Diversion of Income.

This query is : Resolved

CA Sanjay Baheti (Querist)
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18 February 2011 Dear Sir/Madam

The assessee, being the individual, is managing director in Pvt. Ltd. Having two members(directors), assessee himself and his wife. The co. sales its products to the some of their outside customer, who deposited the amount in the assessee’s saving account. Then the assessee withdrawn the same and deposited in to the companies bank account. The reason behind this transaction is that, the assessee’s (director) bank account has the facility of malty state money transfer. Therefore the assessee used his own saving account for the company’s transaction and none of the amount utilized/applied for own purpose. The all sale and receipts are accounted for in the books of accounts of the company and company filled the income tax return for the same.

Whether the amount such deposited in the assessee’s saving bank account is income chargeable in the hands of assessee (director)? If it is chargeable in the hands of assessee whether it will be double taxation i.e in the hands of co. as well as in the assessee (director) or not?

Whether is it case of diversion of income overriding the title or not?

Please suggest the case laws decided in this connection

Guest

Guest (Expert)

18 February 2011 In my opinion, there is nothing wrong if assessee can justify the reasonableness of transactions. It will be better if a resolution can be passed for such transactions in advance.. In particular circumstances, these credits may be treated as deemed dividend too. Therefore take reasonable care.

Pawan Periwal

Pawan Periwal (Expert)
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18 February 2011 Not at all advisable to have transaction in such a manner.

Both Individual and Compnay are two different entity.

Deposit in saving account also might HIT the AIR criteria and confirm scrutiny.

AO will treat it as capital receipt

Guest

Guest (Expert)

20 February 2011 If all the credit transactions are in cash. then it may be subject to AIR bou it can not be trated as capital receipt where source is explained. However, I am agree with Mr. Periwal that such transactions should be avoided.

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