Judgment:
Shivashankar Bhat, J.
1. These two reference in respect of the assessment years 165-66 and 1967-68 require this court of answer the following question :
'Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that on the basis of the compromise order passed by the High Court, the income of the K Group and V Group did not accrue to the assessed-company but to those two groups separately and thereforee assessments must be made on those two groups and not in the hands of the assessed-company ?'
2. Messrs. Ithad Motor Transport Pvt. Ltd. is a transport company. There was an internal dispute between the two sets of shareholders. The matter came up before the high Court under the company law. In the course of the proceedings, the court directed as to how the affairs of the company shall be managed as an interim measure. This was the result of a settlement between the two groups. The court made the order that the arrangement for the management of the affairs of the company in terms of the order shall be till the final disposal of the proceedings. The relevant parts of the said order read as follows :
'(i) That the management of the company may be divided into two groups under two separate and independent boards of directors. The groups may be called for the sake of convenience of reference as the Veer Singh Group and the Kundan Singh Group. Following shall be the first directors of the Kundan Singh Group :
(i) Shri Kundan Singh
(ii) Shri Kanwar Singh
(iii) Shri Manohar Lal
(iv) Giani Kartar Singh
(v) Pahlwan Lal Singh, s/o Shri Kesar Singh
(vi) Shri Lal Singh Sahib, s/o Hukam Singh
(vii) Shri Niranjan Singh, S/o Shri Ishar Singh.
That within their respective spheres, each of the board of directors would have complete autonomy in the matter of the management of the company. Without prejudice to the generality of this provision, each of the groups shall deal exclusively and the other group shall not interfere with all or any of the following matters :
(a) The running of the buses allotted to the respective groups.
(b) The income and expenditure relating to the business of the respective groups.
(c) The enrollment, employment, suspension, removal or otherwise dealing with the staff of other employees of the respective groups.'
3. One group is referred as Group V and the other group is referred as Group K. The respective groups managed the assists allotted to their groups and derived income from the said assets. Each group enjoyed the said income as its own. Each group filed separate returns. These returns were accepted provisionally and assessments were made. The in come of both the groups was cleaned together by the assessing authority on the ground that the entire income belonged to the company and could be assessed in the hands of the company as such. The matter came up before the Appellate Tribunal ultimately which allowed the appeal of the assessed-company by holding that the company never received the income. The respective groups which were entrusted with the operation of the assets managed the said assets to derive the income and expenditure and by virtue of the order of the High Court the income belonged to the respective groups. The contention of the Revenue that the company continued to exist and the assets legally belonged to the company and thereforee the company alone could be considered as the beneficiary of the income was not accepted by the Appellate Tribunal. The Appellate Tribunal held as follows :
'It is no doubt true that for the purpose of the Companies Act, the company continues to exist but the company stood in existence only for the purpose of the Companies Act without earning any income and waiting for its final winding up. We cannot conceive of a situation where an assessed is deemed to earn income when no income was in fact or even for that matter in law earned by it, but still assessed on income certainly relating to two others. This would result in making a unrealistic assessment. The corporate existence of the assessed-company cannot lead to the inference that the income learned by the other two groups and to be enjoyed by them under the orders of the High Court, converts that income to be income of the assessed-company. There is no asset left in the hands of the assessed-company for exploitation after the order passed by the High Court as per the compromise order. There is no income earned by the assessed-company for exploitation after the order passed by the high Court as per the compromise order. There is no income earned by the assessed-company. No dividends were even declared by the assessed-company. The accounts of the assessed-company do not show any provision of income. There are two separate boards of directors operating the assets allotted to it. There is nothing to whom that even under the Companies Act, the Registrar of Companies objected to the enjoyment of income by the two groups separately.'
4. Mr. Gupta, learned counsel for the Revenue, contended that the view of the Appellate tribunal is opposed to the concept of a company which has a distinct legal personality. It may be that the income was earned by the two groups, but the said income earned by the two groups belonged to the company and the respective groups were allowed to enjoy income as their due share out of the company's income.
5. Learned counsel for the assessed, on the other hand contended that the income never reached the hands of the company. In view of the overriding effect of the order of the High Court the income stood diverted at the very inception, to the respective groups.
6. We do not think, it is necessary for us to go into the rival contentions. The Revenue has not suffered any loss in the instant case. Both sets of income were assessed as if they are the income of a private limited company. In other words the proportionate tax levied on each group would ultimately lead to the same result as if the entire income was assessed in the hands of the company.
7. In the circumstances, the question raised in the reference shall have to be considered as purely academic. We decline to answers the same. The reference is accordingly returned unanswered.