2015 (2) TMI 171 - HC - Income Tax

Assessment on substantive basis - Bharat Trust was a specific trust - ITAT held that share income of the assessee as a beneficiary from M/s. Bharat Trust / Navbharat Trust, Norma Trust should be assessed on substantive basis ? - Held that - In similar matter, this Court, in The CIT vs. Santokben Kanjibhai Patel 2008 (9) TMI 917 - GUJARAT HIGH COURT has held that the Tribunal was not right in law and on facts in holding that the share income of the assessee as beneficiary from Bharat Trust/Navbharat Trust, Norma Trust should be assessed on substantive basis and it was submitted that the matter be remanded to the Tribunal to reconsider the issue in light of the decision of this Court. - Decided in favour of revenue for statistical purposes.

Issues Involved:
1. Whether the Appellate Tribunal correctly appreciated the facts on record to confirm the order directing the Assessing Officer to frame the assessment on a substantive basis in the hands of the assessee, on the ground that Bharat Trust was a specific trust.

Issue-Wise Detailed Analysis:

1. Status and Assessment of Bharat Trust:
The Assessing Officer initially finalized the assessment for the year 1981-1982 by considering the status of the assessee as an individual and assessed the income declared in the return protectively. The CIT (Appeals) later held that Bharat Trust was a specific trust and the provisions of Section 164 of the Income Tax Act were not applicable. Consequently, the assessment in the hands of the assessee should be finalized on a substantive basis. The Tribunal confirmed this order, which led to the present reference to the High Court.

2. Settlement under Kar Vivad Samadhan Scheme (KVSS):
During the hearing, it was declared that Bharat Trust had settled the matter under the Kar Vivad Samadhan Scheme and paid the tax. It was also noted that in a similar matter, the High Court had previously held that the Tribunal was not right in law and on facts in holding that the share income of the assessee as a beneficiary from Bharat Trust/Navbharat Trust/Norma Trust should be assessed on a substantive basis. Therefore, it was submitted that the matter should be remanded to the Tribunal for reconsideration in light of the High Court's decision.

3. Consistency with Previous Decisions:
The High Court acknowledged that the issue was already covered by a previous decision, which was binding on the Revenue. It was noted that the Tribunal had previously concluded that the beneficiaries of the trusts were known and their shares were determinate, and thus, the income of the trust should be computed and apportioned as per Section 161(1) of the Income Tax Act, not subjected to the maximum marginal rate under Section 164(1).

4. Protective vs. Substantive Assessment:
The High Court observed that the income had been taxed substantively in the hands of the main Trusts, and the same income could not be taxed again in the hands of the beneficiaries. This principle was upheld in previous judgments, and it was noted that once an income is finally assessed in the hands of the main Trusts and taxes are paid, the same income cannot be taxed protectively or otherwise in the hands of the beneficiaries.

5. Judicial Propriety and Final Decision:
The High Court emphasized maintaining judicial propriety and consistency with earlier decisions. It was decided that the Tribunal's order should be set aside, and the matter should be remanded to the Tribunal for reconsideration in light of the High Court's earlier decision. The Tribunal was directed to pass an appropriate order within six months from the receipt of the High Court's order.

Final Disposition:
The High Court disposed of the reference without any order as to costs, directing the Tribunal to reconsider the matter and pass an appropriate order within a stipulated period, ensuring consistency with the previous decisions of the Court.

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