Income Tax Appellate Tribunal - Mumbai
Master Farzan Fouzdar, Mumbai vs Ito 14(1)(4), Mumbai on 12 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " A" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI N.K. PRADHAN, AM
IT A No.2689/Mum/2011
(A.Y:2006-07)
IT A No.2686/Mum/2011
(A.Y:2007-08)
IT A No.5388/Mum/2011
(A.Y:2008-09)
IT A No.4510/Mum/2016
(A.Y:2011-12)
IT A No.2688/Mum/2011
(A.Y:2007-08)
IT A No.5387/Mum/2011
(A.Y:2008-09)
Master Farzan Fouzdar Income Tax Officer
Master Anosh Fouzdar 14(1)(4)
C/o. Kalyaniwalla & Mistry, Earnest House, Mumbai
Army & Navy Building, 3rd Floor,
Vs.
148, M.G. Road, Fort,
Mumbai-400 001
PAN No. AAJPF8329G
PAN No. AAJPF8330P
Appellant .. Respondent
Assessee by .. Ms. Aarti Sathe, AR
Revenue by .. Shri Purushottam Kashyap,
DR
Date of hearing .. 07-06-2017
Date of pronouncement .. 12-07-2017
ORDER
PER BENCH, JM:
These six appeals by the assessee are arising out of the different orders of CIT(A)-25, CIT(A)-29, Mumbai, in appeal No. CIT(A)-25/IT- 291/14(1)(4)/08-09, CIT(A)-25/IT-140, 141, 577 & 578/14(1)/09-10 & 10- 11, CIT(A)-29/IT-196/ITO-18(1)(4)/14-15 dated 19-01-2011, 19-04-2011, 28-03-2016. The Assessments were framed by ITO Ward-14(1)(4), DCIT Circle-14(1), ACIT Circle-14(1), ITO Ward 14(1)(4) Mumbai for the A.Ys. 2006-07, 2007-08, 2008-09, 2011-12 vide order dated 22-12-2008, Nil,14-09-2010,17-10-2013,30-10-2009, 24-09-2010 u/s 143(3)(ii) of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The only common issue in this six appeals of assessee is as regards to the order of CIT(A) in dismissing the appeal even though there is no valid charge to tax on the above referred assessees, who are minor. For this, in these six appeal, the common and identical worded grounds are raised and the grounds as raised in ITA No.2689/Mum/2011 for the AY 2006-07 in the case of Master Farzan Fouzdar, reads as under: -
"1. The learned Commissioner of Income tax (Appeals) erred in dismissing the appeal filed by the appellant.
2. Both the lower authorities erred in holding that there was a valid charge to tax and. consequently further holding that tax was payable by the appellant.
3. The learned Commissioner of Income tax (Appeals) erred in relying on sections 159, 160 and 161 of the Income Tax Act, 1961.
4. The learned Commissioner of Income tax (Appeals) erred in ignoring the following decisions cited by the appellant:
a) Set Satellite (Singapore) Pte Ltd. v.
DDI - 307 ITR 205.
b) Maynak Poddar (HUF) v. WTD - 262 ITR 633 (Cal) Page 2 of 14
c) Nirmala L. Mehta vs. CIT - 269 ITR 1 (Bom.)
d) R.P. Sarathy v. JCIT - 5 SOT 731 (Chennai)
5. Having regard to the facts and circumstances of the case, and the provisions of law, the Appellant submits that the Assessing Officer be directed to refrain from taxing the appellant, and to consequently refund the tax already paid."
3. Brief facts relating to the above issue are that the assessee had filed return of income for instant assessment year declaring total income of Rs.14,58,900/-. In this case return of income is filed by Legal guardian of minor Farzan Fouzdar for the reason that assessee is minor and received income on behalf of his parents namely Kersey E. Fouzdar and Ketayan K. Fouzdar who were died during Tsunami tragedy in Sri Lanka on 16.12.2004. The Hon'ble High Court of Bombay had appointed Mr. Percy Fouzdar as legal guardian of minor Farzan Fouzdar and Anosh Fouzdar. The legal guardian had appointed Mr. Dehran M. Wadia as C.A. on behalf of the minor. As per assessment order total income of the assessee was determined at Rs.14,58,900/- after discussion with the representative of the assessee. Thus it is clear that no addition is made by the AO. However, in appeal before CIT(A) the assessee had challenged taxation of income disclosed in computation of income enclosed with return of income filed by the assessee for the reason that there is no valid charge on the income of the minor because both the parents of the minor have died and law requires clubbing of minor's income with that of the income of the parents. The CIT(A) after relying on the provision of section 160 and 161 of the Act and also holding that as per section 159 of the Act, Hon'ble Bombay High Court by virtue of its order dated 05-05-2005 in Guardianship Petition Nos. 71, 79 and 85 of Page 3 of 14 2005 has appointed legal representative of the deceased parents of the minors as well as minors, confirmed the action of the AO in treating the income as chargeable to tax. Similar are the orders passed by CIT(A) and as well as by AO in other minors and other assessment years. Aggrieved, against the orders of CIT(A), the legal representative of the assessee came in second appeal before Tribunal.
Before us, the learned Counsel for the assessee Miss Aarthi Sathe relied on the order of ITAT Chennai Bench in the case of R.P. Sarathy vs. JCIT (2006) 5 SOT 731 (Chennai), whereas the learned Sr. DR Shri Purushottam Kashyap on the other hand, relied on the decision of another order of Chennai Bench in the case of ACIT vs. M. Pranuthi in ITA No. 1120 to 1125/Mds/2010 for the AYs. 2003-04 to 2008-09, wherein Tribunal has considered the provisions of section 161(1) (ii) and
(iii) of the Act. We find that the Chennai Bench in the case of M. Pranuthi has discussed the order of RP Sarathy (supra) and noted that as per the provision of section 161(1) (ii) and (iii) of the Act, the assessee in the case of R.P Sarathy (supra) was not represented in term of this provisions and hence, the minors' income cannot be assessed. He argued that in the present case, before us Hon'ble Bombay High Court in Guardianship Petition No. 71, 79 and 85 of 2005 vide order dated 05-05- 2005 has accepted the terms of consent placed before it. In view of these, the learned Sr. DR stated that the provisions of section 161(1)(ii)&(iii) of the Act are very clear that in respect to income which the legal representative received on behalf of minors, he will be assessed as representative assessee. The learned Counsel Ms. Aarti Sathe argued that in term of section 64(1A) of the Act and in the given fact of the case that both the parents are not surviving, the clubbing cannot be done in the hands of another person other than parents. According to her, the charging section 4 of the Act fails here.
4. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that return of income is filed by Legal guardian of minor Farzan Fouzdar for Page 4 of 14 the reason that assessee is minor and received income from estate left by his parents namely Kersey E. Fouzdar and Ketayan K. Fouzdar who were died during Tsunami tragedy in Sri Lanka on 16.12.2004. The Hon'ble High Court of Bombay had appointed Mr. Percy Fouzdar as legal guardian of minor Farzan Fouzdar and Anosh Fouzdar. As per the terms of consent the legal representative has undertaken to file the returns of income of these minors vide clause 15 and 16 reads as under: -
"15. Percy Fouzdar. further undertakes to have the entire accounts prepared and audited yearly by MIs. Kalyaniwalla & Mistry, Chartered Accountants and shall furnish such audited accounts to the Accounts Officer and a copy thereof to Mehernosh Behramkamdin within four weeks thereafter.
16. Percy Fouzdar fUrther undertakes to file returns of Income Tax, Wealth Tax and other applicable taxes as per the prevailing provisions of law in his capacity as guardian of the properties of the two minors and for that purpose shall engage the services of MIs. Kalyaniwalla & Mistry, Chartered Accountants. Copies of each of the returns relating to taxes that may be filed, shall be forwarded to Mehernosh Behramkamdin within four weeks of filing thereof."
Further, the legal guardian received income and deposited the same in minors bank accounts in term of clause 7 of consent terms approved by the Hon'ble Bombay High Court and the relevant reads as under: -
"7. Percy Fouzdar shall open two bank accounts In a nationalised bank in the names of Page 5 of 14 the two minors Anosh and Farzan (hereinafter called Nhe minors' bank accounts") in his capacity as guardian of the said properties. Percy Fouzdar shall deposit the amounts collected pursuant to the abovementioned clauses in the minors' bank accounts and is permitted to invest/reinvest the, same only in "public securities" as defined in The Bombay Public Trusts Act, 1950. Percy Fouzdar undertakes that all accounts/investments shall be made by him In the name of the minors If that is possible, or if not then in his name as guardian of the properties by and on behalf of the two minors aforesaid and the name of no other person will be added thereto. All income and accretion from such investments will also be credited to the minors' bank accounts."
We find that in the present case, the minors are represented by Percy Erach Fouzdar who is appointed as per consent terms filed before Hon'ble Bombay High Curt, wherein clearly undertakes to file the returns of income of the minors and pay applicable taxes as per prevailing tax law in his capacity as Guardian of these two minors. The assessee being a legal representative as guardian in term of section 161 (1)(ii) and (iii) of the Act duly appointed by Hon'ble Bombay High Court is liable to pay tax on behalf of these minors from the income arising out the estate or income of the properties. There is distinguishing fact in the case of RP Sarathy Chennai Bench (supra) and M. Pranuthi (supra), from the facts of the present case, that there is no legal representative or guardian appointed in term of section 161 (1) (ii) and (iii) of the Act.
5. The Tribunal in the case of M. Pranuthi (supra) has dealt with this issue vide para 3 and 4 and under: -
Page 6 of 14"3. We have gone through all the provisions including the precedents relied upon by both the parties. The Scheme of the Act is that after assessment year 1992-93, a newly inserted provision 64(IA) was made operative which came into effect only after assessment year 1992-93. Upto assessment year 1992-93, minor was assessable to tax in his own hands but after section 64(1A) was brought on statute, minor is no longer assessable to tax in her individual capacity. There is no other charging provision in the Act in this regard. It is true that in earlier years, when Tribunal order was rendered, the income of the minor was clubbed with the income of grandfather. The grandfather is not included in the definition of 'parent' in so far as Income-tax Act, 1961 is concerned. In this way, it was argued that when the Tribunal has not really considered the provisions of section 160(1)(ii) while rendering the above mentioned decisions, it would not be treated as a decision on this subject to be a precedent of the Co-ordinate Bench on the issue, on the basis of the Hon'ble Madras High Court's decision rendered in the case of CIT vs Hi Tech Arai Ltd, 321 ITR 477. We are in agreement with the ld.DR to that extent. The only grudge of the Department is that according to it, the provisions of section 160(1)(ii) were not considered in its correct perspective and these are relevant in the years under consideration. The provisions of section 160(1)of the Act are being extracted herein below for ready reference:
Representative assessee.28 160. (1) For the purposes of this Act, "representative assessee"
means-- (i) in respect of the income of a non-
resident specified in 29[***] sub-section (1) of Page 7 of 14 section 9, the agent of the non-resident, including a person who is treated as an agent under section 163; (ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot; (iii) in respect of income which the Court of Wards, the Administrator-
General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager; (iv) in respect of income which a trustee30 appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf30 deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees; 31[(v) in respect of income which a trustee appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees.
4. A plain reading of the above provision, clearly evinces that they relate to 'representative assessee'. Section 160 defines as to who is a 'representative assessee'. As per ld. DR this case may fall under section.160(1)(ii) where under a 'representative assessee' in respect of the income of a minor and other, the 'guardians' or 'manager', who is entitled to receive or is in receipt of such income on behalf of such minor etc. The other inclusive definition of 'representative assessee' has been given in sub Page 8 of 14 clause(iii) of sub-section (1) of section 160 in respect of income which the Court of Wards, the Administrator General, the Official Trustee are any receiver or manager including any person, whatever his designation, who in fact manages property on behalf of another appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator General, Official Trustee, receiver or manager, is a 'representative assessee'. Per contra, the ld. AR has vehemently refuted the above contentions of ld. DR. He has stated that neither sub-clause (ii) nor (iii) of sec.160(1) would apply because the 'grandfather' of the minor does not fit in the definition of representative-assessee given therein. We have given our anxious and thoughtful consideration to the entire gamut of facts in the light of the relevant provisions and the precedents. We have also treaded through the allied enactments like the General Clauses Act, the Indian Contract Act and the Guardianship and Wards act. But we are unable to accept the contention of the ld. DR. The reasons for our above epilogue is that no Court Guardian, Administrator General or Official Trustee or any Receiver or Manager has been appointed by or under any order of a Court to receive income or is entitled to receive income on behalf, or for the benefit of the minor in question. A copy of 'Succession Certificate' issued by a Civil Court has been filed in support of his contention by ld. DR. But we are afraid that this document would fructify in support rather it would go against the line taken by the Revenue. In the petition filed by the minor to get a 'Succession Certificate' her grandfather has been made only 'a next friend' to Page 9 of 14 file the petition. In fact, after the death of her parents and grandmother, it became imperative to decide as to who would succeed the estate of the deceased persons who had died intestate. Under Civil Law a minor is prohibited from filing a suit directly but he can do so through his/her 'natural guardian' or 'next friend'. Since grandfather was not considered as natural guardian, he has pursued the suit as minor's representative being her next friend. As per the copie (s) of 'Succession Certificate' produced before us, Shri R.P. Sarathy has neither received nor is entitled to receive any property/income on behalf of the minor M. Pranuthi alias M. Mahalakshmi and whatever has been received by the minor in her own capacity and whatever has been received in succession from the estate of the deceased has been received by the minor in her own capacity.
Thus, it cannot be said that Shri R.P.Sarathy is either the guardian as has been stipulated in the provisions stated above nor he is manager or Administrative General as the case may be and hence the provisions of section 160(1)(ii) or (iii) will not at all apply. We can understand the concern of the ld. DR that it sounds strange when any income goes untaxed. We also share the concern of ld. D.R. But we are bound by the explicit provisions of the Fiscal Law wherein we cannot supply implicit meanings to an express provision. We cannot add to or subtract from any provision in the Act and the Statute has to be considered in its plain and ordinary meaning. As far as the decisions of the Hon'ble Madras High Court in the cases of G.K. Ravi vs CIT, 235 ITR 208 and CIT vs Hi Tech Arai Ltd, 325 ITR 477, on which the ld. DR has relied are concerned, they were rendered prior to amendment Page 10 of 14 and relate to provisions when minor was assessable in her individual capacity i.e prior to insertion of section 160(1)(ii) of the Act on the Statute book. We cannot agree with the ld.DR that these decisions laid down any general principle and would also apply to amended provisions. The simple reason for that being that when no longer there is any provision to assess a minor in his individual capacity, the entire heart and soul of the provision has changed and the principle, if any, laid down by the Hon'ble Court in relation to repealed sections therein would not be relevant for the present scenario. Hence, we hold that the income of this minor cannot be assessed in the hands of alleged representative assessee, at all, under the existing law, as conditions laid in section 160(1)(ii) & (iii) are not satisfied. Accordingly, respectfully following the Tribunal orders in question as well as in view of our foregoing observation on the provisions of section 160(1)(ii)/(iii) of the Act, we cannot allow these appeals of the Revenue. Accordingly, all the appeals of the Revenue stand dismissed."
6. We have gone through the provisions of section 4 of the Act, which is a charging section. The liability to income tax under charging section 4 is in accordance with and subject to the provision of the Income Tax Act. Under the scheme of the Act immediately after the receipt of income by the assessee, the assessee is subjected to an Income Tax levy and provision of Income Tax are attracted the moment income received. The charge of income tax is on every person and thus the definition of the expression 'person' occurring in section 2(31) of the Act is a very crucial definition because it is with reference to the categories of entities specified in section 2(31) of the Act that the liability to tax under the Act is determined. If a person is not capable of being considered as a person within the meaning of this section, then no liability attaches. It means that Page 11 of 14 when section 4(1) of the Act speaks of levy of income tax on total income on every person, it necessary means the person who is liable to pay income tax in respect of that total income according to law. The tax has to be levied on that person, whether an individual, HUF, Company, Firm, AOP/ BOI, a local authority or an artificial juridical person. In the present case before us the assessee is a minor and his income is to be clubbed with either of the parents in term of section 64 (1A) of the Act but both the parents expired on 16-12-2004. In such situation the Act has defined representative assessee for the purposes of minor and where a guardian is appointed according to law. In the present case before us, Hon'ble Bombay High Court has appointed by consent decree in Guardianship Petition No. 71, 79 and 85 of 2005 dated 05-05-2005 Shri Percy Erach Fouzdar as legal guardian of these two minors namely Anosh Kersi Fouzdar and Farzan Kersi Fouzdar. As per the provisions of section 160 (1) (ii) and (iii) of the Act, Shri Percy Erach Fouzdar is deemed to be an assessee for the purpose of this act representing these two minors. The relevant provisions of Section 160 (1) (ii) and (iii) of the Act reads as under: -
" Representative assessee.
160. (1) For the purposes of this Act, "representative assessee" means--
(i) ......................
(ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot;
(iii) in respect of income which the Court of Wards, the Administrator- General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under Page 12 of 14 any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager;
..................................................
(2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act."
In view of the above provisions of section 160(1)(ii) of the Act constitutes the guardian or manager of the minor as a representative assessee, if such guardian or manager is entitled to receive or is in receipt of, any income on behalf of such minor and the representative character of such guardian extends only in respect of such income which he is entitled to receive or is in the receipt of. In the present case, in term of consent terms accepted by Hon'ble Bombay High Court vide clause 7 (as reproduced above) clearly Shri Percy Fouzdar is in receipt of all incomes on behalf of these two minors and vide clause 15 and 16 (as reproduced above) of the consent terms clearly defines the liability of the representative assessee and representative assessee in this case is Shri Percy Fouzdar. Further, section 161(1) of the Act declared that every representative assessee, as regard the income in respect of which he is representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income. Any such assessment shall be deemed to be made upon him in his representative capacity only. In such a case, tax can be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. A representative assessee may not in such capacity and in respect of income receive by him as a representative assessee, be assessed under any provision of the Act other than Chapter XV as mandated in section 161(2) of the Act.
Page 13 of 14If, however, such representative assessee has his own individual income he is to be separately assessed therefore in his individual assessment.
7. In the cases cited by the learned Counsel for the assessee of Shri RP Sarathy (supra) and of M Pranathi (supra), the facts were entirely different because there was no representative assessee in term of section 160(1) (ii) of the Act as is in the present case there is representative assessee in the name of Shri Percy Fouzdar. Even assessment is completed in term of return filed by Mr. Percy E Fouzdar, as legal guardian as the assessee. According to us, the minors are to be assessed to tax through representative assessee Mr. Percy E Fouzdar in term of section 160(1)(ii) of the Act and Mr. Percy E Fouzdar has rightly being assessed by the AO in term of section 160(1)(ii) read with section 161(1) of the Act. We confirm the orders of the lower authorities and dismiss these appeals of assessees.
8. In the result, appeals of assessees are dismissed.
Order pronounced in the open court on 12-07-2017.
Sd/- Sd/-
(N.K. PRADHAN) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 12-07-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A),
Mumbai.
4. CIT
5. DR, ITAT, //True Copy//
Mumbai BY ORDER,
6. Guard file.
Assistant Registrar
ITAT, MUMBAI
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