Income Tax Appellate Tribunal - Ahmedabad
Punitaben Karsanbhai Patel Oral ... vs Income-Tax Officer [Alongwith Ita Nos. ... on 7 July, 2006
Equivalent citations: [2006]103ITD175(AHD), [2007]288ITR169(AHD), (2006)104TTJ(AHD)773
ORDER
1. This is a bunch of 284 appeals concerning 96 assessees. The assessment years involved fall within the assessment years 1981-82 to 1984-85. All these appeals are filed by the concerned assessees against the revision orders passed by the Commissioner of Income-tax Under Section 263 of the Income-tax Act, 1961. The facts and circumstances of all these cases are exactly identical and the revision orders have been the same in all these cases and therefore these appeals are clubbed together for joint hearing and analogous disposal.
2. In all these appeals, almost all the grounds are common except for certain other grounds relating to different factual matrix. The main controversy arising in all these appeals is whether income of a Main Trust assessed on substantive basis and the liability finally settled under 'Kar Vivad Samadhan Scheme, 1998' (hereinafter referred to as KVSS) could be again assessed in the hands of the corresponding beneficiaries who have been assessed on a protective basis. The grounds raised in all these appeals relate to the merits of the case as well as on the jurisdiction exercised by the Commissioner Under Section 263 of the Income-tax Act, 1961.
3. On this issue there are two conflicting views of the Tribunal, one in favour of the assessee by holding that as the Main Trusts have availed the benefit of KVSS with regard to the beneficiary's share income and the interest payment, the benefit should be given to the beneficiary trusts as otherwise it would amount to double taxation. These cases are - Shantaben Karsanbhai Patel OSDFT and Ors. in ITA Nos. 213, 236/Ahd/1987 and Ors. dt 3-4-2000. The other view is that the main trust and beneficiary trust are two different assessees and if the main trust has settled its dispute under KVSS, there is no question of giving any consequential benefit to the beneficiary because that is not an order on merits and there is no question of double taxation. These cases are the following:
1. Shri Janak Pramodbhai Patel being ITA Nos. 1804 to 1808/Ahd/1996 for AYs 1988-89, 1990-91 to 1992-93.
2. Bharat and Piyush ODFT being ITA Nos. 2191 and 1961/Ahd/1987 for A.Y. 1982-83.
3. Shri Pramodbhai Kanjibhai Patel HUF being ITA Nos. 1808 and 1809/Ahd/1996 for A.Y. 1989-90 and 990-91.
Therefore, the matter was referred to the Hon'ble President for constituting a Special Bench and the Hon'ble President has constituted this Special Bench to decide the following issue:
The entire appeals are to be heard as Special Bench without any specification of a particular question. Copies of Grounds of appeal in ITA 2401/Ahd/2003 are enclosed herewith/" (As Annexure).
4. In the course of hearing of these appeals, the case of Shanta K Patel Oral Specific Deferred Family Trust, relating to the assessment year 1983-84 (ITA No. 2158/Ahd/2003 has been taken as a representative case for the sake of presenting and arguing the cases. The facts relating to the said assessee overall represent the other remaining cases and, therefore, it was agreed in general that it would be sufficient to hear the said case as a representative one. Shanta K Patel Oral Specific Deferred Family Trust is a beneficiary of SK Patel Family Trust (hereinafter referred to as the Main Trust). Shanta K Patel Oral Specific Deferred Family Trust is entitled for 3% beneficiary share in the Main Trust. The Main Trust has filed its returns of income for the assessment year 1983-84 on a total income of Rs. 1,42,66,176 which was further distributed among the beneficiaries leaving Nil income in the hands of the Main Trust. Shanta K Patel Oral Specific Deferred Family Trust (hereinafter referred to as the assessee) filed the return of income in its individual status. The income returned by the assessee consisted of 3% beneficial share from the Main Trust, independent interest income received from the main trust and other income of its own. The total income returned by the assessee was Rs. 4,69,150. Tax was also paid by the assessee on the said amount of income returned by it.
5. In the above scenario, the assessment of the Main Trust was completed Under Section 143(3) r.w.s. 161 of the Income-tax Act, 1961, recording the income of the Main Trust as Nil and accepting the distribution of income among the beneficiaries. But subsequently, the assessment order was revised by the Commissioner of Income-tax Under Section 263 on the ground that 51% of the income needs to be assessed in the hands of the trustees for and on behalf of the beneficiaries listed in Schedule II of the Trust Deed. Maximum marginal rate of tax was also to be levied on the said income. The impugned representative assessee is a beneficiary listed under Schedule II of the Trust Deed. When the revision order was carried in appeal before the Income-tax Appellate Tribunal, Ahmedabad Bench, the revision order of the Commissioner of Income-tax was vacated through its order passed in ITA Nos. 1135 to 1138/Ahd/1985. The Tribunal restored the order of the assessing officer that the income should be assessed in the hands of the beneficiaries as originally done by the assessing authority. The Revenue thereafter filed a reference application before the Tribunal in R.A. Nos. 85 to 88/Ahd/1995. Allowing the Reference Application filed by the Revenue, the Tribunal referred the following question for the esteemed opinion of the Hon'ble Gujarat High Court:
Whether the Appellate Tribunal is right in law and on facts in holding that tax was not attracted as the trust was a specific and non discretionary trust wherein the beneficiaries and their shares were known and determinate?
6. While the matter was resting so, the Government of India promulgated the Kar Vivad Samadhan Scheme, 1998. When the Scheme was pronounced by the Government, the assessee was fighting its case against the finding of the Revenue and the matter was lying before the Hon'ble High Court under reference that the income should be assessed in the hands of the Main Trust. The Main Trust thought it fit to the best of their wisdom and judgment that the matter be settled under the Scheme and the dispute be buried. The Main Trust accordingly filed applications before the concerned Commissioner for the settlement of the dispute under KVSS. The application put in by the Main Trust was accepted by the Commissioner of Income-tax, Gujarat -I and as the trust has already paid the amount of tax as prescribed under the Scheme, the matter was treated as settled and certificate in Form No. 4 prescribed under the Scheme was issued by the Commissioner of Income-tax on 02-07-1999, as conclusive evidence of the compliance under the KVSS. As the dispute has been settled under KVSS, the Hon'ble High Court of Gujarat disposed of the Income-tax Reference pending before it in limine on the ground that the reference did not survive any more.
7. Now coming to the assessment of the beneficiary, in the light of the return filed by it, the assessee trust was assessed Under Section 143(3) r.w.s. 164 and 164A of the Income-tax Act, 1961. Income was assessed at Rs. 4,70,780 and tax was charged at the maximum marginal rate as stated in the assessment order. As the department has proposed the view hat the income should have been assessed in the hands of the Main Trust itself, the assessment of the beneficiary trust was made on a protective basis. The relevant portion of the assessment order in paragraph 17 thereof is extracted below for an easy understanding of the issue:
17. In the case of S.K. Patel Family Trust, of which assessee trust is a beneficiary, tax has been charged at the maximum marginal rate. This order is, therefore, without prejudice to the view taken in the case of Main Trust regarding the question of the genuineness of the said trust. In view of this fact, the income of the trust is taken as per the return of income furnished on protective basis.
8. As the assessment was protective in nature, the demand arising out of the assessment was kept in abeyance. This assessment was taken in first appeal and the order was passed on 10-11-1986. Against the order of the first appellate authority, cross appeals were filed before the Tribunal, one by the Revenue and the other by the assessee. The Tribunal passed a common order to dispose of the cross appeals, in ITA No. 213/Ahd/87 and others on 03-04-2000. Appraising the facts of the case relating to the Main Trust as well as the assessee, the Tribunal held as under:
In view of the circumstances, I set aside the impugned orders and remit the issue back to the assessing officer for fresh consideration and while doing so, the assessing-officer shall consider the fact that the Main Trust had already paid the tax to the department by way of Kar Vivad Samadhan Scheme. Therefore, the same additions cannot be made in the hands of the present beneficiaries otherwise that will amount to double taxation.
9. Subsequent to the above order of the Income-tax Appellate Tribunal, the assessee moved before the Revenue for refund of the tax attributable to the income settled in the hands of the Main Trust under KVSS. The assessing officer accepting the prayer of the assessee passed order Under Section 154(1)/155(2) on 22-08-2000, allowing the prayer of the assessee and accordingly excluded the income of the Main trust settled under KVSS" from the assessment order of the assessee beneficiary trust as a result of which refund was also issued.
10. The facts of the case stated in the above paragraphs may be summarized for better clarity. The assessee along with other beneficiary trusts are the beneficiaries of the Main Trust S.K. Patel Family Trust having share of income from Main Trust and also interest income from the Main trust along with their individual incomes. Assessees took the stand that the income attributable to the beneficiary trusts are to be assessed in the individual hands of the beneficiary trusts whereas the Revenue took the view that the income of the Main Trust should be assessed in its own hand. The substantive assessment was completed in the hands of the Main Trust while protective assessments have been completed in the hands of the respective beneficiaries. The dispute regarding the taxability of the income in the hands the Main trust reached upto the jurisdiction High Court in reference application. While the reference was pending before the Hon'ble jurisdictional High Court KVSS was pronounced by the Government under which the Main Trust settled the dispute of taxability of income in its hand by paying appropriate tax and securing the relevant certificate of compliance from the concerned CIT. As the income which has to be taxed either in the hands of the Main Trust or in the hands of the individual beneficiary trusts having already been settled under KVSS and taxed in the hands of the Main Trust, the beneficiary trusts moved before the assessing authority for exclusion of that part of income from the respective assessments. The assessing officer accepted the contention as the share income from the Main Trust included in the income of the beneficiary trust has already been settled under KVSS. As the income attributable to the Main Trust has been excluded from the individual assessments of me beneficiary trusts, it resulted in refund of tax already paid along with interest.
11. Now the second stage of the case begins. Once the assessing officer has passed the order Under Section 154(1)/155(2) of the Act and granted refund to the assessee, who is a beneficiary trust, the CIT invoked his powers Under Section 263 and revised the orders. In all the cases involved in the impugned bunch of 284 appeals, the CIT has passed such revision orders. The revision orders have been passed by the CIT on the following premises:
(i) The assessing officer has failed to take cognizance of the legal implication of the Kar Vivad Samadhan Scheme, 1998, which confine the benefits, as per Section 94 of the Kar Vivad Samadhan Scheme, 1998 only to the declarant with reference to the Kar Vivad Samadhan Scheme, 1998, that too, in relation to tax arrears of the declarant, as on 31-03-1998.
(ii) The benefit of another declarant of Kar Vivad Samadhan Scheme, 1998 was erroneously extended by the assessing officer in violation of the provisions contained in Section 94 of Kar Vivad Samadhan Scheme, 1998. Therefore, the order of the assessing officer suffered from serious errors of law and thereby causing prejudice to the interest of the Revenue.
(iii) The assessing officer has failed to take notice of the apparent legal implications of Section 90(2) r.w.s. 93 of the Kar Vivad Samadhan Scheme, 1998, that no tax paid in pursuance of the declaration is liable to be refunded,
(iv) The law on this point has been clarified by the Gujarat High Court in the case of Sunderlal Uttamchandani in SCA 1D93 of 2000 wherein the claim of a partner for the refund of tax denied by the department has been up held by the High Court, where the claim was made on the basis of the declaration made by the firm under Kar Vivad Samadhan Scheme, 1998. The court held that there was no tax arrears against partner and, therefore, he was not entitled to take any benefits of the Kar Vivad Samadhan Scheme, 1998 sought and settled by the firm,
(v) The assessing officer has further erred in granting interest Under Section 244A which was in direct contravention of the provisions of law contained in Section 244A(2). The Sub-section provides for exclusion of the period of delay attributable to the assessee. As the matter has to be finally determined either by Chief Commissioner of Income-tax or Commissioner of Income-tax, the assessing officer has exceeded his jurisdiction in granting interest Under Section 244A without looking into the law contained in Sub-section (2) thereof.
12. The Commissioner of Income-tax, on the. basis of the above reasons. set aside the orders passed by the assessing authority Under Sections 143(3) 154(1)/155(2) as erroneous and prejudicial to the interest of the Revenue. The orders of the assessing authorities were cancelled. The Commissioner further directed the assessing authorities to re-compute the income by including the income attributable to the Main Trust. He also directed to withdraw the refund along with interest paid thereon. All these present appeals are directed against the above revision orders passed by the Commissioner of Income-tax.
13. Shri SN Soparkar, the learned Counsel appearing for the assessees argued the cases in detail, which are summarized below:
1. That the incomes have been substantively assessed in the hands of the Main Trusts, by. virtue of the revision orders passed Under Section 263 by the Commissioner of Income-tax which have been subsequently settled under KVSS in the hands of the Main Trusts themselves. While completing the substantive assessments, interest was disallowed on the ground that it was paid to self. The share of profits and interests attributable to the beneficiaries have been again protectively assesses in their hands. These disputes that whether to be assessed in the hands of the Main Trusts or in the hands of the beneficiaries continued and existed till the final settlement arrived at under KVSS.
2. That it is not proper to argue for the Revenue that the dispute was not continuing and prevailing at the relevant point of time. The Reference Applications made by the Revenue against the orders passed in the case of Main Trusts were pending before the jurisdictional High Court for adjudication. The assessing officer has mentioned in the order that the orders of the Tribunal and jurisdictional High Court have not been accepted by the Revenue. That the Special Leave Petition filed by the Revenue before he Hon'ble Supreme Court in the case of Harsiddh Specific Family Trust was dismissed on 28-01-2003. That, therefore, it is necessarily to be held that the controversy was continuing and prevailing.
3. That the Commissioner had no jurisdiction to revise the orders as the subject matter of the orders have already been settled before higher/competent authorities in various proceedings carried out from time to time in the past in these group cases. The department had first filed writ petitions which were withdrawn for filing tax appeals in which cases, the court has held as under in the judgment dated 30th July, 2001:
In our opinion, no question of law, much less a substantial question of law, arises in these appeals. It is a settled principle that one particular income cannot be taxed in the hands of different assessees. In the instant case, as the 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 trusts. For the sake of abundant caution, it has been directed by the Tribunal that the revenue should look into the facts and see whether the income which has been assessed on protective basis in the hands of the respondent trusts was, in fact, assessed in the hands of the main trusts.
5. That the department has not filed Special Leave Petitions against the above judgments before the Supreme Court. That it has later on filed Review Petition which was dismissed by the Hon'ble Gujarat High Court vide its judgment passed on 05-09-2003.
6. That, further in another judgment dated 14-08-2002, the Hon'ble Gujarat High Court has not inclined to agree with an earlier judgment dated 30.07.2001 and that petition was listed before larger bench. The order was passed by the larger bench. Before the larger bench when materials were placed by Revenue for reliance, it was observed by the court as follows.
7. Having regard to the fact that the learned Senior Counsel for the petitioner wants to rely on the material not earlier produced before the Tribunal in support of the contention which does not appear to have been specifically raised on the basis of the fresh material which was not produced, it appears to us that it would be appropriate for the petitioner to raise the contentions which are sought to be raised before this Court but were not raised before the Tribunal, in their application for revising and/or modifying the order of the Tribunal along with the fresh material on which the petitioner seeks to rely in support thereof. On such application being made by the petitioner, the Tribunal shall consider the same and after hearing the concerned parties, take a decision thereon in accordance with law.
That when the larger bench of the High Court has not reversed the decision of the division bench of the Gujarat High Court rendered on 30-07-2001, the decision of the Hon'ble High Court rendered in judgment dated 30-07-2001 is binding on all lower authorities. The court has held therein that once income assessed in the hands of the Main Trusts on substantive basis, the same income cannot be assessed in the hands of the beneficial trusts. Therefore, as the said judgment of the High Court is surviving and prevailing, the Commissioner of Income-tax had no jurisdiction to revise the orders passed by the assessing authority in accordance with the ratio of the said judgment of the Gujarat High Court rendered on 30-07-2001.
7. As the said judgment of the High Court is binding on the Commissioner, he had no authority at all to pass revision orders after commenting on the decision of the High Court.
8 That the revision orders passed by the Commissioner Under Section 263 are not correct. That the reliance placed by the Commissioner of Income-tax on the decision of the Supreme Court in the case of ITO v. CH Atcharah 218 IIR 239 to hold that the income should be assessed in the hands of the right person, is misplaced as the facts of the present cases are different. The Commissioner of Income-tax has held that the beneficiaries are the right persons to be assessed. This observation is just contrary to the stand taken by the department through out. In the present case, the income has been assessed in the hands of the Main Trusts on substantive basis and the assessments in the hands of the beneficiaries were made only on protective basis. the above decision has no application in the present case.
9. As held by the Gujarat High Court in the case of Banyan & Berry v. CIT 228 ITR 831 making a protective assessment does not affect the validity of the other assessments inasmuch as if ultimately one of the entities is really found to be liable to the assessment, then the assessment in the hands of that entity alone remains and the protective assessment of the other becomes infructuous. The court has held that the levy is enforceable only under one assessment and not under both. That in view of the above decision the revision order passed by the Commissioner of Income-tax is against law.
10. That in a similar case, the Supreme Court in the case of CR Nagappa v. CIT 73 ITR 626 has held that there cannot be any such double taxation. Assessments in the hands of the settler's minor children of the income from assets settled in trusts for their benefit by the settler will affect the validity of the inclusion of the trust income in the hands of the settler but assessment of the minor beneficiaries cannot stand in view of the assessment of the settler Under Section 64(v);
11. That the Calcutta High Court in the case of Jagannath Hanuman Bux v. ITO 31 ITR 603 has examined the scope of protective assessment. The court has held that a protective assessment is made in order t6 avoid bar of limitation but recovery is not possible from such assessments.
12. That the reliance placed by the CIT in the case of Shankarlal Nebhumal Uttarnchand v. CIT 257 ITR 876 is misplaced as that case was not applicable to the present case. In Shankarlal Nebhumal Uttamchand's case it was a case of a partnership firm and partners wherein at that point of time the Income-tax Act provided for double taxation of income once in the hands of partnership firm and second in the hands of the partners. In view of the decisions in the cases of Banyan & Berry, CR Nagappa, and Jagannath Hanuman Bux, it is crystal clear that the decision in the case of Shankarlal Nebhumal Uttamchand is not relevant in the context of present cases.
13. That the CBDT has dealt with protective assessments in its circular No. 71 dated 20-12-1971. The direction issued by the Board Under Section 119(2)(b) in the said circular deals with the scope of protective assessments. The circular reads:
Order Under Section 119(2)(b) of the I.T. Act, 1961 - The Board's authorization for taking action Under Section 154 beyond the time limit fixed Under Section 154(7) in cases of protective assessments requiring to be cancelled. Where the same income was assessed, as a protective measure, in the hands of more than one assessee or as the income of more than one assessment year, and one or more of these protective assessments needs to be cancelled as a result of some of the relevant assessments having become final and conclusive, it has been the practice of the Income-tax Department to cancel the redundant assessment Under Section 154 of the Income-tax Act, 1961, treating these as involving mistakes apparent from the records. This is being done by the Income- tax Officers either suo motu or on applications made by assassees Sometimes it is not possible to take decision Under Section 154 in such cases because of the operation of the time-limit laid down in Sub-section (7) of Section 154 of the Income-tax Act, 1961. Since the operation of this time limit causes genuine hardship to the affected assessee, the Central Board of Direct Taxes, in exercise of the powers vested in them under clause (b) of Sub-section (2) of Section 119 of the Income tax Act, 1961, hereby authorizes the Income-tax Officers to take action Under Section 154, or to admit or dispose of on merits applications Under Section 154 filed by assessees seeking relief, for canceling such protective assessments as have become redundant, by waiving, if necessary, the time limit fixed under sub-section (7) of Section 154 of the Income-tax Act, 1961.
14. That the speaking circular issued by the Board on such a crucial issue is not less than binding on the officers of the department. That the Supreme Court has in a series of decisions highlighted the binding nature of the circulars issued by the CBDT. Reliance placed on the decisions of the Supreme Court in the case of CIT v. Anjum MH Ghaswala & Ors 252 ITR 01, UCO Bank v. CIT 237 ITR 889, Collector of centraf Excise v. Dhiren Chemical Industries 254 ITR 554 and UOI and Anr. v. Azadi Bachao Andoan and Anr.263 ITR 706.
14. Shri Soparkar, after arguing on the jurisdiction of the CIT to pass orders Under Section 263, the nature of protective assessments and the applicability of circulars issued by the CBDT further contended that the CIT went wrong in arriving at his findings regarding the refund of tax and interest to the beneficiary trusts. He submitted that for the elaborate reasons already explained before the Tribunal, the tax has been rightly refunded by the assessing authority at the first instance. When a portion of the income already assessed in the hands of the Main Trusts is excluded from the assessments of the beneficial trusts, the proportionate amount of tax due and paid by the assessee should be refunded. It is a neural and legal consequence of exclusion of income from assessment. He referred to the reliance placed by the Revenue on the decision in the case of Saurashtra Cement and Chemical Industries v. ITO 195 ITR 659. He submitted that the said decision related to a case of annulled assessment. The court held therein that in the absence of an assessment, income would be escaped and assessee cannot be granted refund in respect of such income which is offered in the return itself. He explained that in the present case, the assessments were made in both cases, i.e. in the case of Main Trusts on substantive basis and in the case of beneficiary trusts on a protective basis. He, therefore, submitted that when protective assessment is neutralised as far as the income assessed in the hands of the Main Trusts is concerned, that much of the refund is essentially to be made.
15. The learned Counsel further submitted that the CIT has gone wrong in holding that no interest should also be paid on the refund made to the beneficial trusts. He submitted that the delay was not attributable to the assessee in the matter of assessment and refund. There is no question of delay on the part of the assessees in these cases, the matters came to be settled once the KVSS was pronounced. When an amount is rightfully to be refunded to an assessee and if there is a delay in such refund, as stated in law, interest is to be paid especially when interest is compensatory in nature.
16. Shri Manish Bhat, the learned standing counsel appearing for the Revenue argued the case at length. The learned standing counsel submitted that it is not right on the part of the assessee to argue that the issue in these cases has already been settled by the judgment of the jurisdictional High Court and, therefore, the CIT had no jurisdiction to invoke his revisionary powers Under Section 263. The appeals preferred by the Revenue before the High Court in these matters have not been admitted by the High Court and, therefore, the High Court has not adjudicated the issue as such whereby there could be a binding order. As the appeals were not admitted and rejected in limine, the principle of merger dose not apply and therefore, it is not proper to argue that the CIT has examined the judgement of the High Court as far as the matter is concerned.
17. The learned standing counsel relied on the decisions of ITAT, Ahmedabad Bench in the case of Shri Janak Pramodbhai Patel. dt 28-12-2001 being ITA Nos. 1804 to 1808/Ahd/1996, Bharat and Piyush ODFT dt. 3.5.2001 being ITA Nos. 2191 and 1961/Ahd/1987 and Shri Pramodbhai Kanjibhai Patel HUF dt. 31 12-2001 being ITA Nos. 1808 and 1809/Ahd/1996. He pointed out that the orders passed by the Tribunal in the cases above are identical and has held that in the case of beneficiaries income should be assessed in spite of the fact that the same has been assessed in the hands of the Main trust under KVSS.
18. The learned standing counsel further explained that the above decisions of the Tribunal have considered all the relevant facts of the case and the vital provisions of law and has come to a conclusion which supports the order passed by the CIT in these cases.
19. Shri Manish Bhat further contended that the tax on the disputed income was paid by the Main Trusts as a settlement proposed under KVSS. The effect of settlement of a dispute under KVSS is limited and applicable only to the party who sought the settlement under the said Scheme. KVSS is a separate code by itself. Tax disputes are to be settled under KVSS, de hors any other connected proceedings pending before the authorities for decision or adjudication. In the present case, substantive assessment of income has been made in the hands of the Main Trusts. The assessees objected to that. But when the Scheme was pronounced, the assessee opted for the settlement under the KVSS. The tax was paid. Certificates were issued. The matter ended there The said settlement arrived under KVSS is not a ground to defend the contention of an assessee in another case.
20. The learned standing counsel explained that the returns were suo motu filed by the beneficiary trusts wherein the income from the Main Trusts, interest received from the Main Trusts have been returned along with other independent income of the beneficiary trusts. Even though assessments were completed on protective basis in those cases, the returns were filed by the beneficiary trusts in their independent capacities and those returns stand by themselves. The settlement of the dispute of the Main Trust under KVSS cannot be agitated as a res judicata as far as the assessments of the individual beneficiary trusts are concerned. They are quite different entities. The KVSS is in respect of the income disputed with respect to the demand disputed in the case of a particular assessee. The individual beneficiary trusts were not a party to any settlement under KVSS. Their cases stand or die on their own merits. Therefore, there is no legal justification for the beneficiary trusts to lean back on the KVSS settlement made by the Main Trusts. There is no such nexus as propagated by the assessee, between the settlement under KVSS as far as the Main Trusts and the assessments of the individual beneficiary trusts are concerned.
21. The learned standing counsel, therefore, submitted that the settlement of dispute by the Main Trusts under KVSS-could not be treated even as a remote ground to make a refund of taxes paid by the beneficiary trusts while filing their individual returns, not to speak about interest on such refunds.
22. The learned standing counsel, therefore, submitted that in these circumstances, the Tribunal should uphold the revision orders passed by the Commissioner of Income-tax especially in view of the judgements of the ITAT, Ahmedabad Bench in the cases of Shri Janak Pramodbhai Patel, Bharat and Piyush ODFT and Shri Pramodbhai Kanjibhai Patel. He submitted that the appeals filed by the assessees are liable to be dismissed.
23. Shri Soparkar, the learned Counsel appearing for the assessee in his rejoinder submitted that the decisions relied 01 by the Revenue in the case of Shri Janak Prampdbhai Patel, Bharat and Piyush ODFT and Shri Pramodbhai Kanjibhai Patel cannot be relied on as correct decisions.
24. The learned Counsel, therefore, submitted that the entire arguments of the Revenue that the issue was not adjudicated by the High Court and the CIT had absolute jurisdiction to initiate revision proceedings Under Section 263 is against the facts of the case.
25. Regarding the relationship between the regular assessment and the KVSS, the learned Counsel relied on the relevant CBDT clarifications. The learned Counsel has made a special reference to question considered by CBDT and the answer furnished thereto. The question is whether certain income charged to tax in the hands of two different persons or where it has been charged to tax in the case of the same person in two different assessment years, one on substantive basis and the other on protective basis, will the declarant or the other person get advantage in respect of additions made by them substantively and protectively? The answer is that the assessees are advised to make declarations in cases or for assessment years where the additions are made on substantive basis. The protective demand is not subject to recovery unless it is finally upheld. Once the declaration in a substantive case or year is accepted, the tax arrear in protective case/year would no longer be valid and will be rectified by suitable orders in the normal course This position is not peculiar to Samadhan Scheme.
26. The learned Counsel submitted that in the light of the above circular, there is not even a shadow of doubt that the same income cannot be assessed on protective basis once substantive assessment has been settled under KVSS. He submitted that the Board itself clarifies that the settlement under KVSS has to be made with reference to the substantive assessments and if such settlement is acted upon by the department, that substantive assessment stands concluded as final as a result of which the protective assessment would automatically disappear subject to procedural formalities. The learned Counsel submitted that the circular itself is t he best ground to allow appeals filed by the assessee in these cases.
27. We heard both saides in detail and considered the matter in the light of the earlier orders of the different benches of the Tribunal on the subject and the plethora of materials placed before us along with assessment, appeal and revision orders.
28. the first issue that came up for consideration is whether the dispute regarding the issue involved in these appeals were continued to exist at that point of time. We find that this question is quite academic. The Main Trusts have sought settlement of their substantive assessments under KVSS which have been accepted and acted upon by the department. That itself showed that the controversy continued and existed at that point of time and there is no doubt that the issue was pending before the High Court in Reference Jurisdiction. Therefore, to make the matter dear, we state that the Commissioner of Income-tax was not correct in holding that such a controversy did not exist.
29. We further find that the answer to the controversy cropped up in these cases is available in the relevant instructions issued by the CBDT in the context of Kar Vivad Samadhan Scheme, 1998. We have already seen the relevant question and answer to the question. The CBDT has stated in unequivocal terms that declarations are to be made in respect of substantive assessments. The Board has clarified that the protective demand is not subject to recovery unless it is finally upheld. The Board has further explained that once the declaration in a substantive case or year is accepted, the tax arrear in protective case/year would no longer be valid and will be rectified by suitable orders in the normal course. In the present case substantive assessments have been made by the department in the hands of Main Trusts. Protective assessments have been made in the case of beneficial trusts Main Trusts have settled the dispute under KVSS. They have paid the tax under KVSS in respect of the assessments completed in their hands on substantive basis. Therefore, in the light of the circular, the corresponding protective assessments made in the hands of beneficial trusts would fade away and the demand raised in those protective assessments would no longer be valid. When the assessment is not subsisting and the demand is not valid, the amount paid by the assessee along with the return subject to protective assessment becomes refundable to the assessee. Therefore, we are of the considered opinion that the assessing officer has rightly accepted the prayers of the assessees and passed appropriate orders excluding the incomes which have already been considered in the hands of the Main Trusts under KVSS. Therefore, obviously, the assessing officer is justified in following the consequential procedure and making refund to the assessees.
30. One of the basic principles of taxation is that the income shall not be taxed twice. in the present case, the income under dispute is the same considered in the hands of the Main Trusts and also considered in the hands of the beneficial trusts. Kar Vivad Samadhan Scheme, 1998 was introduced by Government of India to settle the pending litigations at different levels and collect the tax once for all and reach finalities in the matters connected thereto. Even though KVSS was a special scheme, the KVSS did not propose to tax any income twice. Whether under the regular provisions of the Income-tax Act or under the scheme of KVSS what is to be assessed and subjected to tax is the real income once for all. KVSS does not create any artificiality. A case of double taxation of the same income cannot be endorsed under the KVSS. In other words, the Kar Vivad Samadhan Scheme, 1998 does not empower the income-tax department to tax the same income more than once. This must be made very clear.
31. What are the simple facts available in these cases.? The incomes of the Main Trusts have been distributed to the beneficiary trusts. The beneficiary trusts have filed returns in their individual hands. This position was not accepted by the Revenue. Therefore, substantive assessments have been made in the hands of Main Trusts. In abundant precaution protective assessments have been made in the hands of the respective beneficiary trusts. Suppose the proposition made out by the department was acceptable to the assessee and the substantive assessments made in the hands of the Main Trusts have been accepted by the assessee, what would be the position of the corresponding protective assessments made in the hands of the beneficiary trusts? The protective assessments would have become invalid as a result of which the Revenue would refund the amount of tax if any paid by the beneficiary trusts while filing the returns of income in their individual capacities. There cannot be any dispute on this proposition. Is it possible to hold that the above position would be disturbed only because of the intervention of KVSS? The Main Trusts have settled their substantive assessments under KVSS which for all practical purposes is equivalent to finally settling the substantive assessments in their hands. The final outcome of the whole process is not different from the substantive assessments having been accepted by the assessees as such or having been settled under an available scheme known as Kar Vivad Samadhan Scheme, 1998. In either case the protective assessments become invalid whereby no demand can be enforced against those protective assessments. The consequence is that if the assessees have paid any amount of tax along with their returns considered for protective assessments, such taxes have to be refunded to them.
32. We do not find much force on the reliance placed by the learned standing counsel on the decision of the Gujarat High Court in the case of Saurashtra Cement and Chemical Industries v. ITO 194 ITR 659. In that case there was no assessment at all and the question of refund was considered in that perspective which is quite different from the present case. The income involved in the substantive. ...assessment as well, as in the protective assessments are one and the same. The income has been assessed substantively in the hands of the Main Trusts and the demand subsequently settled under KVSS. It is quite unnecessary to repeat that the income has already been assessed in the hands of the Main Trusts. Therefore, nothing remains thereafter to be assessed in the hands of the beneficiary trusts, as far as the income of Main Trust is concerned. Moreover, a case of assessment can be contemplated in the present cases because the stand taken by the assessees is that the income of the Main Trusts has to be assessed in the hands of the individual beneficiary trusts. It is on the basis of that proposition that the returns were filed by the beneficiary trusts. While returns were filed by the beneficiary trusts in their individual capacities, they arc in fact offering income for taxation. Section 140A provides that when an assessee files a return of income and where tax is due as per the said return, the tax shall be paid by the assessee before filing the return of income and the proof of such payment of tax shall be accompanied alongwith the return of income. This is called self-assessment. When an assessee files a return with positive income and remits tax thereon Under Section 140A, in fact, an assessment is being contemplated even though it is a "self-assessment". Later on, when it is found that the income covered by the said return is not taxable, the tax paid by the assessee in pursuance of that return has to be returned by the Revenue. Therefore, refund of tax is a must in this case. The proposition made by the CIT against the refund of tax is not proper.
33. Regarding the grant of interest also, the position is very dear. As already observed in the above paragraph, the refund of tax in the present case is a mandate of law. When such a refund is called for, interest has to be paid as interest is compensatory in nature. It always moves with the principal amount.
34. There is no substance in the argument of the Revenue that the delay in the refund was caused because of the conduct of the assessees. In fact, the assessee was questioning the proposition of the Revenue to assess the income in the hands of the Main Trusts. That is why the beneficiary trusts have filed their individual returns of income disclosing the benefits received from the main trusts also. But when KVSS was pronounced by the Government of India, it was for the assessees to decide whether to take benefit out of that or not. Therefore, it is only when KVSS was promulgated, the assessee had an occasion to make a move and settle the dispute. So also the proceedings were locked up in different appellate forums. Therefore, there is no merit in the argument of the Revenue that the delay was caused by the conduct of the assessees.
35. Therefore, we also find that the assessing officer has rightly granted interest to the assessees on refunds due to them.
36. It is also necessary for us to consider the legal issue raised by the assessee in respect of the jurisdiction exercised by the Commissioner of Income-tax, Under Section 263 of the Income-tax Act, 1961. The facts narrated in the above paragraphs while dealing with the issues on merit bring home the point that right from the beginning, the Revenue was of the view that the impugned income need to be assessed in the hands of the main trusts and it was on the basis of that proposition, the assessment orders were passed by the Revenue; that the assessments have been made on substantive basis on the main trusts. As already stated the assessments were repeated in the hands of the beneficiary trusts on protective basis. The assessee always objected to the above proposition made out by the Revenue. It is for that reason matters were taken before appellate authorities. When these matters were pending before the different authorities that the Kar Vivad Samadhan Scheme was promulgated and the assessee got an occasion to settle the dispute by accepting the impugned income to be assessed in the hands of the main trusts on substantive basis. The main trusts paid the taxes as per the Kar Vivad Sarmadhan Scheme and certificates were issued by the concerned authorities in compliance thereof. The beneficiary trusts having already been assessed on protective basis, rectification petition Under Section 154 was filed before the assessing officer to exclude the impugned income from the assessments of the, beneficiaries. The assessing officer, on the basis of the Kar Vivad Samadhan Scheme orders and relevant records, passed orders Under Section 154 excluding the income from the hands of the beneficiary trusts which resulted in the refund of tax along with interest. The Gujarat High Court has already in one of the group cases of the assessees has passed an order dated 30-07-2001 in which the court has held that one and the same income cannot be taxed in the hands of different assessees. In the present case, when the dispute regarding the assessment of income has already been settled under Kar Vivad Samadhan Scheme there was nothing to be assessed in the hands of the beneficiaries. As far as the above mentioned order of the Gujarat High Court is concerned, the Revenue has not proceeded further by way of a Special Leave Petition before the Supreme Court. The Revenue had filed Review petition before the High Court which was dismissed on 03 09 2003. A larger bench of the Gujarat High Court through its order dated 14-08-2004 has not reversed the said decision of the Division Bench rendered on 30-07-2001. Under these circumstances, the Revenue Authorities working within the jurisdiction of the Gujarat High Court has to pass orders in the light of the orders and judgments of the said High Court.
37. In the present case, as the income was finally offered for tax in the hands of main trusts and settled under Kar Vivad Samadhan Scheme, there was no reason to keep the protective assessments alive, in the hands of the beneficiary trusts.
38. In this context, the learned senior standing counsel had argued that the returns were filed by the beneficiary trusts themselves and so even after assessed by the Revenue authorities on protective basis, the income returned in those returns should not be excluded from the hands of the beneficiary trusts and, therefore, no refund/interest should have been allowed to them. e above argument, we find, is not sustainable in the light of the judgment of the Hon'ble Gujarat High Court in the case of SR Kausti 276 ITR 175, wherein it was held as under:
A word of caution. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only, as provided under the Act If an assessee, under a mistake, misconception or on not being property instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This Court, in an unreported decision in the case of Vinay Chandulal Satia v. N.O. Parekh, CIT, Special Civil Application No. 622 of 1981, rendered on August 20, 1981, has laid down the approach that the authorities must adopt in such matters in the following terms:
The Supreme Court has observed in numerous decisions, including Ramlal v. Rewa Coalfields Ltd. ; State of West Bengal v. Administrator, Howrah Municipality , and Babhutmal Raichand Oswal v. Laxmibal R Tarte , that the State authorities should not raise technical pleas if the citizens Have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt.
39. In view of the above, we find that the orders passed by the assessing authority were not erroneous; but, on the other hand, were just and proper. As we find no error in the orders of the assessing authority we find that the Commissioner of Income-tax had no jurisdiction to invoke Section 263 and pass the revision orders contested herein.
40. Now we conclude here. For the reasons stated above, both on merit as well as in law, we find that the revision orders passed by the Commissioner of Income-tax in these cases are not sustainable in law. Accordingly we quash the revision orders and restore the orders of the assessing authority issuing refund with interest due thereon.
41. Certain other contentions are raised in respect of certain assessees before us. But all those contentions related to orders passed before the revision action taken by the CIT. Therefore, all those issues are to be treated as merged with the earlier orders. Therefore, we find that there is no need to discuss each such contention as the main controversy in these cases has already been decided and the matter has been held in favour of the assessees.
42. In result, all these appeals are allowed.