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ITR/1/1998 13/ 13 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
INCOME
TAX REFERENCE No. 1 of 1998
WITH
INCOME
TAX REFERENCE No. 2 of 1998
INCOME
TAX REFERENCE No. 3 of 1998
INCOME
TAX REFERENCE No. 4 of 1998
INCOME
TAX REFERENCE No. 5 of 1998
INCOME
TAX REFERENCE No. 7 of 1998
INCOME
TAX REFERENCE No. 9 of 1998
INCOME
TAX REFERENCE No. 12 of 1998
INCOME
TAX REFERENCE No. 13 of 1998
For
Approval and Signature:
HONOURABLE
MR.JUSTICE K.A.PUJ Sd/-
HONOURABLE
MR.JUSTICE RAJESH H.SHUKLA Sd/-
====================================
1.
Whether
Reporters of Local Papers may be allowed to see the judgment ?
YES
2.
To
be referred to the Reporter or not ?
NO
3.
Whether
their Lordships wish to see the fair copy of the judgment ?
NO
4.
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
NO
5.
Whether
it is to be circulated to the civil judge ?
NO
====================================
THE
C.I.T. – Applicant
Versus
SANTOKBEN
KANJIBHAI PATEL – Respondent
====================================
Appearance
:
MR
MANISH R BHATT, Sr. Standing Counsel for Applicant.
MR SN
SOPARKAR, SENIOR ADVOCATE WITH MRS SWATI SOPARKAR for
Respondent.
====================================
CORAM
:
HONOURABLE
MR.JUSTICE K.A.PUJ
and
HONOURABLE
MR.JUSTICE RAJESH H.SHUKLA
Date
: 23/09/2008
COMMON CAV JUDGMENT
(Per
: HONOURABLE MR.JUSTICE K.A.PUJ)
The
Income-tax Appellate Tribunal, Ahmedabad Bench A, Ahmedabad has
referred to the following question of law for the opinion of this
Court, under Section 256 (1) of the Income-tax Act, 1956 (for short
‘Act’) for A.Y. 1981 ? 82 in all the reference applications filed
by the revenue, which gave rise to the present Income-tax
references. Since identical question is involved in all the
Income-tax references, for the sake of convenience, the question is
reproduced from I.T.R. No. 01 of 1998 and facts are also taken from
the said reference. The question is as under :-
Whether
the Appellate Tribunal is right in law and on facts in holding that
share income of the assessee as a beneficiary from M/s. Bharat Trust
/ Navbharat Trust, Norma Trust should be assessed on substantive
basis ?
The
respondent in all these references are beneficiaries of main Trust,
namely, M/s. Bharat Trust and M/s. Navbharat Trust. The assessees
declared beneficial income in the returns filed as per allocation
received from the main Trust. The Assessing Officer in the
identical assessment orders passed in the cases of all the present
assesseees noted that income as declared in the hands of the main
Trust has been taxed at the maximum marginal rate and accordingly,
without prejudice to the assessments made in the cases of main
Trust, he made the assessments in the present cases of beneficiaries
on the returned income on protective basis.
On
appeal, first Appellate Authority found that appeals in the cases of
main Trust came up before him for A.Y. 1981 ? 82 for consideration
and in his appellate order, he held that since the beneficiaries as
well as their share in the main Trust were known and specified in
the Trust Deed, the provisions of Section 164 were not applicable
and accordingly, he directed the Assessing Officer to assess the
income of the main Trust in the hands of the beneficiaries on
substantive basis at an appropriate rate and as a consequence, the
first Appellate Authority directed the Assessing Officer to assess
the present beneficiaries on substantive basis.
Before
the Tribunal, it was pointed out that the appeals in the cases of
main Trust i.e. Bharat Trust and Navbharat Trust have since been
decided by the Tribunal in their orders for A.Y. 1981 ? 82 and the
Tribunal came to the conclusion that all the beneficiaries of the
said Trusts were known and their shares were determinate and the
income of the Trust has to be computed and apportioned in terms of
the provisions of Section 161 (1) of the Income-tax Act, 1961 and
their income cannot be subjected or brought to tax at the maximum
marginal rate under Section 164 (1) of the Act. It has, therefore,
been contended on behalf of the assessee that the income of the main
Trust having been allocated amongst the beneficiaries as per Section
161 (1) of the Act, income received in the hands of the
beneficiaries deserve to be assessed on substantive basis. In this
view of the matter, the Tribunal upheld the order of the first
Appellate Authority in the cases of the beneficiaries involved.
Since
the reference has been made in the cases of the main Trust i.e.
Bharat Trust and Navbharat Trust to this Court at the instance of
the revenue separately, the Tribunal had made references to this
Court in the cases of beneficiaries also so as to maintain
consistency.
During
the pendency of these references, the main Trust had settled the
dispute under Kar Vivad Samadhan Scheme (KVSS). It was the
department’s case that income belongs to the main Trusts and not to
the beneficiaries and especially for this reason, incomes were
assessed substantively in the case of main Trusts and protectively
assessed in the case of beneficiaries. When main Trusts settled the
dispute under KVSS and paid due taxes, that was the end of the
dispute between the department and main Trusts. The assessments on
the taxability of income in the case of main Trusts were made on
substantive basis and hence, the protective assessments made in
other cases including beneficiaries of same Trust should be deleted.
This
question arose before the Court earlier while dealing with Tax
Appeal Nos.188 of 2001 to 228 of 2001 and this Court vide its order
dated 30.07.2001 dismissed all the tax appeals filed by the revenue
holding therein that no question of law, much less a substantial
question of law, arose in the said appeals. It is a settled
principle that one particular income cannot be taxed in the hands of
different assessees. The Court observed that since such income has
been substantively assessed in the hands of the main Trust, the same
income cannot be again assessed in the hands of the beneficiary.
However, another Division Bench of this Court wherein one of us (K.
A. Puj, J.) was a party did not agree with the view taken by the
earlier Division Bench and admitted Special Civil Application No.
7110 of 2002 with Special Civil Application No.7244 to 7257 of 2002
on 14.08.2002 and passed an order that having regard to the order
dated 30.07.2001 passed by another Division Bench of this Court in
Tax Appeal Nos.188 to 228 of 2001, with which the subsequent
Division Bench was not inclined to agree, the petitions were ordered
to be listed before a larger Bench after obtaining appropriate
orders of the Hon’ble Chief Justice.
Pursuant
to the said order, Full Bench was constituted and vide its order
dated 17.09.2003, the Full Bench took the view that the appropriate
course appeared to be that the petitioners may approach the Tribunal
by way of application for refusing and/or modifying the orders of
the Tribunal, raising new contentions on the basis of the material
which they could not earlier bring on the record of the Tribunal in
all these matters.
In
the meantime, each one of beneficiaries of the main Trust have moved
an application before the Assessing Officer claiming refund of the
amount paid and the said applications were allowed by the Assessing
Officer. The Commissioner of Income-tax took up the said
proceedings under Section 263 (1) and vide his order dated
12.03.2003, the orders passed by the Assessing Officer under
Sections 154 (1), 154 (2) of the Act on 22.08.2000 were held to be
erroneous and prejudicial to the interest of revenue. The said
orders were cancelled and the Assessing Officer was directed to
recompute the income and withdraw the refund along with the interest
paid thereon with reference to such income.
These
orders passed under Section 263 were challenged before the
Income-tax Appellate Tribunal and the Tribunal had quashed and set
aside the said orders. The Tribunal held that the orders passed by
the Assessing Officer were not erroneous but on the other hand, were
just and proper. Since there was no error in the orders of the
Assessing Officer, the Commissioner of Income-tax had no
jurisdiction to invoke Section 263 and pass the revisional orders
contested therein.
Being
aggrieved by the said order of the Tribunal, the revenue has filed
Tax Appeals before this Court and all the tax appeals were disposed
of by this Court on 26.06.2008. From amongst these tax appeals, the
assessees of the present references are also covered. A detailed
chart showing the name of the assessee, assessment year, ITR number,
name of the main Trust and corresponding Tax Appeal number is
furnished during the course of hearing of these references. The
same is as under :-
Sr. No.
Name
Asst.
Year
ITR No.
Name of Main Trust
High
Court Tax Appeal No.
01.
Santokben
Kanjibhai Patel.
81-82
1
of 1998
Navbharat
Trust
1659
of 2006.
02.
Khodidas
Vandas Pateel OSDFT
81-82
2
of 1998
Bharat
Trust
1757
of 2006.
03.
Shantaben
Karshanbhai Patel
81-82
3
of 1998
Bharat
Trust
1599
of 2006
04.
Ramesh
Udaykumar Baraiya
81-82
4
of 1998
Norma
Trust
614
of 2007
05.
Ratanben
Hargovandas Patel OSDFT
81-82
5
of 1998
Navbharat
Trust
1630
of 2006
06.
Jamnaben
U. Baraiya
81-82
7
of 1998
Bharat
Trust
597
of 2007
07.
Hitesh
Joitaram ODFT
81-82
9
of 1998
Navbharat
Trust
1794
of 2006
08.
Manjulaben
P. Patel
81-82
12
of 1998
Bharat
Trust
1638
of 2006
09.
Jamnaben
U. Baraiya OSDFT
81-82
13
of 1998
Bharat
Trust
596
of 2007
In
the above view of the matter, it was ocntended on behalf of the
respondent ? assessee that the issue is squarely covered by the
earlier decision of this Court and hence, this Court should dispose
of the present references by holding that since the income has
already been taxed in the hands of the main Trust and taxes have
also been paid by the main Trust, the income taxed in the hands of
the beneficiaries ? originally on protective basis should be
deleted and to that extent, the present references are to be allowed
by holding that the Tribunal was not right in law and on facts in
holding that share income of the assessee as a beneficiary from
M/s. Bharat Trust and Navbharat Trust should be assessed on
substantive basis.
As
against the submission of the respondent ? assessee, it was
contended on behalf of the revenue that simply because the main
Trusts have settled their dispute under KVSS, it does not become
automatically the income of the main Trust. The orders passed by
the first Appellate Authority and the Tribunal directing to assess
the income in the hands of the beneficiaries on substantive basis is
just and proper. By taking advantage under KVSS and by paying the
tax at a lesser amount, the group as a whole has taken the refund of
Crores of Rupees which cannot be permitted in law. Submission is,
therefore, made that the reference may be decided accordingly.
A
contention is also urged before the Court that if this Court cannot
take a contrary view than the view taken by the earlier Bench, the
matter may be referred to the larger Bench.
Once
we have thought to accept this alternative contention of the revenue
and to refer the matter to the larger Bench, since we have our own
reservations. However, in view of the fact that the revenue is
contemplating to challenge the judgment and order passed by the
earlier Division Bench before the Hon’ble Supreme Court, on receipt
of the certified copy of the said judgment and order, no useful
purpose would be served in referring these matters to the larger
Bench. Hence, with a view to maintain judicial propriety and since
earlier Division Bench has already taken a view that once an income
is finally assessed in the hands of main Trusts and taxes are
accordingly paid, though under KVSS, the same income cannot be now
taxed either protectively or otherwise, we follow the said decision,
in view of the fact that the revenue is going to challenge the said
judgment and order of the earlier Division Bench of this Court
before the Hon’ble Supreme Court. Though various authorities were
cited before us by the learned Counsels appearing for both sides,
since the same were cited before the earlier Division Bench and were
duly considered, we deem it fit not to repeat the same here in this
judgment. We, accordingly, answer the question referred to in all
these references in negative i.e. in favour of the revenue and
against the assessee and hold that the Appellate Tribunal was not
right in law and on facts in holding that share income of the
assessee as a beneficiary from M/s. Bharat Trust / Navbharat Trust,
Norma Trust should be assessed on substantive basis.
All
these references are accordingly disposed off without any order as
to costs.
Sd/-
[K. A. PUJ, J.]
Sd/-
[RAJESH H. SHUKLA,
J.]
Savariya
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