2017 (6) TMI 781 - AT - Income Tax

Income relating to minor beneficiaries of the trust.- Addition to the total income of the parents of minor beneficiaries u/s 64(1)(a) - interest claimed by the co-owners of the property - Held that - The assessee has preferred appeals before the Tribunal and during the course of hearing, he could not establish that the recipient i.e., trust has ever offered the receipt of interest to tax. This issue was thoroughly examined by the Tribunal and the Hon ble High Court and the Hon ble High Court has remanded the matter back to the AO with a direction that if the assessee has made provision for payment of interest in the return filed by her and if the interest paid by the assessee is taken into account of the trust in the next assessment year or in subsequent years, it is for the revenue to compare both the accounts and pass appropriate order in order to find out whether the interest shown in the return of income is reflected in the accounts of the trust. Despite clear directions of the Hon ble High Court, the assessee could not place the relevant evidence in this regard. The scope of enquiry was limited as it has to be done as per the directions of the Hon ble High Court. Since the assessee could not place any relevant evidence with regard to taking into account the interest received by the trust from the assessee while computing its income, the AO has rightly disallowed the claim of the assessee and the CIT(Appeals) confirmed the same. Thus additions confirmed - Decided against assessee.

Issues Involved:

1. Validity of proceedings under Section 147 and notice under Section 148.
2. Assessment of income of Dr. Nayeema Khan Trust for A.Y. 1993-94.
3. Applicability of Section 64(1)(a) regarding income of minor beneficiaries.
4. Provisions of Section 5 read with Section 145(1) in assessing income.
5. Interest levied under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of Proceedings under Section 147 and Notice under Section 148:

The appellant challenged the validity of the proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, arguing that the notice under Section 148 was issued despite the voluntary filing of the return of income on 18.09.1995. The Tribunal upheld the validity of the proceedings, affirming the AO's actions as lawful and proper.

2. Assessment of Income of Dr. Nayeema Khan Trust for A.Y. 1993-94:

The CIT(Appeals) upheld the assessment of ?5,47,561 as the income of Dr. Nayeema Khan Trust for A.Y. 1993-94. This assessment was based on the directions of the Hon'ble High Court of Karnataka, which required verification of whether the interest shown in the return of income by the appellant was reflected in the accounts of the Trust. The AO concluded that the interest claimed by the co-owners of the property was not admitted in the hands of the Trust for A.Y. 1993-94 and 1994-95.

3. Applicability of Section 64(1)(a) Regarding Income of Minor Beneficiaries:

The AO added ?3,65,040 to the appellant's income under Section 64(1)(a), attributing it to the minor beneficiaries of Dr. Nayeema Khan Trust. The CIT(Appeals) confirmed this addition, stating that the income in the hands of the Trust was assessable for A.Y. 1993-94 and thus should be included in the appellant's income. The Tribunal also upheld this decision, noting that the appellant failed to provide evidence that the Trust had offered the interest income for taxation.

4. Provisions of Section 5 Read with Section 145(1) in Assessing Income:

The appellant contended that the provisions of Section 5 read with Section 145(1) were disregarded in assessing the Trust's income. The Tribunal found that the AO's assessment was in line with the High Court's directions, which required comparing the interest paid by the appellant with the interest income reflected in the Trust's accounts. The AO's conclusion that the interest was not admitted by the Trust was upheld.

5. Interest Levied under Sections 234A, 234B, and 234C:

The appellant disputed the interest levied under Sections 234A (?1,19,230), 234B (?1,58,973), and 234C (?1,804). The Tribunal upheld the interest levied, finding no merit in the appellant's grounds for appeal.

Conclusion:

The Tribunal dismissed the appeals of the assessee, confirming the additions made by the AO and upheld by the CIT(Appeals). The Tribunal found no infirmity in the CIT(Appeals) order and rejected the appellant's grounds regarding the reopening of the assessment and the interest levied under Sections 234A, 234B, and 234C. The judgment was pronounced in the open court on May 26, 2017.

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