45e3-b0af-791be7194d69 |
| Body |
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| Case Number |
Tax Reference Case No. 11 of 1982 |
| Decision Date |
Feb 05, 1996 |
| Hearing Date |
|
| Decision |
The Supreme Court held that the assessee-company did not exist at the time the pre-incorporation profits were earned, thus it was not liable to pay tax on the income accrued before its incorporation. The court clarified that a company becomes a legal entity only upon incorporation, meaning that any income earned prior to this, by promoters, does not fall under the company’s tax liabilities. The case also highlighted the distinction between legal and beneficial ownership concerning tax liabilities. |
| Summary |
In the landmark case Tax Reference Case No. 11 of 1982, decided on February 5, 1996, the Supreme Court of India addressed the issue of pre-incorporation profits and their tax implications under the Income Tax Act, 1961. The court ruled that a company is considered a legal entity only upon its incorporation. Therefore, any income accrued before this point is not taxable under the company’s name, but rather falls under the promoters who conducted business on behalf of the company prior to its establishment. This decision emphasizes the importance of establishing a clear timeline regarding income accrual and the legal status of a company. The ruling has significant implications for corporate law and tax liability, particularly in understanding the relationship between promoters and the companies they form. It underscores that tax obligations relate to the entity that legally exists at the time income is earned. This case serves as a crucial reference for legal professionals navigating corporate taxation and the complexities of income assessment for newly formed entities. |
| Court |
Supreme Court of India
|
| Entities Involved |
COMMISSIONER OF Income Tax,
CITY MILLS DISTRIBUTORS (P.) LTD
|
| Judges |
J. S. VERMA,
S. P. BHARUCHA,
SUJATA V. MANOHAR
|
| Lawyers |
J. Ramamurthy, Senior Advocate,
R. Satish, Advocate,
S.N. Terdol, Advocate
|
| Petitioners |
COMMISSIONER OF Income Tax
|
| Respondents |
CITY MILLS DISTRIBUTORS (P.) LTD
|
| Citations |
1997 SLD 42,
1997 PTD 400,
(1996) 219 ITR 1
|
| Other Citations |
CIT v. Tea Producing Co. of India Ltd. (1963) 48 ITR 200 (Cal.),
CIT v. Bijli Cotton Mills Ltd. v. CIT (1970) 78 ITR 766 (All.),
Security Printers of India (P.) Ltd. (1953) 23 ITR 278 (All.),
CIT v Abubaker Abdul Rehman (1939) 7 ITR 139 (Bom.),
CIT v Dewan Bahadur Dewan Krishna Kishore (1941) 9 ITR 695 (PC),
CIT .v. Trustees of Sir Currimbhoy Ebrahim Baronetcy Trust AIR 1932 Born. 106
|
| Laws Involved |
Income Tax Act, 1922,
Income Tax Act, 1961
|
| Sections |
Not available
|