2008 (9) TMI 917 - HC - Income Tax

Summary

Issues involved:
The judgment deals with the issue of whether the share income of the assessee as a beneficiary from M/s. Bharat Trust / Navbharat Trust, Norma Trust should be assessed on a substantive basis.

Summary:

Issue 1: Assessment of share income of beneficiaries from main Trusts

The Income-tax Appellate Tribunal referred the question of law u/s 256(1) of the Income-tax Act, 1956 for A.Y. 1981-82 regarding the assessment of share income of beneficiaries from main Trusts. The Assessing Officer made protective assessments in the cases of beneficiaries based on the income declared by the main Trusts. The first Appellate Authority directed the Assessing Officer to assess the income of the main Trust in the hands of beneficiaries on a substantive basis. The Tribunal upheld this decision, stating that the income of the main Trust allocated to beneficiaries should be assessed substantively.

Issue 2: Settlement under Kar Vivad Samadhan Scheme (KVSS)

The main Trusts settled the dispute under KVSS, leading to the contention that income belongs to the main Trusts and not the beneficiaries. The department argued that since the income was substantively assessed in the hands of the main Trusts, protective assessments made for beneficiaries should be deleted.

Issue 3: Jurisdiction under Section 263

The Commissioner of Income-tax invoked Section 263 to cancel orders passed by the Assessing Officer, claiming they were erroneous and prejudicial to revenue. However, the Tribunal held that the Assessing Officer's orders were just and proper, and the Commissioner had no jurisdiction to pass revisional orders under Section 263.

Conclusion:

The Court held that once income is finally assessed in the hands of main Trusts and taxes are paid, the same income cannot be taxed again in the hands of beneficiaries. Despite various authorities cited, the Court followed the earlier decision and answered the question in favor of the revenue, stating that the Appellate Tribunal was not correct in assessing the share income of beneficiaries on a substantive basis. The references were disposed of without costs.