1984 (3) TMI 138 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of income from a single storeyed building in the total income of the assessee.
2. Inclusion of the value of the said property in the total wealth of the assessee.
3. Validity of reopening proceedings under section 17 of the Wealth-tax Act, 1957.
4. Validity of reopening proceedings under section 147 of the Income-tax Act, 1961.
5. Double taxation concerns.
6. Legal ownership and beneficial ownership of the property.
7. Application of relevant circulars and case law.

Detailed Analysis:

1. Inclusion of Income from Property in Total Income:
The primary issue is whether the income from a single storeyed building at premises No. 6/1, Dilwarganj Road, Calcutta, should be included in the total income of the assessee. The property was settled by Smt. Bhawari Devi Gadhaiya on trust for the benefit of the assessee. Initially, separate returns were filed by the trust and the assessee, excluding this property from the assessee's income. The WTO reopened the proceedings, arguing that the trust would terminate when the assessee attained the age of 21, and thus the income should be included in the assessee's total income. The assessee contended that the income had already been assessed in the hands of the trust and could not be reassessed in his hands. The WTO rejected this, stating that since the assessee was the sole beneficiary, the income should be included in his total income.

2. Inclusion of Property Value in Total Wealth:
Similarly, the inclusion of the property's value in the assessee's total wealth was contested. The WTO included the value of the property in the net wealth of the assessee for the relevant years. The assessee argued that the property remained vested in the trust and was not transferred to him until 1975, making it irrelevant for assessment years before 1976-77. The AAC ruled in favor of the assessee, stating that the property was assessed in the trust's hands and could not be reassessed in the hands of the beneficiary.

3. Validity of Reopening Proceedings under Section 17 of the Wealth-tax Act, 1957:
The WTO reopened the wealth-tax proceedings under section 17, arguing that the trust would terminate when the assessee attained the age of 21. The assessee contended that there was no omission or failure on his part to include the property in his wealth. The AAC supported the assessee, stating that the property continued to be vested in the trust and could not be included in the assessee's wealth until it was transferred to him.

4. Validity of Reopening Proceedings under Section 147 of the Income-tax Act, 1961:
The ITO initiated proceedings under section 147, arguing that the sole trustee had not disclosed that the assessee had separate income other than the trust income. The assessee contended that the income had already been assessed in the trust's hands. The AAC dismissed the assessee's appeals, stating that the income should be shown in the hands of the sole beneficiary.

5. Double Taxation Concerns:
The assessee argued that assessing the income and wealth in both the trust's and his hands would amount to double taxation. Reference was made to various authorities and circulars, including the Bombay High Court decision in Trustees of Chaturbhuj Raghavji Trust v. CIT and the Gujarat High Court decision in CWT v. Kum. Manna G. Sarabhai. The principle that total income should be charged only once was reiterated. The Board's circulars advised that once the department exercised the option to assess either the trust or the beneficiary, it could not assess the same income/wealth in the other's hands.

6. Legal Ownership and Beneficial Ownership of the Property:
The trust deed stipulated that the trust would terminate, and the property would vest in the assessee upon attaining the age of 21. The assessee argued that the property could not be included in his wealth until it was legally transferred to him. However, the Tribunal held that the vesting of the property was not dependent on the trustees' re-transfer. The trust stood terminated upon the assessee attaining 21 years, making him the owner of the property for tax purposes.

7. Application of Relevant Circulars and Case Law:
The Tribunal referred to various circulars and case laws, including Circular No. 157 and Circular F. No. 45/78/66-ITJ(5), which emphasized that once the department chose to assess either the trust or the beneficiary, it could not reassess the same income/wealth in the other's hands. The Tribunal also referred to the Madras High Court decision in P. Joseph Swaminathan v. CIT, which held that the real owner of the property should be taxed, regardless of registration.

Conclusion:
For the assessment years 1969-70 to 1973-74, the Tribunal ruled in favor of the assessee, dismissing the departmental appeals and allowing the assessee's appeals. For the assessment years 1974-75 and 1975-76, the Tribunal ruled against the assessee, allowing the departmental appeals and dismissing the assessee's appeals. The Tribunal concluded that the property and its income should be included in the assessee's wealth and income from the year he attained the age of 21.