Shelat, C.J.
1. This reference arises out of assessment made on the assessee in the status of an individual for the assessment year 1955-1956 of which the relevant previous year is Samvat Year 2010 (7-11-1953 to 26-10-1954). In view of the contentions urged before us by Mr. Mehta on behalf of the assessee and the learned Advocate General on behalf of the Commissioner, it becomes necessary to set out the facts involved in this reference in some details.
2. At the material time, the assessee was carrying on multifarious business activities at various places and in various names These activities were mainly money-lending, dealing In iron, timber, vegetable ghee, plying of country crafts for transport of goods, running cotton ginning and pressing factory, etc. These different businesses were at Bhavnagar, Mehsana. Palitana, Khambhala, Veraval, Povbandar and other places Besides his income from these business activities, the assessee also derived income from securities, immovable property and used to receive dividends from shares held by him. For all these sources of income, the relevant previous year was common, namely, Samvat Year 2010. Besides these concerns run by the assessee in different names, there were two other concerns in which the assessee was interested and which appear to have been practically run by him. These were Messrs C. Prabhudas & Co. (Private) Ltd., and Saurashtra Iron Foundry and Steel Works Ltd. The first company, i.e. C, Prabhudas & Co. (Private) Ltd., with which we are concerned in this reference, was started in or about 1940 and all the one hundred and twentyshares in the company were, until July 5, 1941 held by the assesses, his brother Harilal Ramji and one Ramji Amarshi. However, though he was shown as a shareholder, Harilal had not shown in his returns these shares as his investments. According to the Income-tax Officer, Ramji Amarshi also was not shown as having been capable of contributing shares standing in his name or of having actually contributed for them. These shares were subsequently transferred in the names of the assessee's wife and his son. Thus, all the one hundred and twenty shares in the company were under the control of the assessee. The Income-tax Officer also found that the business of the company was run by the assessee alone. From February 5, 1947 to June 1, 1650 he was the only director. By a resolution dated July 5, 1947 signed by him as the sole director of the company, the assessee was also invested with all powers of management of the company. No share account was maintained in the company's books and no minute book as such was maintained, the minutes being noted on loose sheets. The ether company, i.e. Saurashtra Iron Foundry and Steel Works Ltd., was formed on May 1, 1951 and thirty-four shares which were originally issued were held by the assessee, his wife, his said brother Harilal and his son Jashwantrai. The shares said to have been purchased by the assessee's brother and son were purchased from loans said to have been advanced by the assessee to them and on which no Interest was charged.
3. Messrs C, Prabhudas & Co. (Private) Limited had at all material times Its head office at Bhavnagar and a branch office at Mehsana. As already stated, the relevant previous year of the assessee company for all the business earned on by him as proprietary concerns and of this company was the same, namely, Samvat Year 2010. It appears that the company had never declared or paid any dividend to it a shareholders, but instead had allowed Its profits to accumulate in a reserve fund to the credit of which was an amount of Rs. 9,50,334. These accumulated profits, if distributed as dividends to shareholders, would have been taxable in the hands of the shareholders, in the present case the assessee and his eon. What the assessee appears to have done, therefore, was to utilise this accumulated fund in his proprietary concerns by taking loans in the different names of his businesses. The assessee had accounts with the company both at Bhavnagar and Mehsana in various names. Thus, at the commencement of Samvat Year 2010, the company's office at Bhavnagar showed loans given by the company to the two concerns of the assessee, namely, C. Prabhudas & Co. (Private) Ltd., Bhavnagar and Messrs Jashwantrai & Co., of the aggregate amount of Rs. 5,81,675. The company's office at Mehsana showed loans of Rs. 2,73,221 to the assessee and to C. Prabhudas & Co. (Private) Ltd., Mehsana. The aggregate of these loans came to Rs. 8,54,896 out of the reserve fund of Rs. 9,50,384. We are not concerned with the other company in the present reference andtherefore, it is not necessary to set out the facts concerning that company.
4. While making the assessment of the assessee for the assessment year 1965-1906 and in particular, while computing the assesses income under the heading 'business Income', the Income-tax Officer made a detailed examination of the two companies and came to the conclusion that the businesses carried on by these two companies were really the assessee s businesses and that the two companies were the assessee's benamidars and on this basis he proceeded to compute the income of Messrs C. Prabhudas & Co. (Private) Ltd., and added Rs. 25,258 which he assessed as the income of that company for the account year 2010 to the income from business of the assessee, computing the total income of the assessee at Rs. 3,14,070. After scrutinising the books of the company and the assessee s books of his different proprietary concerns, the Income-tax Officer observed: 'Profits of these companies had been allowed to be accumulated as reserves in lacs. Dividends were not Issued for years together. No shareholders even claimed it, However these moneys were utilised by the assessee in the form of loan'. Applying one of the tests laid down in Meenakshs Mills Ltd., Madurai v. Commr. of Income-tax, Madras : [1956]1SCR691 for benami relationship, namely, 'whether the profits were treated as the profits of the company', the Income-tax Officer stated that the balance sheets of the Company for Samvat Years 2006 to 2009 showed that the profits were not distributed and were allowed to be accumulated, that by Samvat Year 2010 they reached the figure or Rs. 9,50,333 and further that the assessee had used these accumulated profits to the tune of Rs. 8,00,000 and odd by taking loans for his various proprietary concerns from Samvat Year 2006 to Samvat Year 2010'. He also observed: 'Thus it can be seen that profits of the company were utilised by the assessee though in form of loan'. As aforesaid, the Income-tax Officer came to the conclusion that the business of Messrs C. Prabhudas & Co. (Private) Ltd., was in reality the assessee's business but was carried on in the benami name of that company and therefore the company's profits for Samvat Year 2010, namely, Rs. 25,258 were the assessee's profits and were includible in his total income.
6. Aggrieved by this inclusion, the assessee filed an appeal before the Appellate Assistant Commissioner, During the hearing of that appeal, the Income-tax Officer conceded that the company and the assessee being distinct entities in law, the company's income could not be included in the total income of the assessee, but as the Appellate Assistant Commissioner had before him the facts regarding the use of the company's accumulated profits by the assessee as loans to his proprietary concerns, the Appellate Assistant Commissioner came to the conclusion that Section 12(1B) read with Clause (3) of Section 2(6A), would be attracted and on the basis of that the outstanding loanswould be dividends in the hands of the assessee as a shareholder in the company, he included an amount of Rs. 2,37,160 in the total income of the assessee. But as he could not enhance the assessee's assessment without a notice, he issued such notice on the assessee. There is no dispute that the notice was served on the assessee. At the hearing of the appeal after fee notice was so served, the assessee's representative conceded that the said amount of Rs. 3,87,150 would be liable to be taxed as dividend in the hands of the assessee. No objection was taken at that time as to the competence of the Appellate Assistant Commissioner under Section 31(3) to enhance the assessment. The only question raised before that officer was that the assessee was entitled to the benefit of the concession granted by the Central Board of Revenue under a circular issued to the Income-tax Officers dated May 10, 1955. The Appellate Assistant Commissioner examined this contention in the light of the said circular and on the conclusion he came to, namely, that the assessee had not genuinely returned the loans by the date prescribed in the circular, namely, June 30, 1955, he rejected that contention and held that the assessee was not entitled to get the benefit of that concession.
6. The assessee thereafter filed an appeal before the Tribunal where he challenged the order of the Appellate Assistant Commissioner on two grounds, (1) that the Appellate Assistant Commissioner was not competent to enhance the assessment, (2) that the said amount of Rs. 2,37,150 or any part thereof would not be dividend within the meaning of Section 2(6A)(e) of the Act. But at the time of the hearing, the assessee conceded, as the assessee's representative had done before the Appellate Assistant Commissioner, that the second question would not arise. In any event, that question was not argued and instead, as an alternative plea to the first plea, it was sought to be argued that the assessee was entitled to the benefit of the said circular. The Tribunal held that the circular was not part of the Act or the rules made thereunder, that at best it contained administrative directions by the Central Board of Revenue and therefore, the Tribunal as an appellate body would not take any notice of that circular. On this basis the Tribunal did not permit the assessee to raise the contention nor did it allow the assessee's contention that a question, whether the assessee was entitled to the benefit of the circular, should be referred to us. In these circumstances, the Tribunal referred only one question to us, namely, 'Whether on the facts and in the circumstances of the case the Appellate Assistant Commissioner was competent to enhance the assessment by a certain sum?'
7. Regarding the question of the jurisdiction of the Appellate Assistant Commissioner to enhance the assessment by adding the said sum of Rs. 2,37,150, the Tribunal held that in the present case the Income Tax Officer could be said to have dealt with and processed the source of income and that consequently, the Appellate Assistant Commissioner had the requisite jurisdiction to enhance the assessment. Insupport of this conclusion the Tribunal observed:
'In the present case, the Income-tax Officer did consider the source of income, viz. income that the assessee derived from the company C. Prabhudas & Co. Pvt. Ltd. On the view he took, he brought to tax business income of the accounting year, viz. Rs. 25,258. In doing that he also brought on record certain facts which clearly attracted the provisions of Section 12(1B) read with Section 2(6A)(e). When the matter was in appeal and the assessee challenged the inclusion of certain income from that source, the Appellate Assistant Commissioner applied his mind to it and came to the conclusion that what was done by the Income-tax Officer was to include a wrong and smaller sum from that very source of income, viz. assessee's interest in C. Prabhudas & Co. Pvt. Ltd. It may be that on one view, certain Income might fall to be assessed under Section 10 and on another view, under Section 19 but that would not make any difference for the purpose of making 'assessment' i.e. determination of total income so long as the source is the same. Hence on the facts placed before us, we reject the assessee's contention that the Appellate Assistant Commissioner was not competent to enhance the assessment as he did.' In this view, the Tribunal rejected the assessee's contention and upholding the order of the Appellate Assistant Commissioner of enhancement, dismissed the appeal. It is this order which is assailed in this reference.
8. The provisions which are relevant for the purposes of the present enquiry are Section 2(6A)(e), Section 12(1B) and Section 31(3) of the Act. Sub-clause (e) of Section 2(6A) brings to tax as dividend in the hands of a shareholder payments made by a company of any sum, whether as representing a part of the assets of the company or otherwise by way of advance or loan to a shareholder or any payment on behalf of a shareholder and any payment for the individual benefit of a shareholder. The payment in any one of these cases is regarded as dividend to the extent to which the company possesses accumulated profits. Under Section 12(1B), payment by a company to a shareholder by way of advance or loan which would have been treated as dividend under Section 2(6A)(e) in any previous year relevant to any assessment year prior to the assessment year ending on 31st day of March 1956, had that clause been in force in that year, is treated as dividend received by him in the previous year relevant to the assessment year ending on 31st March 1956, if such loan or advance remained outstanding on the first day of such previous year. Under Section 2(6A)(e), a loan is deemed to be dividend of the year in which payment by way of loan is made to a shareholder. But the loan given in the past years earlier than the previous year relevant to the assessment year 1955-1956 would not he chargeable under Section 2(6A)(e) as it applies to assessment years 1955-1956 and onwards. In order, however, to bring in loans made in the past years to tax, Sub-section (1B) of Section 12 provides that the aggregate of all loansfalling under Section 2(6A)(e), in whichever past years they might have been given, is to be taxed as dividend income for the assessment year 1955-1956 if such loan remained outstanding at the commencement of the previous year relevant to the assessment year 1955-1956. Such loans are deemed to he dividend only to the extent to which the company possessed accumulated profits at the time when the loan was made and such loan must have remained outstanding at the commencement of such shareholder's previous year relevant to the assessment year 1955-1956. It is clear from these provisions that the payment as and by way of a loan to a shareholder has no relation to the current profits of the company. Indeed, it would not matter that such payment represents even part of the assets of the company and a loan need not have been made in the relevant previous year of the shareholder concerned. The combined effect of these two provisions is to bring to tax as dividend loans advanced in past years but to the extent that the company possesses accumulated profits and provided such loans have remained outstanding at the commencement of the shareholder's previous year relevant to the assessment year, 1955-1956.
9. Section 31 of the Act deals with the powers of the Appellate Assistant Commissioner and provides inter alia in Sub-section (3) that that officer, in the case of an order of assessment, can confirm, reduce, enhance or annul the assessment. Construing the expression 'enhance the assessment' we have in a recent judgment delivered on September 2, 1064 in Income-tax Ref. No. 15 of 1963 (Guj), observed that the power conferred on the Appellate Assistant Commissioner under Sub-section (3) Clause (a) is, no doubt, wide in the sense that he has the power to confirm, reduce, enhance or annul the assessment, In view of the language used in this Sub-section, there can therefore be no doubt that the Appellate Assistant Commissioner has the power to enhance an assessment. But there can equally be no doubt that the power under Clause (a) to confirm, reduce, enhance or annul assessment is in the case of an order of assessment made by an Income-tax Officer and not otherwise Even where the Appellate Assistant Commissioner sets aside an assessment under clause (b) of Sub-section (3) and directs the Income-tax Officer to make a fresh assessment after making such enquiry as the Income tax. Officer thinks fit or as the Appellate Assistant Commissioner directs, such fresh assessment is to be made by the Income-tax Officer and not by the Appellate Assistant Commissioner in his power to enhance assessment. Therefore, the various powers given to the Appellate Assistant Commissioner under clauses (a) and (b) of Sub-section (3) are in relation to an order of assessment made by the Income tax Officer as clearly stated in the opening sentence of Subsection (3). We also stated there that as to what is meant by the expression 'enhance the assessment', the law can be said to be fairly settled after the Supreme Court decision in Commissioner of Income-tax, Bombay v.Shapoorji Pallonji Mistry : [1962]44ITR891(SC) of the report, the Supreme Court has observed that the Appellate Assistant Commissioner has undoubtedly the power to enhance assessment but within the four corners of the sources processed by the Income-tax Officer. Such a power must at least fall within the expression 'enhance the assessment', for otherwise those words would be rendered nugatory. In that case the Supreme Court considered the decisions of the High Courts of Patna, Madras and the decision of the High Court of Bombay in Narrondas Manordas v. Commr. of Income-tax Central, Bombay : [1957]31ITR909(Bom) and regarding the opinion there expressed by Chagla C. J. and Tendolkar J., the Supreme Court has observed: 'This Court, however, gave approval to the opinion of the learned Chief Justice of the Bombay High Court that Section 31 of the Income-tax Act confers not only appellate powers upon the Appellate Assistant Commissioner in so far as he is moved by an assessee but also a revisional jurisdiction to revise the assessment with a power to enhance the assessment.'
10. In Shapoorji Pallonji Mistry's case : [1962]44ITR891(SC) the Supreme Court posed to itself the question whether the Appellate Assistant Commissioner could travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income not disclosed in either. Two rival contentions as an answer to this question were urged before the Supreme Court. The revenue urged that the word 'assessment' in Section 31(3) meant the ultimate amount which an assessee must pay, regard being had to the charging section and his total income, and it was argued that the words 'enhance the assessment' were not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. On the other hand the assesses urged that the power to enhance the assessment extended only to matters considered by the Income-tax Officer and if a new source was to be considered. The power of reassessment should be exercised. In considering these rival contentions, the Supreme Court took note of the previous judgments of the High Courts of Patna, Madras and Bombay and while conceding that the view urged by the revenue was possible, it accepted the view which had held the field for nearly thirty-seven years The Supreme Court observed:
'The question is whether we should accept the interpretation suggested by the Commissioner in preference to the one, which has held the field for nearly 37 years. In view of the provisions of Sections 34 and 33B by which escaped income can be brought to lax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commissioner to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section.If It were not one would expect that the legislature would have amended Section 3 and specified the other intention in express words. The Income-tax Act was amended several times in the last 37 years, but no amendment at Section 31(3) was undertaken to nullify the rulings, to which we have referred. In view of this, We do not think that we should Interpret Section 31 differently from what has been accepted in India as its true Import, particularly as that view is also reasonably possible.'
11. The earliest case in which Section 31(8) came in for interpretation was Jagarnath Therani v. Commissioner of Income-tax AIR 1626 Pat 408. In that case, the assessee had three businesses at Purnea, Jalpaiguri and Calcutta. But his income at Purnea only was assessed by the Income-tax Officer. On an appeal by the assessee, the Appellate Assistant Commissioner assessed him with regard to the Income from the other two businesses. The head of the income was the same within Section 6 of the Act but the sources of the income were different. The Patna High Court held that the subject matter of the appeal before the Appellate Assistant Commissioner was the assessment made by the Income-tax Officer and the scope of the appeal must be limited by that subject-matter and therefore, the appellate authority had no power to travel beyond the subject matter of the assessment and that the authority therefore was not entitled to assess a new source of income. In Sri Gajalakshmi Ginning Factory Ltd. Palladam v. Commissioner of Income-tax, Madras : [1952]22ITR502(Mad) , the High Court of Madras, approving the Patna view, held that the Appellate Assistant Commissioner had no power to introduce into the assessment new sources as his power of enhancement should be restricted only to matters which were the subject-matter for consideration for purposes of assessment by the Income-tax Officer. The High Court of Bombay in : [1957]31ITR909(Bom) , agreed with the views expressed in the aforesaid two decisions. Chagla C. J., who spoke for the Bench, also observed that the power of the Appellate Assistant Commissioner was not restricted to the subject matter of the appeal but also extended to the subject matter of the assessment and added that the Appellate Assistant Commissioner was constituted under the Section a revising authority, not in the sense of revising the subject matter of the appeal only hut one in the sense that once the appeal was before him, he could revise not only the ultimate computation arrived at by the Income-tax Officer but could revise every process which let to the ultimate computation or assessment. In other words, he explained 'What he can revise is not merely the ultimate amount which is liable to has but is entitled to revise the various decisions given by the Income-tax Officer in the course of assessment and also the various incomes or deductions which came in for consideration of the income-tax Officer.' Though the Supreme Court in Shapoorji Pallonji Mistry's case : [1962]44ITR891(SC) has observed thatthough these observations were approved of in Commissioner of Income-tax v. McMillan & Co. : [1958]33ITR182(SC) , the Supreme Court must be held not to have expressed Its final opinion on the point which arose before it in Shapoorji Pallonji Mislry's case : [1962]44ITR891(SC) , the principle laid down by Chagla C. J., was not dissented from nor disapproved. It will be seen that while expressing his opinion, Chagla C. J., was at pains to point out that the revising power of the Appellate Assistant Commissioner applied not only to final computation by the Income-tax Officer but also to the various 'decisions' and the various incomes or deductions which came in 'for consideration' of the Income-tax Officer. It is thus clear that according to the learned Chief Justice, the power of the Appellate Assistant Commissioner to revise can be exercised only where the matter in question has been the subject matter of a decision of the Income-tax Officer or his consideration, It was this limited construction given in these decisions that the Supreme Court preferred in Shapoorji Mistry's case : [1962]44ITR891(SC) to the wider construction suggested by the Commissioner in that case. In Income tax Ref. No. 15 of 1963 (Guj) referred to above, after considering these decisions we held that 'the principle that emerges as a result of these decisions is that the Appellate Assistant Commissioner has no jurisdiction to assess a source of income which has not been processed by the Income-tax Officer and which is not disclosed in either the returns filed by the assessee or the assessment order, and therefore the Appellate Assistant Commissioner cannot travel beyond the subject mailer of the assessment.' In another earlier decision in Commissioner of Income-tax v. Jagdish Mills Ltd. : [1964]51ITR266(Guj) to which my brother Bhagwati J., was a party, this Court, after considering the decisions referred to above, has held that though the powers of the Appellate Assistant Commissioner of Income-tax in an appeal under Section 31 are very wide and he can revise and even enhance an assessment made by an Income-tax Officer, if a particular source or Item had not been subjected to the process of assessment even though the Income-tax Officer might have subjected to tax the particular head of income in which that item or source fell, it would not be open to the Appellate Assistant Commissioner to take into consideration the particular source or item which had not been considered by the Income-tax Officer and enhance the assessment by adding the income from that particular source, in that case, the Income-tax Officer in making the assessment of the assessee, a non-resident, included payments received by cheques drawn on banks in British India for the price of goods sold to customers in British India. In an appeal by him against this assessment by the Income-tax Officer, the Appellate Assistant Commissioner directed the Income-tax Officer to compute the income afresh and to include a certain percentage of the profits derived by the assessee from goods purchased by him in British India, it was held there that as the Income-tax Officerhad not considered the matter of profits from goods purchased in British India at all, it was not open to the Appellate Assistant Commissioner to go into the question of income or profit accruing to the assessee from purchases effected in British India and to give any direction to the Income-tax Officer in respect of the income from this source.
12. The learned Advocate General however submitted a two-fold argument. The first part of his argument was that the question posed by the Supreme Court to itself in Shapooril Mistry's case : [1962]44ITR891(SC) of the report (ITR): (at p. 1088 of AIR) was whether the Appellate Assistant Commissioner could travel outside the record, that is to say, as explained by the Court, the return filed by the assessee and the assessment order. And he argued that the answer given by the Supreme Court, if read in the context of this question, must mean that if a source is to be found either in the return or in the assessment order of the Income-tax Officer, even if such source is not considered by him the Appellate Assistant Commissioner would still have the power to revise and enhance. The submission, in our view, is not correct, for at page 808 of the report (ITR): (at p. 1087 of AIR) the Supreme Court has also set out the question which it had to resolve and the question set out there is in the following words: The controversy in this case is about his discovering new sources not mentioned in the return and not considered by the Income-tax Officer.' and it was to the question whether the Appellate Assistant Commissioner could enhance the assessment by discovering new sources of income not mentioned in the return and not considered by the Income-tax Officer in his order of assessment that the Supreme Court answered the problem before It by giving preference to the construction placed on Section 31(3) in the earlier decisions of the High Courts referred to therein. The learned Advocate General, therefore, is not right in his view of the decision of the Supreme Court. The second part of his submission, however, requires consideration. That submission was that though in the present case, the assessee had not disclosed the income of Messrs C. Prabhudas & Co. (Private) Ltd., during the assessment proceedings, the Income-tax Officer had held an enquiry and found, as a result of that enquiry, facts relating to the close relationship between the assessee and the company, the fact of the Company having large accumulated profits and the use made of them by the assessee in taking loans there from for his own proprietary concerns. From these facts which the Income-tax Officer had placed on record, that officer drew his conclusion that the company was nothing short than the benamidar of the assessee and therefore, the company's profits during the current year must be held to be the assessee's profits and gains from business, and assessed the assessee on those facts. In the appeal before the Appellate Assistant Commissioner, the Income-tax Officer conceded that his conclusion that the company was the benamidar of the assessee was wrong on the ground thateven a one man company is in law a separate entity and that the inclusion of the company's profits for the year of account could not be added in the computation of the assessee's total income. The learned Advocate General argued that though the order passed by the Income-tax Officer was held by the Appellate Assistant Commissioner to be erroneous and the Appellate Assistant Commissioner came to a different conclusion, namely, that though the company's profits during the account year could not be added to the assessee's total income but that the loans given by the company to the assessee and remaining outstanding could be taxed as dividend income of the assessee to the extent of the accumulated profits of the company under Section 12(18) read with Section 2(6A)(e), the facts before the Appellate Assistant Commissioner were not the same which were before the Income-tax Officer and which the Income-tax Officer had brought on record and that the only difference was that whereas the Income-tax Officer came to one conclusion which was subsequently conceded to be incorrect, the Appellate Assistant Commissioner came to a different conclusion and that therefore, it cannot be said that the Appellate Assistant Commissioner subjected to tax a new source of income which was not considered or processed by the Income-tax Officer in his order of assessment.
13. Now it is true that the present case is somewhat different from the earlier cases in the sense that whereas in AIR 1925 Pat 408 and the recent case before us in Income-tax Ref. No. 15 of 1963 (Guj), the facts regarding the new source of income had not been brought out by the Income-tax Officer in his order of assessment, the Income-tax Officer had before him In the present case all the facts and it was on those very facts that the Appellate Assistant Commissioner sought to revise the order of the Income-lax Officer and enhanced the assessment. Nevertheless, the question would still be whether the income, i.e. payment by the company as a loan to the assessee and which remained outstanding and which was assessed in his hands as deemed dividend under Section 12(1B) read with Section 2(6A) (e) can be said to have been the subject-matter of consideration by the Income-tax Officer There can be no doubt that if an income has been the subject-matter of consideration of an Income-tax Officer, even though that officer has come to a conclusion that that income is not liable to tax, the Appellate Assistant Commissioner can take a different view and enhance the assessment by bringing it to lax even though in appeal before him, that is not the subject matter in issue. Such was the case in : [1957]31ITR909(Bom) , where remittances of Rs. 4,00,000 from Rajkot to the assessee in Bombay were considered by the Income-tax Officer and held by him to be exempt under the Part B States (Taxation Concession) Order, 1950. But the question is, can it be said in the instant case that though the Income-tax Officer had brought out facts on which the Appellate Assistant Commissioner based his order, that the question of this particular dividend Income was considered by the Income-tax Officer and this particular source was processed by him, It may be, even Incorrectly by the Income-tax Officer. It is true that the Income-tax Officer considered the fact that C. Prabhudas & Co. (Private) Ltd., was controlled by the assesses solely and that that company had accumulated profits as a result of the company not having distributed dividends and further that the assessee had taken loans from out of such accumulated profits. On these facts, however, the Income-tax Officer came to the conclusion that the company was the assessee's benamidar, in other words, the business of the company was really the business of the assessee. On this basis, the Income-tax Officer brought to tax the current profits of the company, namely, Rs. 25,258 in the computation of the total income of the assessee. That amount however can be brought to tax in the assessee's hands only as profits or gains of business under Section 10 of the Act. In that case, 'the source of income considered by the Income-tax Officer would be the business of the assessee as he had held that the company was the assessee's benamidar, and its business was in reality the business of the assessee. On the other hand, the Appellate Assistant Commissioner came to a totally different conclusion, though no doubt on the same facts. What he did was to consider the advances or loans taken by the assessee from out of the reserve fund created from the company's accumulated profits and as these loans, according to him, had remained outstanding at the commencement of the previous year relevant to the assessment year 1955-1956, they would be deemed dividend to the extent of the accumulated profits the company possessed. Therefore, it is clear that whereas the Income-tax Officer considered one source of income, namely, the company's business as the assessee's business and taxed the current profits which arose from that business during the year of account, namely, Samvat Year 2010, the Appellate Assistant Commissioner considered a totally different source of income, not the company's profits from its business during the account year, Samvat Year 2010. but payments made by the company to the assessee as a shareholder from out of its accumulated profits as and by way of loans which remained unpaid and outstanding at the relevant date. Though, therefore, the facts considered by the two officers were the same, the positions taken up by them were contradictory for the reason that whereas the Income-tax Officer considered the company's business as the assessee's business and on that basis brought to tax the company's current profits during the account year as the assessee's profits from his business under Section 10, the Appellate Assistant Commissioner considered, not those profits nor the business carried on by the company during the year of account, but the payments made by the company to its shareholder in the past years and which payments remained outstanding at the commencement of the previous year relevant to the assessment year 1955-1956 and which, but for the provisions of Section 2(6A)(e), would be capital receipts and not taxable. Itwas because of these fundamentally contradictory positions taken up by the two officers that one had to resort to Section 10 and the other had to resort to Section 12(lB). The Tribunal, in our opinion, was in error when it observed that the fact whether the amount of Rs. 2,37,150 was brought to tax under Section 10 or Section 12(1B) made no difference. It did make an important difference, for the source of income under Section 10 would be one and the source of income under Section 12(1B) would be a totally different source. The very fact that the Income-tax Officer held that the company was the bcnamidar of the assessee and on that footing added Rs. 25,243 only, that being the profits of the company during Samvat Year 2010, clearly shows that he had not even applied his mind to the question whether the loans taken by the assessee from the company's reserve fund and which remained outstanding at the relevant date could, to the extent of its accumulated profits, be brought to tax in the assessee's hands as deemed dividend. The question that the Income-lax Officer considered was whether the current profits of the company during Samvat Year 2010 could be held to be the assessee's profits from business. The question that the Appellate Assistant Commissioner considered on the other hand was whether the payments made by the company to its shareholder as loans and which remained outstanding could be taxed as deemed dividend in the assessee's hands. One was, therefore, concerned with the profits which arose from the company's business in Samvat Year 2010, the other was concerned, not with what the company did in Samvat Year 2010, nor with the business carried on during that year by the company, nor with what the company did with its profits of that year, but what the company did in the past years, namely, making payments to its shareholder which payments had remained outstanding al the commencement of the previous year relevant to the assessment year 1955-1956. Thus, whereas the Income-tax Officer considered the business conducted by the company during Samvat Year 2010, so far as the Appellate Assistant Commissioner was concerned, the fact whether the company carried on its business in Samvat Year 2010 or not and whether it made profits or not in that year, was irrelevant as he was concerned only with the fact that the company had made payments in past years to the assessee. In view of the position adopted by the Income-tax Officer, namely that the company was the assessee's benamidar and therefore the business which the company carried on was really the business of the assessee, there could be no possibility of his having considered the question whether payments made by the company to its shareholder could be brought to tax under Section 12(1B) read with Section 2(6A)(e). That matter not having been considered by the Income-tax Officer, what the Appellate Assistant Commissioner did was to bring in a new source of Income which was never considered nor processed by the Income-tax Officerand the present case, therefore, would fall within the ratio of the Supreme Court decision in Shapoorji Pallonji Mistry's case : [1962]44ITR891(SC) .
14. In that view, our answer to the question referred to us must be in the negative. TheCommissioner will pay the costs of the referenceto the assessee.