Income Tax Appellate Tribunal - Delhi
Babu Lal Grand Sons Family Trust vs Income-Tax Officer on 17 August, 1989
Equivalent citations: [1989]31ITD52(DELHI)
ORDER
V.P. Elhence, Judicial Member
1. The assessee has filed this appeal against the order dated 6-3-1985 of the learned Commissioner of Income-tax, Agra for the assessment year 1982-83. By means of that order the learned Commissioner, acting under Section 263 of the Income-tax Act, 1961, held that the assessment order was erroneous in so far as it was prejudicial to the interests of revenue. He accordingly, set it aside and directed the Income-tax Officer to proceed with the assessment de novo from the stage of filing the return and to complete the same after proper enquiry/investigation and after giving the assessee-trust an opportunity to represent its case.
2. The assessee is M/s. Babu Lal Grand Sons Family Trust 4/440 Gali Pati Ram, Kachehri Ghat, Agra (U.P.) (Private family trust created for the benefit of grand sons). It derives income from the purchase and sale of salt on wholesale basis.
The assessment was completed by the I.T.O. for the A.Y. 1982-83 in question on 10-3-1983 under Section 143(3) after giving a notice under Section 143(2). The I.T.O. held that the shares of>the beneficiaries were specified and therefore, income in the hands of the trust was exempt. The income declared at Rs. 93,650 was therefore, accepted.
3. The learned Commissioner of Income-tax gave a notice dated 14-1-1985 to the assessee under Section 263 proposing to set aside the assessment order on the ground that it was erroneous in so far as it was prejudicial to the interests of the revenue. The notice listed the following grounds forming the basis for the action :-
(1) The assessment had been completed without proper and adequate enquiries by the I.T.O. and income had been accepted without trying to scrutinise as to how the income shown by the Trust had been earned. The returns filed had been accepted in undue haste without trying to go deeper into the case of the Trust.
(2) No enquiries were made regarding the nature of the accounts maintained by the Trust and as to how the initial contribution of Rs. 8,000 made by the Settlor had been utilised.
(3) The I.T.O. had not left any notes on the file as to why he considered the income as exempt.
(4) The I.T.O. had not bothered to find out as to what was the business or occupation in which the Trust was engaged and what are the items of sale and purchase and flpening & closing stocks.
(5) The I.T.O. did not care to find out as to why the Trust fund had been allowed to continue at Rs. 8,000 while accounts of the beneficiaries had swollen from year to year on account of business and other profits.
(6) Papers on the record did not give any indication whether income of the magnitude shown in the returns filed by the Trust had really been earned or it was merely a device for generating the bogus funds in the names of the beneficiaries.
The assessee gave a detailed reply dated 30-1-1985 to this notice. It was explained that the Trust was created by one Shri Budh Sen under a Deed of Trust dated 2-11-1978 for the benefit of all the grandsons whose shares were specified as follows :--
1. Shri Sanjiv Kumar - 20%
2. Shri Vinay Kumar - 20%
3. Shri Rajiv Kumar - 30%
4. Shri Shailendra Kumar - 30% It was pointed out that the Settlor had nominated as Trustees S/Shri Babu Lal, Sachendra Singh and Om Narain Singh. The Settlor had handed over by means of bank draft for the purposes of the Trust, a sum of Rs. 8,000. Sinde the shares of the beneficiaries were determined and ascertained, it was claimed to be a private specific trust. It was pointed out that Clause 5 of the Trust Deed empowered the trustees to carry on any business under Trust or to join as partner in any partnership firm for the purposes of carrying out any business. The Trust was to be irrevocable and no part of the Trust fund was to be applied or used for the benefit of the Settlor. The assessee explained that it had duly maintained cash book, ledger, journal ('Nakal Bahi'), purchase vouchers, bills, stock register, vouchers for expenses incurred and bank account. The accounts of the Trust were maintained on 'Diwali' year basis. It was submitted by the assessee that the notice under Section 263 was a cyclostyled one. It was claimed that the following facts showed that the assessment had been completed after proper examination of records and after considering all the material placed during the assessment proceedings :--
(1) The first previous year of the Trust fell in the A.Y. 1980-81 and the other completed assessments related to assessment years 1981-82 and 1982-83. The assessments were completed by three different Assessing Officers. There had been no change either in the constitution of the Trust or the facts relating to the business carried on by the assessee-Trust ; (2) The Trust had submitted a copy of Profit & Loss account, trading account, balance-sheet and copies of the beneficiaries accounts for all the aforesaid years along with the returns filed ; (3) In compliance to the notice issued under Section 143(2), the assessee had produced books of account, purchase vouchers, bills, bank account and stock register maintained for these years separately which were duly examined by the I.T.O. in making the assessments ; (4) The assessee dealt in the purchase and sale of salt on wholesale basis. The quantitative details were furnished and the accuracy of profits were shown and explained. Any variation in the rate of profit was duly explained with evidence ; (5) No undue haste had been shown in making the assessments which had been completed after going through the material and evidence produced properly in a manner normally a prudent man would have done in such circumstances ; (6) The constitution of the Trust was duly declared with the Bank at the time of opening bank account for and on behalf of the Trust; (7) The Trust was registered with the Sales-tax Department and in support the copy of the Sales-tax registration No. AG 21646/UP dated 17-2-1979 and the copies of the Sales-tax assessments for accounting years 1980-81 to 1982-83 were enclosed ; & (8) The assessee Trust had been registered by Labour Inspector, Agra under U.P. Shops Act.
The assessee explained that the proposed action under Section 263 was totally unwarranted and without jurisdiction. However, the learned Commissioner of Income-tax observed that the Trust deed did not specify the ages of the beneficiaries and suffered from uncertainty. He also noticed that the Trust had been created for a period of 10 years and the ages of the beneficiaries at the time of the assessment for the A.Y. 1980-81 were 14, 11, 10 and 8 years respectively and therefore, in view of Section 14 of the Transfer, of Property Act, 1908 and Section 114 of Succession Act, 1925, the tying-up of property beyond the minority of the persons to whom the Trust created belonged, was against the Rules relating to perpetuity and therefore, the Trust could be said to be forbidden by law. Apart from the above, the learned Commissioner made the following additional observations :
(1) The details regarding the total purchases & sales had neither been asked for by the I.T.O. nor filed by the assessee ; (2) The details filed in respect of loss transactions were not checked by the I.T.O. ; (3) The I.T.O. had not bothered to find out as to how and with what capital the business had been carried on and who had been the persons who managed the business on behalf of the Trust ; (4) No scrutiny had been made about the bank transactions ; (5) Whether the Trust carried on any business at all was not clear from the papers filed and the I.T.O. did not make any enquiries in these matters ; (6) The details regarding the purchasers and sellers were not on record and even complete addresses of the parties whose names appeared on the assets side of the balance-sheet, had not been given ; (7) The I.T.O. had not cared to examine whether the incomes shown to have been earned by the assessee-Trust, really belonged to it or to some other persons and the assessee-Trust was merely being used as a cover to escape the incidence of taxation ; (8) The I.T.O. had not tried to obtain the details of business activities and fund flow account for verification ; (9) The I.T.O. did not find out as to where the Trustees were having their bank accounts and what was the trade name under which the Trust was carrying on business ; (10) He noticed the following order-sheet entries :--
A.Y. 1982-83 Return under Section 139(1) received on 8/6/82.
I.T.O.
4/2/83 Issue notice under Section 143(2) for hearing on 10-3-83.
Sd/- I.T.O.
10/3/83 Shri V.S. Agarwal, Advocate, attends. Discussed for orders.
Sd/- I.T.O.
From the above entries the learned Commissioner inferred that the books of account of the assessee-Trust were not produced nor called for by the I.T.O. which could be scrutinized to check-up the correctness of the claims regarding the Trust income and its activities ; (11) no tick-marks whatsoever had been made on any of the papers filed by the assessee along with the returns ; (12) The assessment had been completed in one hearing only and had been made in a hurried manner without even requiring the presence of the settlor or the trustee ; (13) The I.T.O. had not cared to find out whether the three trustees could carry on business on behalf of the beneficiaries ; (14) He had not applied his mind as to what would have happened if the business resulted in a total loss or in creating certain liabilities ; (15) The I.T.O. had not looked into the fact whether a Trust as such could be assessed in the status of an AOP ; (16) The I.T.O. did not examine whether the Trust had been validly and legally constituted : & (17) The I.T.O. had not examined whether the Trust could be said to have offended the rule against accumulation.
So far as the objections and points raised by the assessee are concerned, the learned Commissioner held that the notice under Section 263 could not be objected to merely on the ground that it was a cyclostyled one since it gave detailed reasons as to why the proceedings under Section 263 had been considered necessary. He took the view that it was incorrect to say that books of account etc. were produced in response to notice under Section 143(2). In this connection, he observed that no notice under Section 142(1) calling for books of account was issued by the I.T.O. He also observed that information or papers regarding sales tax registration, assessment order under the Sales-tax Act and Registration of the Trust by the Labour Inspector, Agra under the U.P. Shops Act were not filed before the I.T.O. when the assessment was made. The learned Commissioner also appended to his order an annexure relating to the applicability of Section 263 from the legal point of view. In that annexure he again observed that (i) No enquiry had been made by the ITO to establish that the income as shown by the assessee-trust had in fact been earned; (ii) Some statements of account along with the return had been filed and on the basis of these, without any external enquiries or without calling anybody, the trustees, the settlor or the beneficiaries etc., the I.T.O. had accepted the returns and treated the Trust as having earned the income shown in the return; (iii) The assessment made was in the nature of an assessment under Section 143(1) against which also action under Section 263 could be taken. Therefore, holding the assessment order to be erroneous in so far as it was prejudicial to the interests of the revenue, he set it aside with the directions that the I.T.O. should proceed with the assessment de novo from the stage of filing the return and complete the same after proper enquiry/ investigation and after giving to the assessee Trust an opportunity to represent its case before him.
4. The Bench which originally heard this appeal had made a proposal to the President for the constitution of a larger Bench since several Benches of the Tribunal at Delhi had taken different views in similar matters. That is how the present Special Bench was constituted to hear this appeal under Section 255(4).
5. On behalf of the assessee a preliminary point was raised by Shri C.S. Agarwal, Advocate to the effect that the first assessment had become time-barred now and the point involved in the present appeal was only of academic interest. In this connection, he pointed out that on 18-12-1986 the Appellate Tribunal had stayed the proceedings before the I.T.O. till the pendency of the . present appeal and that in terms of the decision of the Andhra Pradesh High Court in the case of ITO v. Khalid Mehdi Khan [1977] 110 ITR 7-9 read with Section 153(2A); fresh assessment could be completed by the I.T.O. only up to 31-3-1987 i.e., before the expiry of two years from the end of the financial year in which the order under Section 263 was passed by the Commissioner. He pointed out that in terms of the aforesaid decision of Andhra Pradesh High Court, the period during which the stay granted by the Tribunal was in operation could not be excluded for the purposes of computation of limitation, since the Tribunal is not a Court. However, when the Bench told the learned counsel for the assessee that it was for the assessee itself to decide whether it wanted to proceed with the hearing of the appeal or to withdraw it and then to raise the point referred to above, before the I.T.O. if he proceeded to make assessment afresh, Shri C.S. Agarwal stated at the Bar that he would argue the appeal on merits and would no longer press the preliminary objection raised. Therefore, in view of the above, he proceeded to argue the appeal on its merits.
6. Firstly, Shri Agarwal pointed out that the first year of assessment after the execution of the Trust Deed was the A.Y. 1980-81 and the subsequent year was the A.Y. 1981-82 for which the assessments were completed under Section 143(3) on 7-8-1980 and 15-5-1982 by different Income-tax Officers but that neither to the assessee's knowledge any action had been initiated under Section 147 nor under Section 263 and that, therefore, in this background the initiation of proceedings under Section 263 for the A.Y. 1982-83 in question was not sustainable. Relying upon the following decisions, he submitted that the dectrine of lifting the veil which is applicable in respect of companies, was not applicable to Trusts :
(1) K.T. Doctor v. CIT [1980] 124 ITR 501 (Guj.); & (2) CWT v. Arvind Narottam [1988] 173 ITR 479 (SC).
Reiterating the submissions made on behalf of the assessee before the learned Commissioner of Income-tax, he submitted that the private specific trust had been duly created by the settlor by executing a valid Trust Deed in which the shares of the beneficiaries were defined. He also submitted that the I.T.O. had properly looked into the validity of the trust and had also discussed with the assessed counsel and scrutinized the books of account and necessary papers without any undue haste. He pointed out that the Trust Deed itself mentioned that the beneficiaries were minors. He refuted the observations made by the learned Commissioner in his impugned order. Regarding the nature of the power of the learned Commissioner under Section 263, reference was made by him to the decision of Punjab & Haryana High Court in the case of CIT v. Ganeshi Lal Sham Lal [1966] 61 ITR 408 and of the Hon'ble Allahabad High Court in the case of CIT v. Kashi Nath & Co. [1988] 170 ITR 28. Regarding the duties of the Commissioner acting under Section 263 reference was made by him to the decisions of the Hon'ble Punjab & Haryana High Court in the case of CIT v. R.K. Metal Works [1978] 112 ITR 445 and in the case of CIT v. Chawla Trunk House [1983] 139 ITR 182. He referred to the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Trustees of Anupam Charitable Trust [1987] 167 ITR 129/31 Taxman 335 to say that the error envisaged by Section 263, was not one which depended on possibilities or guess work but it should be actually an error either of fact or of law. He referred to a number of decisions of different Benches of the Appellate Tribunal in which similar Trusts were involved and wherein similar actions taken by the learned Commissioner of Income-tax under Section 263, had been cancelled. Particular reference was made by him to the case of Goyal Family (P.) Trust [IT Appeal Nos. 672 and 673 (Delhi) of 1985, dated 30-4-1986] disposed of by 'B' Bench of the Appellate Tribunal. He pointed out that the pattern of facts in that case was similar to that in the present case and that not only the Reference filed by the department was rejected by the Appellate Tribunal but the High Court also rejected the department's application under Section 256(2) vide its order dated 30-10-1987 in CIT v. Goyal Private Family Specific Trust [1988] 171 ITR 698 (All.) after a detailed discussion of the facts and holding that it was a question of fact. On the other hand, Shri D.C. Agarwal, the learned Departmental Representative strongly supported the order of the learned Commissioner. He referred to the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 for the proposition that colourable devices could not be part of tax planning and that it was wrong to encourage or entertain the belief that it was honourable to avoid the payment of tax by dubious methods. He also pointed out that it was up to the Court to take steps to determine the nature of the new and sophisticated legal devices to avoid tax and to .expose the devices for what they really are and refuse to give them judicial benediction. Regarding the nature of the powers of the Commissioner under Section 263 he relied upon the decision of the Supreme Court in the case of CIT v. Amrit Lal Bhogi Lal & Co. [1958] 34 ITR 130 at p. 141, as also the decision of Madhya Pradesh High Court in the case of Nandlal Bhandari & Sons v. CIT [1984] 147 ITR 710. Next, he referred to the decision of the Supreme Court in the case of CIT v. McMillan & Co. [1958] 33 ITR 182 as to what the duties of the Commissioner are under Section 33B (corresponding to Section 263 of the Income-tax Act, 1961). He also referred to the decision of the Gujarat High Court in the case of Addl. CIT v. Mukur Corporation [1978] 111 ITR 312 in this connection. Regarding the meaning of the expression "erroneous" he referred to the decision of Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 and the decision of the Hon'ble Allahabad High Court in the case of Addl. CIT v. Saraya Distillery [1978] 115 ITR 34. Regarding the meaning of the expression "prejudicial to the interests of revenue", reference was made by him to the decision of the Calcutta High Court in the case of Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.). Strongly relying upon the points mentioned in the order of the learned Commissioner for exercising the power under Section 263, he submitted that account books were not produced in this case by the assessee before the I.T.O. and the I.T.O. did not carry out any examination or scrutiny either in this year or in the preceding two years and that the assessment having been completed without any enquiry, it was actually an assessment made under Section 143(1). He submitted that the assessment had been completed in a great hurry and with undue haste. He also submitted that the notice, under Section 143(2) was given by the I.T.O. not to the assessee but to the assessee's counsel. He also referred to the decision of the Supreme Court in the case of N.V. Shanmugham & Co. v. CIT [1971] 81 ITR 310 to press the point as to when assessment could be framed in the status of AOP. He submitted that the facts in the case of Goyal Pvt. Family Specific Trust were not similar and that in any case in the case of Smt. Usha Agarwal Family Trust where the Appellate Tribunal had set aside the order of the Commissioner under Section 263, the Hon'ble Allahabad High Court had called for the Statement of the Case from the Tribunal. In this connection, reference was made by him to the decision dated 6-1-1989 of Hon'ble Allahabad High Court in the case of CIT v. Smt. Usha Agarwal Family Trust [1989] 176 ITR 392.
7. We have carefully considered the rival submissions as also the decisions referred to above. No doubt as held by the Supreme Court in the celebrated decision in the case of McDowell & Co. Ltd. (supra) it is up to the Court to take steps to determine the nature of legal devices adopted by the assessee to avoid tax and to expose them for what they really are. But at the same time as held by the Supreme Court itself in the case of Arvind Narottam (supra) where the language of the Deed of Settlement is plain and admits of no ambiguity, there is no scope for consideration of tax avoidance. In the case of K.T. Doctor (supra) what the Gujarat High Court observed was that lifting the veil to ascertain whether the business in reality and substance is the business of the Trust is not permissible in law in so far as trusts are concerned and that the concept of lifting the veil is admissible only in the case of company with a view to find out the real person behind the corporate body, namely the company. Trustees are under the legal obligation to carry out the objects of the Trust and to act in accordance with the Deed of Trust subject to the provisions of the Indian Trusts Act, 1882 and if they fail in their duties, they are accountable in their capacities as trustees. We will revert to the Deed of Trust executed in this case a little later. It is by now settled that the power of- revision by the Commissioner under Section 263 is quasi-judicial in character. He must give reasons in support of his conclusion that the assessment order is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner's order has also to indicate the material for arriving at this conclusion as held in the case of Chawla Trunk House (supra). No doubt as held by the Hon'ble Delhi High Court in the case of Gee Vee Enterprises (supra) the Commissioner can regard an assessment order as erroneous on the ground that in the circumstances of the case, he should have made further enquiries before accepting the statements made by the assessee in his return. So also, he held in the case of Saraya Distillery (supra) by the Hon'ble Allahabad High Court an order can be said to be erroneous either when it does not decide a point or record a finding on an issue which ought to have been done or decides it wrongly. However, the error envisaged by Section 263 is not one which depends on possibilities or guess work. It has to be actually an error whether of fact or of law vide decision of the Hon'ble Rajasthan High Court in the case of Trustees of Anupam Charitable Trust (supra). The words "prejudicial to the interests of revenue" have not been defined in Section 263 but undisputedly this expression means that the order of assessment should be such as is not in accordance with law, in consequence whereof, the lawful revenue due to the state has not been realised or could not be realised.
8. Section 143(3) provides that "on the date specified in the notice issued under Sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment". This language clearly suggests that the Act contemplates the passing of the assessment order on the same day which is specified in the notice under Section 143(2) or as soon afterwards as may be, i.e., expeditiously. An assessment order which is completed expeditiously is laudable being a case of action with due despatch. However, the expeditious-ness or despatch may become "undue haste" or "unholy haste", if due enquiry, investigation, study or scrutiny which the facts or the nature of the claim or assessment provoke and warrant, is not made. Therefore, the difference between "due despatch" and "undue haste" is only of the want of necessary enquiries which were warranted in the case. If due enquiries are not made, the assessment order would become erroneous even if the assessment was completed after taking a considerable time instead of being made hastily. Here we may also advert to one more factor on which considerable reliance appears to have been placed by the learned Commissioner namely, absence of tick-marks on the papers which were admittedly filed by the assessee and absence of notes on the file by the Income-tax Officer during the assessment proceedings for the assessment year in question as already referred to in the narration of facts. We may only say that it is not a sure indication about the application of mind on the part of the Income-tax Officer as practices may vary in this regard. Some Assessing Officers may tick-mark a paper or portions thereof which are not material while others may not do so even in regard to essential papers or portions thereof, even though due consideration has been bestowed by them during the assessment proceedings. The learned Commissioner was, therefore unduly influenced by the absence of notes on the file and tick-marks on the papers. 9. The first point which instantly engages our attention is that even though the first year of assessment in regard to the assessee Trust was the assessment year 1980-81, no action under Section 263 appears to have been taken then. This was also not done even in the subsequent assessment year 1981-82. We are not pointing out this fact to hold that for that reason, proceedings under Section 263 could not have been taken for the A.Y. 1982-83 in question or that there is any legal bar to such a course of action. This has been pointed out by us particularly for two reasons. Firstly in the first year of assessment, greater scrutiny would be expected or warranted and if that assessment has been accepted after scrutiny and the facts have not undergone any changes, no greater scrutiny could be called for in the subsequent year. For the A.Y. 1980-81, the return was filed by the assessee on 28-6-1980. The notice under Section 143(2) was ordered to be issued on 18-7-1980 and on 24-7-1980 the case was discussed with the Trustee Shri Om Narain Singh and assessment order was passed on 7-8-1980 by the Income-tax Officer. It states as follows:--
ASSESSMENT ORDER Return has been filed on 28th June, 1980 showing an income of Rs. 41,947 in the status of AOP (Private Family Trust). Shri M.C. Jain Advocate appeared on behalf of the trust. It has been stated that one Shri Budh Sen created a trust by settling Rs. 8,000 for the benefits of his grandsons viz., Shri Sanjeev Kumar, Shri Vinay Kumar, Shri Rajeev Kumar and Shri Shailendra Kumar. The trustees of the trust are Shri Baboo Lal and his two sons Shri Sachendra Singh & Shri Om Narain Singh. The trust carried on the business of purchase and sale of salt. It earned profit of Rs. 41,947. It has been credited in proportion to the sharing profit ratio, to the accounts of beneficiaries. The shares of the beneficiaries were:-
Shri Sanjeev Kumar - 20% Shri Vinay Kumar - 20% Shri Rajeev Kumar - 30% Shri Shailendra Kumar - 30%
Income of the trust is exempt Under Section 161 of I.T. Act, 1961. The determined share would be taxed in the hands of the beneficiaries which is as under:-
Shri Sanjeev Kumar 20% 8,389
Shri Vinay Kumar 20% 8,389
Shri Rajeev Kumar 30% 12,584
Shri Shailendra Kumar 30% 12,585
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41,947
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Assessed. Issue notice of demand accordingly.
Sd/-
(M.M. Lal)
Income-tax Officer A-Ward, Cir. I
Agra.
Dated: 7-8-80
For the subsequent assessment year 1981-82, the return was filed on 26-6-1981. On 1-5-1982 the I.T.O. ordered the issue of notice under Section 143(2) and on 15-5-1982 Shri V.S. Agrawal, advocate for the assessee appeared with the trustee Shri Om Narain Singh when the account books were produced and the case was discussed. The assessment order was passed on 15-5-1982 to the following effect: --
ASSESSMENT ORDER Return declaring an income of Rs. 53,870 has been filed. In response to notice Under Section 143(2) Shri V.S. Agarwal, Advocate along with Shri Om Narain Singh attended. Case discussed.
2. The assessee derives income from purchase and sale of salt on wholesale basis. On total sales of Rs. 7,09,452 a gross profit of Rs. 58,523 has been shown which gives a rate of 8.2%. This is against sale of Rs. 4,76,925 and gross profit of Rs. 45,393 giving a rate of 9.5% in the last year. The assessee explained fall in G.P. rate due to increase in sales and rise in purchase price which resulted into lesser margin of profit. The assessee has also attributed fall of sales carried on between November to March which gave lesser margin of profit.
Complete stock tally is available. In view of the same no interference is made. After discussion returns income of Rs. 53,870 is accepted.
2. This is case of private family trust in which the share of beneficiaries is specified. Therefore, the income is exempt in the hands of the trust and taxable in the hands of beneficiaries. Share of beneficiaries is as under:-
(1) Shri Sanjeev Kumar 20% 10,773
(2) Shri Vinay Kumar 20% 10,773
(3) Shri Rajeev Kumar 30% 16,159
(4) Shri Shailendra Kumar 30% 16,160
Assessed as above. Issue N.D.
Sd/- Joginder Singh
INCOME-TAX OFFICER, CIR. II
Dt. 15-5-82 A-WARD, AGRA
So far as the assessment year in question is concerned, the return was filed on 8-6-1982. On 4-3-1983, notice under Section 143(2) was ordered to be issued fixing 10-3-1983 for hearing. On 10-3-1983 Shri V.S. Agarwal, Advocate attended and the order-sheet entry shows that the case was discussed by the I.T.O. The assessment order was passed the same day in the following terms:-
ASSESSMENT ORDER Return filed declaring an income of Rs. 93,650. In response to notice Under Section 143(2) Shri V.S. Agarwal, adv. attended. Case discussed. This is a case of private family trust created for the benefit of beneficiaries Sanjeev Kumar, Vinay Kumar, Rajeev Kumar, Shailendra Kumar. The share of beneficiaries are specified. Therefore, income in the hands of trust is exempt. The assessee derives income from purchase and sale of salt. After discussion and scrutiny income returned is accepted. Issue N.D. share of beneficiaries is as under:-S/Shri
1. Sanjiv Kumar 20% 18,730
2. Vinay Kumar 20% 18,730
3. Rajeev Kumar 30% 28,096
4. Shailendra Kumar 30% 28,100 Sd/-
(M.N. Dikshit) Income-tax Officer, Cir. II, A-Ward Dated 10-3-1983 Agra.
This shows that income returned was accepted "after discussion and scrutiny". In the three years assessments were completed by different ITO's Under Section 143(3). We have gone through the copy of the Trust Deed dated 2-11-1978. The first proviso to clause 4 thereof clarifies the fact that the beneficiaries are minors. Their shares were also specified as already mentioned above. A sum of Rs. 8,000 was transferred by the settlor for effectuating the settlement for the purposes of the Trust. The Trust was for a period of 10 years, as mentioned in clause 4 thereof. Clause 5 enables the trustees to carry on any business in partnership in their names or in the name of any one or more trustees or through the nominee of the trust. Clause 6 declares that the Trust was irrevocable and that no part of the Trust fund shall, in any circumstances whatsoever, be paid or lent to or be applied for the benefit of the settlor without consideration and that if the trust fails or is held to be invalid for any reason, there was to be no resulting trust in favour of the settlor and the assets of the trust were to be divided in proportion mentioned in clause 4 of the Trust Deed. Therefore, prima facie there was nothing in the Trust Deed to provoke any enquiry necessitating the examination of the settlor of the Trust or the trustees or the beneficiaries thereof. The business of the trust was of purchase and sale of salt on wholesale basis. The Profit & Loss Account for the assessment year in question as also for the preceding two assessment years showed that the Trust Deed had been acted upon. The same is evidenced by the balance-sheets. The sales were progressive. The assessee had given its reply dated 10-3-1983 to the notice under Section 143(2) enclosing therewith complete details of the purchases and sales as also the details of miscellaneous expenses and 'Dalali' paid. Even if it were to be taken for the sake of argument that account books were not produced by the assessee before the I.T.O. or that they had not been asked for by the I.T.O., nothing much would turn upon it because the assessee had filed other papers and was maintaining cash book, ledger, journal ( 'Nakal Bahi'), purchase vouchers, bills, stock register, vouchers for expenses incurred and bank account which has already mentioned above, and the I.T.O. mentioned in the assessment order as having been scrutinised. Many of the points raised by the learned Commissioner in his impugned order are such which really suggest that the learned Commissioner was looking for a lot of enquiry or information on points which were not necessary in a case of the present nature like the nature of accounts maintained by the Trust. This showed as if the I.T.O. should have started with suspicion from the very beginning and should have embarked on detailed fishing enquiries in the hope of finding something questionable. May be that the I.T.O. should have written a more detailed order but for want of it, it would not become erroneous or prejudicial to the interests of the Revenue. That is why the learned Commissioner mentioned in his notice under Section 263 that the papers on record did not give any indication whether income of the magnitude shown in the return filed by the Trust had really be earned or it was merely a device for generating bogus funds in the names of the beneficiaries. Neither the papers on the record nor any other material which was before the I.T.O. or the learned Commissioner suggested such a course of enquiry nor arouse any suspicion. The learned Commissioner was not justified in expecting the details regarding purchasers and sellers or the complete addresses of the parties whose names appeared on the assets' side of the balance-sheet, to have been given. It could not be said by the learned Commissioner that the I.T.O. did not examine the question whether the assessee Trust could be assessed in the status of AOP or that the Trust had been validly and legally constituted. The learned Commissioner could not infer that the Trust in question defeated the provisions of any law relating to inheritance or succession or that it was void on this or any other account. The rule against perpetuity provided in Section 14 of the Transfer of Property Act 1908 and Section 114 of the Indian Succession Act 1925 cannot be said to have been violated as the creation of the instant trust does not fall within the description of transfers prohibited under that rule. However, we do not find any force in the submissions made on behalf of the assessee that the notice under Section 263 was a cyclostyled one and therefore bad in law. A perusal of the notice shows that it gave the basis for the initiation of the proceedings under Section 263. We are also not adverting to the sales tax assessments and the factum of registration of the assessee Trust with the Sales tax department and with the Labour Inspector, Agra under the U.P. Shops & Commercial Establishment Act, as these papers do not appear to have formed part of the record of the I.T.O. at the relevant time. In view of the foregoing facts, we are of the view that this was not a case in regard to which it could be said that the assessment had been completed by the I.T.O. with undue or unholy haste without due enquiries as were provoked or warranted by the facts appearing from the return or the record. This is not a case as was the case before the Madhya Pradesh High Court in Nand Lal Bhandari & Sons case (supra) where the I.T.O. had not specifically stated that he had looked into the matter. The learned Departmental Representative is not right in saying that the assessment was in fact one framed under Section 143(1). In the case of Goyal (P.) Family Specific Trust (supra) the facts were very much similar to the facts of the present case. There, the assessee, a private trust, filed its returns and the I.T.O. assessed the beneficiaries of the trust and held that the trust was not assessable. That trust was created with a corpus of Rs. 500 for the benefit of beneficiaries and incomes of Rs. 39,540 and Rs. 38,420 were declared for the assessment years 1979-80 and 1980-81. The I.T.O. had completed the assessments for both the assessment years on a single day namely, 25-11-1982 after issuing notices under Section 143(2). The following was the assessment order recorded in that case :--
Return filed declaring an income of Rs. 39,540. In response to a notice under Section 143(2), Shri D.K. Agarwal, CA, attended. Case discussed. This is a case of Private Family Specific Trust, in which shares of beneficiaries are specified. Therefore, income in the hands of the trust is exempt and taxable in the hands of beneficiaries. The trust has been created, vide trust deed dated January 24, 1973, a copy of which has been filed and placed on record, for the benefit of beneficiaries, Km. Mira Agarwal, Km. Usha Agarwal, Km. Rekha Agarwal and Master Kapil Agarwal. After discussion and scrutiny, income returned is accepted. Share of each beneficiary comes to Rs. 9,890. Assessed. Issue N.D. As is clear, there also the I.T.O. wrote "after discussion and scrutiny". The Tribunal had set aside the order of the Commissioner holding that the I.T.O. had examined the matter. No doubt in that case the Tribunal found that the necessary books of account had been produced whereas in the present case, no such categoric finding can be given in the absence of the material on the record. But as already discussed above, the production of the books of account was not necessary as all other papers had been scrutinised by the I.T.O. and the case was discussed. The Hon'ble Allahabad High Court, after a detailed discussion on the facts, declined to call for the Statement of the Case from the Tribunal under Section 256(2). As against this, no doubt in the case of Smt. Usha Agarwal family Trust (supra) by a very brief order the Statement of the Case was called for from the Tribunal under Section 256(2) but it is not possible to say anything in the absence of detailed facts of that case. The fact that in that case the Hon'ble High Court called for the Statement of the Case from the Tribunal, therefore, docs not help the department and moreover that Reference still remains to be answered by the Hon'ble High Court. Before parting, we may also refer to the decision dated 24-10-1986 of Delhi Bench 'D' of the Tribunal in the case of Mahendra Garg (P.) Family Specific Trust v. ITO [1987] 20 ITD 392 to which one of us was a party. The pattern of facts in that case was slightly different. The Tribunal had found that the assessee had not been able to establish that material/details as mentioned in the Commissioner's order under Section 263 had been furnished before the I.T.O., before he completed the assessment and had also failed to furnish reply to the show cause notice issued by the Commissioner under Section 263. The Tribunal had itself observed that "the facts in that case were significantly distinguishable from other cases where a contrary view had been taken". Therefore, that order would not come in the way of the assessee in the present case. The Tribunal had taken a similar view as we are taking in the cases of Shri Gauri Shanker Pvt. Family Trust, Agra; M/s. Mukund Family Trust, Agra; M/s. Gyanendra Agarwal Pvt. Trust, Agra; Shri Krishan Goyal Pvt. Trust, Ferozabad; M/s. Mahendra Agarwal Trust, Agra; M/s. Gopi Chand Kcswani P. Family Trust; Hakim Chand Gudri Mansoor, Agra; M/s. Dinesh Kumar Agarwal Pvt. Family Specific Trust, Agra; M/s. Shanti Devi Family Trust, Agra; M/s. Sanjiv Mittal Trust; and Shri Shital Prasad Jain Pvt. Specific Trust, Agra. In view of what has been discussed above, the learned Commissioner was not justified in initiating action on the basis of mere guess work, possibilities or suspicion under Section 263 in expecting the I.T.O. to have made fishing or roving enquiries even though they were not warranted or provoked by facts and then in persisting with suspicion and cancelling the assessment order which could not be said to be erroneous or prejudicial to the interests of the revenue. We, therefore, cancel the order of the learned Commissioner.
10. In the result, the appeal filed by the assessee is allowed.