Income Tax Appellate Tribunal - Delhi
Ito vs Kedar Nath Bishan Lai on 17 August, 2007
ORDER
1. These appeals are filed by the revenue and the cross objections are filed by the assessee. They are all directed against the consolidated order of the Commissioner (Appeals) dated 15-12-2005 pertaining to the assessment years 1991-92 to 2000-2001.
2. The grounds of appeals raised by the revenue in all these appeals a reidentical except the difference in figures. The grounds of appeal as raised for the assessment year 1991-92 is reproduced below:
1. That the learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 2,99,871 made by the assessing officer to the income of assessee on the basis of judgment of Hon'ble Supreme Court in the case of CIT v. Gopal Bansilal Inani 245 ITR 2 (SC).
2. The order of learned Commissioner (Appeals) be set aside and that of the assessing officer be restored.
For other assessment years figures mentioned in the grounds of appeal are Assessment year Amount (Rs.) 1992-93 4,26,639 1993-94 4,19,458 1994-95 3,93,883 1995-96 5,20,308 1996-97 5,57,407 1997-98 6,47,573 1998-99 7,80,478 1999-2000 9,93,793 2000-01 9,30,393
3. In the cross objections also the grounds are similar and for assessment year 1991-92, the grounds of CO. read as under:
1. That the learned Commissioner (Appeals) erred, both in law and facts, in holding that theassessment order dated 19-1-2005 is not barred by limitation as much asthe same have been passed after the expiry of one year from the end ofthe financial year in which the notice under Section 148 was served andthere was no stay for passing the assessment order by the Hon'ble High Court and even no 'benefit of doubt' should have been given to the assessing officer in the case in this respect.
2. That the learned Commissioner (Appeals) erred again both in law and facts, having not declared that assessment order dated 19-1-2005 as invalid and void ab initio and also without jurisdiction even after observing himself thatthere was no valid reason to take recourse to action under Section 148 ofthe Act as valid reasons are condition precedent to proceed with the reassessment proceedings in terms of Section 147 read with Section 148 of the Act.
3. That the impugned order of learned Commissioner (Appeals) regarding allowance of interest paid to coparceners being according to law and the facts of the case deserve to be confirmed in the case. The case of Gopal Bansilal Inani 245 ITR 2 (SC) relied upon by the learned assessing officer have no relevancy tothe facts of the respondent/assessee's case.
4. That the grounds taken by the learned ossessing officer in the memo of appeal are also misconceived in itself and hence should not have been entertained in the appeal filed by him in the case.
4. These appeals and C.Os. were heard together and, therefore, for the sake of convenience these are being disposed of by this consolidated order.
5. The main grievance of the revenue as is represented in the grounds of appeal is against the deletion of disallowance of interest paid by the assessee-HUF to its coparceners. For the assessment year 1991-92 the details of such interest which has been disallowed has been incorporated at page 3 of the order of Commissioner (Appeals). All these assessments are reassessments by the orders passed under Section 143(3)/147 of Income Tax Act, 1961. The assessing officer mainly relying on the decision of Hon'ble Supreme Court in the case of CIT v. Gopat Bansilal Inani (2000) 245 ITR 21 (SC) has disallowed the interest paid by the assessee-HUF to its coparceners. The said decision in its entirety has been reproduced at page 19 of the order of Commissioner (Appeals) and it is also being reproduced hereunder for the sake of convenience:
This appeal is directed against the judgment dated 28-11-1990, of the Division Bench of the A.P. High Court under Section 256(2) of the Income Tax Act, 1961, refusing to direct reference of the following question of law for its consideration;
Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in directing the ITO to deduct interest payments made to the coparceners on the amounts lent by them to the HUF.
Since answer to the question is covered by the decision of this Court, we set aside the impugned judgment of the High Court and treat this question as deemed to have been referred for answering in accordance with law.
Following the decisions of this Court in CIT v. Venugopallnani (1999) 239 ITR 514 and ITO v. Smt. N.K. Sarada Thampatty (1991) 187 ITR 696 we answer the question in the negative, in favour of the revenue and against the assessee. The appeal is disposed of accordingly. There shall be no order as to costs.
6. While rejecting the claim of the assessee the assessing officer also mentioned that the assessee itself had claimed that there was no running business of the assessee when the claim of the partial partition was made and thus he observed that the order of partial partition passed under Section 171 was not in accordance with law. Thus assessee cannot take the advantage of the said order to plead that no such addition should be made.
7. The brief facts are as under. The assessee-HUF has been in existence for the last about 40 years and it is also regularly assessed to income-tax. Previously there was a firm viz., M/s. Kedar Nath Bishan Lai which was carrying on the business of pakka arhita of gur and khandsari. The assessee-HUF had deposits with the said firm on which it was getting interest. Besides those deposits, the assessee-HUF had also immovable properties including agricultural lands. Partial partitions took place on 5-6-1971 and 31-3-1970 about the deposits lying with the partnership firm and of immovable property and agricultural land. Out of deposits of Rs. 3,03,895.14 deposits to the extent of Rs. 3,01,895.14 were apportioned by way of partial partition. These partial partitions were accepted by the assessing officer vide his order dated 25-1-1973 and the effect of such partition was given by the assessing officer in completing the assessment of assessee-HUF in Income-tax as well as Wealth Tax Act for the year 1972-73. Thereafter in August, 1974 partial partition took place in smaller HUFs and the said partial partition was also accepted by the assessing officer vide its order dated 1-6-1976 under Section 171 of the Act. This order was cancelled by the Commissioner under the provisions of Section 263. However the matter was carried on in appeals and Income Tax Appellate Tribunal as well as High Courts had accepted the partitions as valid partitions.
8. On 1-10-1979 the assessee-HUF took over the business of the firm viz., M/s. Kedar Nath Bishan Lai along with all of its assets and liabilities. The deposits of the smaller HUF which were continuing in the erstwhile firm also continued to remain in the business taken over by the assessee-HUF in addition to the deposits of the smallest HUFs there were also deposits by the coparcener and these deposits had not come out of the funds of the HUF but these deposits were made by them in their individual capacities. These deposits represented items like salary received by the coparcener, rent income of the properties and income from agriculture etc. (all these facts are mentioned in paras 5 and 5.1 of the order of the Commissioner (Appeals) and these facts were not controverted by the learned Departmental Representative).
9. As pointed out earlier the assessing officer rejected the claim of interest on the grounds stated in the earlier part of this order. Before the Commissioner (Appeals) the merits of the disallowance as well as the validity of reassessment proceedings were challenged. The validity of reassessment was challenged on two grounds. Firstly that it is barred by time. Secondly that no valid notice under Section 148 was issued. The first ground that assessment is barred by time was rejected by the learned Commissioner (Appeals) on the ground that the assessee had carried out the issue of validity or otherwise a notice issued under Section 148 before Hon'ble High Court in a writ petition and there was an order of Hon'ble High Court vide which assessing officer was considered to be restrained from proceeding to pass final order and thus giving benefit of doubt, the learned Commissioner (Appeals) had held that assessment was not barred by time as the same could not be framed within the statutory period there being an order of Hon'ble High Court. So far as it relates to validity or otherwise of reassessment proceedings the learned Commissioner (Appeals) in para 7.8 has observed that there were no valid reasons to take recourse of action under Section 148. However he has dealt with the issue on merits also and has held that the facts in the case of Gopal Bansilal Inani (supra) were different, therefore, the said case had no applicability to assessee's case. He found that in the said case of partition was not accepted and therefore it was held that interest paid to coparcener could not be claimed by the HUF. Thus the Commissioner (Appeals) has allowed relief to the assessee on merits. He held that in the present case of partitions were accepted by the department. Though later on one order of partition was revised by the Commissioner but in further proceedings ITAT and High Court had upheld the partitions. In this way it is the case where partitions were validly accepted by the department and thus the present case is distinguishable from the said case of Gopal Bansilal Inani (supra). For the non-availability of order under Section 171 the assessee had produced income-tax order as well as wealth-tax orders of assessee-HUF for assessment year 1972-73 wherein assessing officer himself had accepted that these partitions were accepted and the income and wealth has been assessed after giving effect to the said partitions. These orders of income-tax as well as wealth-tax are also reproduced at pages 20 and 21 of the order of the Commissioner (Appeals). In view of the said orders it was observed by the learned CIT that the fact of admitting the partition cannot be controverted. He also referred to the decision of Hon'ble Supreme Court in the case of CWT v. Chander Sen (1986) 161 ITR 3701 wherein it is held that interest paid by the HUF to its coparcener is an allowable deduction in the hands of HUF and SLP was dismissed against the decision of Hon'ble Allahabad High Court in the case of CWT v. Chander Sen (1974) 96 ITR 634 (All). He observed that only picking some lines from the decision in the case of Gopal Bansilal Inani (supra) the assessing officer could not disallow interest as according to the decision of Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P) Ltd. (1992) 198 ITR 297 (SC) it has been held that it is neither desirable nor permissible to pick up a word of sentence from the judgment of the Supreme Court deviated from the context of question under consideration and treat it to be complete law declared by the court, the judgment must be read as a whole and the observations from the judgment have to be considered in the light of the question which were before the court. A decision of the Supreme Court takes its colour from the question involved in the case, in which it was rendered, and while applying the decision to a latter case, the court must carefully try to ascertain the true principle laid down by the decision. He further found that the partition made by assessee-HUF in 1971 was accepted by the assessing officer and partition in 1974 was accepted by the Hon'ble Allahabad High Court. The learned Commissioner (Appeals) had also given a finding that interest paid by the assessee to its coparcener emerges out of money deposited by them not out of the funds of HUF and these deposits represented on account of salary, rental income from the properties and income from agriculture. He observed that these deposits are in the nature of pure loans in the HUF out of the self-generated funds of coparceners and thus HUF has legitimately claimed deduction on account of interest paid to these coparceners. In this view of the discussion learned Commissioner (Appeals) had accepted the claim of the assessee regarding deduction on account of interest paid to the coparceners. department is aggrieved with such deletion and the assessee in its CO. has mainly contested the order of Commissioner (Appeals) on the ground that it has wrongly been held that assessment was not time-barred.
10. The learned Departmental Representative pleaded that the partition affected by the assessee were not valid in the eyes of law and according to the decision of Hon'ble Supreme Court in the case of Gopal Bansilal Inani (supra) no such interest can be claimed by the assessee-HUF being interest paid to coparceners. Thus relying on the order of the assessing officer he pleaded that disallowance has wrongly been deleted and the order of the assessing officer should be upheld and that of Commissioner (Appeals) should be set aside.
11. On the other hand the learned authorised representative pleaded that partitions were validly accepted by the revenue and it has been specifically found by the Commissioner (Appeals) that they were accepted and later on assessing officer also while passing assessment order under income-tax and wealth-tax had clearly mentioned that these partitions are accepted. He contended that later on assessing officer cannot sit on the order already passed under Section 171 to contend that the partition was not valid. Referring to the order of Commissioner (Appeals) he pleaded that the ratio of decision in the case of Gopal Bansilal Inani (supra) could not be applied to the case of the assessee as facts of that case and that of assessee's case are different and distinguishable. He contended that in the said case partition was not accepted. Hence it was held by Hon'ble Supreme Court that interest paid to coparcener could not be allowed. Referring to the decision in the case of Sun Engg. Works (P) Ltd (supra) he pleaded that ratio of a decision can be applied only when facts and circumstances of the case are similar and by picking one line from the decision the ratio cannot be applied. He contended that in the case where partition has been accepted by revenue it has been held by Hon'ble Supreme Court in the case of Chander Sen (supra) that such interest payment is an allowable deduction.
12. Further referring to the findings of the Commissioner (Appeals) given in para 7.8 he contended that it has specifically been found by him that the deposits from the coparceners were not funds received by them from partition but represents income earned from coparcener from salary, house property and agricultural income. He contended that these findings of fact have not been challenged by revenue even in the grounds of appeal and thus these findings have become final. If these findings are final then interest paid by assessee-HUF to its coparcener is an allowable deduction. Thus he pleaded that the order of Commissioner (Appeals) on the issue of deletion of disallowance of interest should be upheld.
13. Referring to the validity and otherwise of assessments he produced before us a chart showing therein that for all these assessments the assessment order was required to be passed under Section 153(2) by 31-3-2003 and these have been passed only on 19-1-2005 thus the assessments are barred by time and it should be held that no assessment could be framed and the assessment framed is time-barred and, therefore, annulled.
14. Referring to the validity or otherwise of issue of notice under Section 148, he pleaded that though learned Commissioner (Appeals) in para 7.8 has held that there wereno valid reasons to take recourse under Section 148, he should have held that assessment is invalid in spite of deleting addition on merits. He pointed out that for the assessment year 1992-93 assessment is framed under Section 143(3) and there was no failure on the part of the assessee to disclose fully and truly all material facts, therefore, no valid assessment could be made beyond the period of 4 years from the end of the relevant assessment year and, thereon;, the assessment is invalid. Thus he pleaded that on merits the order of Commissioner (Appeals) should be upheld and on the issue of validity or otherwise of issue of notice under Section 148 it be held that no valid reassessments have been made. Further he pointed out that if it is held that deletion was in accordance with law then the assessee will not press its cross objections as then the COs. filed by the assessee will become academic in nature.
15. We have carefully considered the rival submissions in the light of material placed before us. It has been brought out in the order of learned Commissioner (Appeals) that in the case of Gopal Bansilal Inani (supra) partitions were not accepted by the revenue. Therefore, it was held by Hon'ble Supreme Court that interest paid to coparcener is not an allowable deduction. It has also been brought out that in the case of the assessee partitions were accepted by the revenue and this fact is clear from the assessment orders passed by assessing officer in the case of the assessee in respect of income-tax and wealth-tax. These assessment orders have also been reproduced in the order of Commissioner (Appeal). Thus it is clear that the partition in the case of assessee was accepted by revenue. No material has been placed on record to controvert these findings of fact by learned Commissioner (Appeals). The basis of assessing officer for disallowance of interest is the decision of Hon'ble Supreme Court in the case of Gopal Bansilal Inani (supra). The entire decision of Hon'ble Supreme Court has been reproduced in the above part of this order also. In the above decision the Hon'ble Supreme Court while deciding the issue had observed that the issue raised in the said appeal was covered by earlier decisions of Apex Court in the eases of CIT v. Venugopal Inani (1999) 239 ITR 514 (SC), ITO v. Smt. N.K. Sarada Thampatti (1991) 187 ITR 6962. It has been referred to in the order of Commissioner (Appeals) that in the case of Venugopal Inani (supra) it was claimed that joint family had effected partial partition in respect of certain properties of the family and the claim was rejected by the Tribunal and the claim of assessee was upheld by High Court but rejected by Supreme Court on the ground that properties which were capable of division were: not actually divided, thus it was a case where ultimately partition was not accepted. In the case of Smt. N.K. Sarada Thampatti (supra) in the said case it was observed by Hon'ble Supreme Court that for the purposes of income-tax the ordinarily decree of Civil Court in partition suit is good evidence but under Section 171 preliminary decree of partition itself is not good enough and that it should be followed by actual physical division pursuant to final decree. Thus in the said case also it was held that HUF was not disrupted and, therefore, income from properties were held to be income from HUF and not income of individual members. Thus it can be seen that both the above-mentioned cases which have been followed by Hon'ble Supreme Court in the case of Gopal Bansilal Inani (supra) are the cases where partition of HUFs were not accepted and in the circumstances it was held that income whatever was earned belong to the HUF as HUF was not disrupted. Whereas in the case of assessee as it has already been pointed out, there is no material on record to controvert that partitions were ever rejected or not accepted. Thus for making disallowance ratio of decision in the case of Gopal Bansilal Inani (supra) as wrongly been relied upon, as the facts of that case do not match with the facts of the present case. It has rightly been pointed out by learned Commissioner (Appeals) that according to decision of Hon'ble Supreme Court in the case of Sun Engg. Works (P) Ltd. (supra) the judgment must be read as a whole and the judgment have to be considered in the light of question which were before the court. A decision takes its colour from question involved in the case, in which it was rendered and while applying the decision to a latter case, court; must carefully try to ascertain true principle laid down by the decision. Thus, in the case of Gopal Bansilal Inani (supra) the amounts were not held allowable for the reasons that partitions were not accepted. The right case which has application to the case of the assessee will be the decision of Hon'ble Allahabad High Court in the case of CWT v. Chander Sen (1974) 96 ITR 634 (All) which has been approved by the Hon'ble Supreme Court in the case of CWT v. Chander Sen (1986) 161 ITR 3701 (SC) relied upon by the learned Commissioner (Appeals). In the said case the assessee who constituted a joint family with his own sons filed a return of his net wealth for assessment year 1966-67. The return included the property of the joint family which on the death of Rangilal passed on to Chander Sen by survivorship and also the assets of the business which devolved upon Chander Sen on death of his father. A sum of Rs. 1,85,043 standing to the credit of Rangilal was not included in the net wealth of the family of Chander Sen (the assessee-family) in that case on the ground that the said amount was in his individual capacity and was not the property of the joint family. The assessing officer did not accept this contention and held that the sum of Rs. 1,85,043 also belonged to the assessee family. At the close of the previous year ending on 22-10-1966 (assessment year 1967-68) a sum of Rs. 23,330 was credited to the account of late Rangilal on account of interest accruing on his credit balance. Therefore for assessment year 1967-68 the sum of Rs. 23,330 was claimed as a deduction. It was claimed that interest was due to Chander Sen in his individual capacity and was an allowable deduction in the computation of business income of the assessee family (HUF). At the end of the year the credit balance in the account of Rangilal stood at Rs. 1,82,742 which was transferred to the account of Shri Chander Sen. The department added the said sum to the net wealth of the assessee-HUF and also added income of Rs. 23,330 claimed as interest paid to Chander Sen being income of the family and it was held by Hon'ble Allahabad High Court that the amount standing to the credit of Rangilal belong to Chander Sen in his individual capacity and not to joint family and to his sons therefore interest of Rs. 23,330 was allowable deduction in the computing of income of assessee family from business. The said order was confirmed by Hon'ble Supreme Court. Here it will be pertinent to note that a specific finding has been given by learned Commissioner (Appeals) that the amount on which interest has been paid to coparcener does not represent the capital received on partition, but comprises of salary, income from house property, and agriculture etc. These findings have also not been controverted by revenue by placing any material on record. If these amounts do not represent the amounts received from HUF then there cannot be any question to disallow the same as the amounts standing to the credit of coparcener were owned by them in their individual capacity.
16. In view of the above discussion, we find no infirmity in the order of Commissioner (Appeals) vide which the disallowance of interest had been deleted and we confirm his order on this ground. The appeals filed by the revenue are thus failed.
17. It has been pointed out earlier that it was mentioned by the learned authorised representative that if it is held that disallowance has rightly been deleted by the Commissioner (Appeals) the assessee is not pressing the cross objections as the same will be of academic interest only. Therefore, we dismiss the cross-objections filed by the assessee on the ground that on merit the appeals filed by the revenue have been dismissed therefore the question raised in COs. are of academic nature only. We decide accordingly.
18. In the result the appeals as well as the cross-objections both are dismissed.