1994 (4) TMI 116 - AT - Income Tax

A Firm, A Partner, Accounting Year, Assessing Officer, Assessment Order, Assessment Year, Protective Assessment

Issues Involved:
1. Jurisdictional issue regarding the invocation of Section 147(a) of the Income-tax Act.
2. Validity of protective assessments made in the hands of the trustee.
3. Applicability of CBDT Circulars No. 157 and No. 45.
4. Relevance of the Andhra Pradesh High Court's decision in CIT v. Khalid Mehdi.

Detailed Analysis:

1. Jurisdictional Issue:

The primary issue was whether the Assessing Officer (AO) was justified in invoking Section 147(a) of the Income-tax Act for reassessment. The assessee argued that all material information related to the trust deed was available to the AO, thus making the invocation of Section 147(a) unjustified. The AO contended that the assessee failed to disclose a primary, material fact in her original return, specifically that she was the sole beneficiary of the trust as of 31-12-1979. The judgment emphasized that it is the assessee's responsibility to disclose all primary facts, and failure to do so allows the AO to invoke Section 147(a). The tribunal upheld the AO's action, stating that the assessee did not disclose her beneficial interest in the trust, thereby justifying the reassessment under Section 147(a).

2. Validity of Protective Assessments:

The second issue was the validity of the protective assessments made in the hands of the trustee. The trustee had filed two returns for the assessment year 1980-81, apportioning the trust's income on a pro-rata basis due to Tenzing's marriage to Tiruselvi. The AO, following the instructions of the Inspecting Assistant Commissioner (IAC), made two protective assessments in the name of the trustee. The tribunal noted that protective assessments are judicially recognized and are employed to ensure that income does not escape taxation altogether. The tribunal held that the protective assessments were validly made and that the AO was justified in bringing the sum of Rs. 3,48,174 to charge in the hands of the assessee, Tiruselvi.

3. Applicability of CBDT Circulars:

The assessee argued that the AO had exercised his option to assess the trustee by making two assessments in the trustee's name, thereby preventing him from bringing the income to charge in her hands. The tribunal rejected this argument, stating that the AO's actions were based on a conscious decision to ensure that the trust's share of income for the year ending 31-12-1979 was taxed in the hands of the sole beneficiary, Tiruselvi. The tribunal emphasized that this was not a case of the AO exercising his option once and for all but rather a decision based on the material facts of the case.

4. Relevance of the Andhra Pradesh High Court's Decision:

The assessee relied on the Andhra Pradesh High Court's decision in CIT v. Khalid Mehdi to argue against the validity of the protective assessments. The tribunal distinguished the present case from the Khalid Mehdi case, noting that the latter involved final assessments on certain individuals, whereas the present case involved protective assessments due to the trustee filing two returns. The tribunal stated that the rationale behind protective assessments is to ensure that income does not escape taxation and held that the Andhra Pradesh case could not avail the assessee.

Conclusion:
The tribunal dismissed the assessee's appeal, upholding the AO's invocation of Section 147(a) for reassessment, the validity of the protective assessments made in the hands of the trustee, and rejecting the applicability of the CBDT Circulars and the relevance of the Khalid Mehdi case.

← Previous Next →