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2008 (6) TMI 576 - HC - Income TaxAssessment on substantive basis - Whether income of Main Trust assessed on a substantive basis and liabilities finally settled under Kar Vivad Samadhan Scheme, 1998 (KVSS) could again be assessed in the hands of corresponding beneficiaries here assessed on a protective basis? - Main Trust had settled the dispute under KVSS - HELD THAT - We find that Main Trust had settled the dispute under KVSS. This is the dispute which department has originated and is agitating before higher appellate authorities. It was department s case that income belongs to Main Trust and not to the beneficiaries that is the reason why incomes were assessed substantively in the case of Main Trust and protectively assessed in the case of beneficiaries. When Main Trust settled the disputes under KVSS and paid due taxes, that is the end of the dispute between department and Main Trust as well as Assessees on the taxability of incomes. When in the case of Main Trust where substantive assessments were made, the protective assessments made in other cases viz. beneficiaries of Main Trust should be deleted. In the present case, issue is of protective assessments and substantive assessments. Protective assessments cannot be continued in the appellate proceedings once substantive assessments become final. In the present case, revenue assessed income in the case of Main Trust on a substantive basis, which was accepted. The finding of CIT is contrary to the decision of Tribunal which is not permitted. CIT being subordinate authority to the Tribunal cannot take contrary to the decision of Tribunal - When CIT revised order, controversy was already decided by this court in Apex Court in the case of ITO V/s. C.H. Atchaiah 1995 (12) TMI 1 - SUPREME COURT . The decision of CIT in the revision order is contrary to the above decision of court which cannot be permitted. Reference to the larger bench cannot be ground to revise assessment u/s.263 of I.T. Act. On this ground also we uphold the order of Special Bench of ITAT. We find that this is the only conclusion that once assessment in the substantive case is final, protective assessment cannot be continued in the case of beneficiaries. When CIT revised order, there exist order of this court dt.30.07.01. Hence, atleast this is one of the views, though we find that this is the only view, revision order u/s.263 is not permissible on jurisdictional ground. This is the decision of Hon ble Supreme Court in the cases of Malabar Industries Co. Ltd. V/s CIT 2000 (2) TMI 10 - SUPREME COURT and G.M. Mittal 2002 (12) TMI 13 - SUPREME COURT . When the decision of High Court was reversed by Supreme Court on merits, Hon ble Supreme Court held that revision order cannot be sustained as on the date of revision order, order of High Court did exist. Following the same, we hold that CIT had no jurisdiction to pass revision order u/s.263. On that day, the order of this court dt.30.07.01 did exist. On the contrary, this order has become final. As regards grant of interest on refund, we find that Tribunal was justified in holding that refund should be granted with interest. We are in full agreement with the order of Special Bench of Tribunal. We repeat that revenue should not drag the respondents to unnecessary avoidable litigation - we dismiss the appeals filed by revenue except Tax Appeals Nos. 182 and 204 of 2002 with Tax Appeals Nos.27 to 30 of 2004, i.e., the appeals of the assessees in the cases of Janak Pramodbhai Patel, Pramodbhai Kanjibhai Patel HUF, Bharat Piyush ODFT and C.J. Zala ODFT. Erroneous and prejudicial order revised by CIT u/s.263 - whether the same income can be assessed in the case of Ambica Trust as well as in the case of respondent beneficiaries - HELD THAT - We find that section 4 of the I.T. Act is clear. Charge is on the income and charge is only once. The same income cannot be taxed in the hands of two different persons. We fully agree with the Tribunal s finding that under the theory of double taxation also if the income is assessed in the case of trustees, it cannot be again assessed in the case of respondent beneficiaries vice versa. If assessed in the case of respondent beneficiaries, it cannot be taxed in the case of representative assessees. Therefore, the same income which has been assessed in the case of trust/trustees, again it cannot be assessed in the case of beneficiaries. We also agree with the Tribunal that interest u/s.244A should be granted on refund of tax. If on giving effect to the appellate order, refund is due that has to be granted with interest. We find that view taken by A.O. was correct and hence CIT has no jurisdiction to revise the assessment. Mr. Soparkar has also submitted that questions raised before this court were pertaining to KVSS which do not arise from the order of Tribunal. Tribunal has allowed the appeal on the first principle about taxation on representative assessees and not on implications of KVSS. We agree that Tribunal has allowed the appeal on first principle and not of KVSS. In the result, we confirm the order of Tribunal and dismiss the appeal filed by the revenue.
Issues Involved:
1. Whether the Tribunal was correct in holding that the beneficiary Trust cannot be assessed when the main Trust settled its tax arrears under the Kar Vivad Samadhan Scheme (KVSS). 2. Whether the Tribunal was right in canceling the CIT's order under Section 263 of the IT Act when the main Trust availed KVSS benefits. 3. Whether the Tribunal impliedly extended KVSS benefits to the non-declarant beneficiary Trust. 4. Whether the Tribunal was correct in granting a refund of taxes paid on self-assessment and advance tax to the beneficiary Trust. 5. Whether the Tribunal rightly held that the same income cannot be taxed twice, once in the hands of the main Trust and again in the hands of the beneficiaries. Detailed Analysis: 1. Beneficiary Trust Assessment Post-KVSS Settlement: The Tribunal held that once the main Trust settled its tax arrears under KVSS, the same income could not be assessed again in the hands of the beneficiary Trust. The Tribunal's decision was based on the principle that the same income cannot be taxed twice. This was supported by the CBDT circular which clarified that protective assessments should be canceled once substantive assessments are finalized. The High Court agreed with this reasoning, emphasizing that the income assessed substantively in the main Trust cannot be taxed again in the hands of the beneficiaries. 2. Cancellation of CIT's Order Under Section 263: The Tribunal canceled the CIT's order under Section 263, which had revised the assessment order excluding income settled under KVSS by the main Trust. The High Court upheld the Tribunal's decision, stating that the CIT's order was contrary to the Tribunal's earlier decision and the High Court's judgment, which had become final. The High Court also noted that the CIT lacked jurisdiction to revise the assessment when the substantive assessment of the main Trust had already been settled under KVSS. 3. Implied Extension of KVSS Benefits to Non-Declarant Beneficiary Trust: The Tribunal's decision impliedly extended the benefits of KVSS to the beneficiary Trust, which was a non-declarant under the scheme. The High Court supported this view, stating that once the main Trust settled the tax liability under KVSS, the protective assessments on the same income in the hands of the beneficiaries should be deleted. This was in line with the CBDT circular and the principle that the same income cannot be taxed twice. 4. Refund of Taxes Paid on Self-Assessment and Advance Tax: The Tribunal granted a refund of taxes paid on self-assessment and advance tax to the beneficiary Trust. The High Court upheld this decision, differentiating it from cases where assessments were annulled or held void ab initio. The refund arose from the exclusion of income from the beneficiary Trust's assessment, which had been substantively assessed and settled in the main Trust's case. 5. Non-Duplication of Taxation: The High Court reiterated that the same income cannot be taxed in the hands of different assessees. Once the income was substantively assessed in the main Trust and settled under KVSS, it could not be assessed again in the hands of the beneficiary Trust. This principle was supported by the CBDT circular and previous judicial decisions, ensuring that protective assessments should be nullified once substantive assessments are finalized. Conclusion: The High Court dismissed the appeals filed by the revenue, upholding the Tribunal's decision that the same income cannot be taxed twice, and confirming the cancellation of the CIT's order under Section 263. The High Court also supported the Tribunal's decision to grant refunds and interest on the refunded amounts, emphasizing the finality of the substantive assessment settled under KVSS. The judgment reinforced the principle that once a substantive assessment is settled, protective assessments must be canceled, ensuring non-duplication of tax liability.
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