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2019 (8) TMI 1319 - AT - Income TaxReopening of assessment - denial of exemption u/s 11 - account transfer of foreign bequest(gift) made in earlier year to Sri Lanka based bank account to India - taxable on the basis of receipt - HELD THAT - The impugned sum is lying in the treasury of bank of Ceylon since 09.02.2007. The assessee s request seeking transfer thereof to India is pending till date as per the Appellate Authority s order / direction(s). Whether the said sum can be held to be the assessee s income accrued or receive u/s 5 in these facts and circumstances so as to be held as having escaped assessment giving rise to the re-opening / re-assessment in question - We find no force either in Revenue s arguments or in lower authorities action treating the above bequest as assessee s taxable income. We wish to emphasise here that the assessee is yet to enjoy a clear legal title on the trust property and therefore, the same could not have been treated as its income received under the provision of the Act. Hon'ble apex court s landmark decision in Chainrup Sampatram vs. CIT 1953 (10) TMI 2 - SUPREME COURT settled the law long back that the principle of conservative and prudence in accounting treatment require that no anticipated profits are treated as income till realization. And that the converse is not true regarding anticipated losses which can be deducted from commercial profits at the first sign its reasonable probability. Hon'ble Bombay high court s decision Mrs.Meherbai N. Sethna 1993 (9) TMI 46 - BOMBAY HIGH COURT holds that it is the accrual of income and not actual receipt which forms the only relevant factor for assessment of an overseas income de hors any restriction or prohibition on its remittance to India. We apply the very legal principle herein as well to conclude that the learned lower authorities have erred in treating the impugned piquet fund to be assessee s taxable income having escaped assessment after lapse of twelve years from assessment year 1995-96 when M/s Bouete (supra) had bequested her last. We lastly wish to observe that the Revenue s stand under challenge also does not satisfy sec. 160(1)(iv) r.w.s. 161 applicable in case of a representative assessee. There can be no dispute about the foregoing facts that Mrs Bousle had expired on 26.06.1994. The assessee is admittedly the ultimate beneficiary of the trust. Hon'ble Madhya Pradesh high court s judgment in Karelal Kundalal Trust 1983 (7) TMI 39 - MADHYA PRADESH HIGH COURT holds that these two statutory provision stipulated assessment of a representative assessee to be having same duties, responsibilities and liabilities. We conclude in this factual and legal backdrop that it was the trustee bank who ought to have been assessed u/s 160 r.w.s 161 with regard to the impugned sum way back in assessment year 1995-96. We therefore accept the assessee s instant last plea as well. The assessee s twin grounds challenging validity of the impugned reopening / re-assessment as well as correct of the bequest amount addition in question succeed. - Decided in favour of assessee.
Issues Involved:
1. Validity of Re-assessment Proceedings 2. Taxability of Bequest Amount 3. Application of Section 11 Exemptions 4. Time Limitation for Issuance of Notice under Section 148 5. Role of Representative Assessee under Sections 160 and 161 Detailed Analysis: 1. Validity of Re-assessment Proceedings: The assessee contested the re-assessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961. The AO issued a notice under Section 148 dated 07.03.2014, believing that the assessee's income had escaped assessment. The primary reason was the transfer of UK Pounds 1,75,000 to the assessee's Sri Lanka-based bank account, which was not reflected in the books of account for the relevant assessment year 2007-08. The CIT(A) upheld the AO's action, stating that the assessment was correctly made for the assessment year 2007-08, and the notice was issued within the statutory time limit. 2. Taxability of Bequest Amount: The AO added the bequest amount to the assessee's income, arguing that it should have been recorded in the books of account. The assessee argued that the amount was a capital receipt and not taxable income. The Tribunal found that the assessee had not received the amount as income but inherited it as a beneficiary. The amount was still lying in the treasury of the Bank of Ceylon, and the request for repatriation to India was pending. The Tribunal concluded that the assessee did not have a clear legal title to the trust property, and thus, it could not be treated as income under the Income Tax Act. 3. Application of Section 11 Exemptions: The AO contended that the assessee neither claimed exemption under Section 11(1) nor set apart the bequest under Section 11(2) of the Act. The assessee argued that it had not enjoyed a clear title to the bequest and, therefore, could not claim exemption or set it apart under Section 11. The Tribunal agreed with the assessee, stating that the amount could not be treated as income received or accrued under Section 5 of the Act. 4. Time Limitation for Issuance of Notice under Section 148: The assessee argued that the notice under Section 148 was issued beyond the statutory time limit of six years. The Tribunal noted that even if the trust fund had accrued in the assessee's favor in the assessment year 1995-96, the re-assessment proceedings initiated in 2014 were beyond the permissible time limit. The Tribunal cited the Bombay High Court's decision in Mrs. Meherbai N. Sethna vs. CIT, which held that the accrual of income, not the actual receipt, is relevant for assessment. 5. Role of Representative Assessee under Sections 160 and 161: The assessee argued that the trustee bank, M/s Coutts & Co., London, was the representative assessee under Section 160(i)(iv) of the Act and should have been assessed for the trust fund. The Tribunal agreed, stating that the trustee bank held the bequest sum on behalf of the assessee until its transfer to the Bank of Ceylon. The Tribunal cited the Madhya Pradesh High Court's judgment in Karelal Kundanlal Trust, which held that a representative assessee has the same duties, responsibilities, and liabilities as the beneficiary. Conclusion: The Tribunal concluded that the re-assessment proceedings were invalid, and the bequest amount could not be treated as the assessee's taxable income. The appeal was allowed, and the impugned re-assessment and addition of the bequest amount were set aside.
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