1981 (5) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the initiation of reassessment proceedings under Section 147(b) of the Income Tax Act, 1961.
2. Validity of the trust and its implications on the assessment.
3. Double taxation concerns regarding the assessment of the same income in different capacities.

Issue-wise Detailed Analysis:

1. Validity of the initiation of reassessment proceedings under Section 147(b) of the Income Tax Act, 1961:

The Income Tax Officer (ITO) initiated reassessment proceedings under Section 147(b) of the Income Tax Act, 1961, on the basis that the original assessment was not proper. The Tribunal upheld the ITO's action, stating, "The Income-tax Officer could reasonably believe that income had escaped assessment in the hands of the entity as such." The Tribunal concluded that the High Court's judgment constituted information that justified the reassessment. The Tribunal further noted, "We are thus satisfied that there was information which came to the possession of the Income-tax Officer after the original assessment. That information showed that the original assessment was not the proper one and that income could be assessed directly in the hands of the firm as such."

2. Validity of the trust and its implications on the assessment:

The trust was deemed invalid based on the High Court's previous judgment in the case of Ganpatrai Sagarmal (Trustees) for Charity Fund v. CIT [1963] 47 ITR 625. The Division Bench observed, "The document only showed that at some date in the past, the two partners had agreed that the entire properties of the business should be transferred to themselves and others as trustees but the deed did not record that such transfer was ever effectuated." Consequently, the ITO assessed the firm as an "unregistered firm" (U.R.F.) since there was no valid trust. The Appellate Assistant Commissioner (AAC) supported this view, stating, "There being no valid trust, there could be no beneficiary, no charity, no settlor or donor and consequently the fate of all assessments made on such non-existent persons can be easily guessed."

3. Double taxation concerns regarding the assessment of the same income in different capacities:

The assessee argued that reassessing the income in the hands of the firm after it had already been assessed in the hands of the beneficiaries amounted to double taxation. The Tribunal rejected this argument, clarifying, "It is true that an option is available to the ITO, to tax the beneficiaries or the trustees, under s. 41. In order that this provision should apply, there must be trust. As a result of the High Court's judgment it is clear that there was no trust." The Tribunal further stated, "Therefore, there was no question of any choice being exercised by the ITO under s. 41." The High Court affirmed this view, noting, "If one assessment is gone or is treated to have gone because of the operation of some legal principle and the same income is subjected to tax in the hands of the same individual in another capacity or in the hands of some other person, as the case may be, then the principle of double taxation is not attracted."

Conclusion:

The High Court concluded that the reassessment proceedings under Section 147(b) were valid, the trust was invalid, and the principle of double taxation did not apply. The question referred to the court was answered in the affirmative and in favor of the Revenue. The court stated, "In the premises, the question is answered in the affirmative and in favour of the Revenue."

Costs:

"In the facts and circumstances of the case, parties will pay and bear their own costs."

Separate Judgment:

SUDHINDRA MOHAN GUHA J. concurred with the judgment.