2019 (10) TMI 916 - AT - Income Tax

Validly of reassessment proceedings - contribution of addition to Sornammal Educational Trust has a gesture of goodwill - as per AO contribution of donation made by M/s. Ranstand Holdings, NV, Netherlands is part and parcel of the total contribution agreed and accordingly issued notice u/s.148 - HELD THAT - Admittedly in the present case, MOU dated 20.08.2008 was on record but there is nothing on record to show that the Assessing Officer had examined clauses of the MOU governing the contribution of donation by M/s. Ranstand Holdings, NV, Netherlands to Sornammal Educational Trust, Chennai as a gesture of goodwill. It is only during the course of assessment proceedings in the hands of Ms. Hemalatha Rajan for the assessment year 2010-2011, the Assessing Officer had come to know that M/s. Ranstand Holdings, NV, Netherlands had paid contribution of addition to Sornammal Educational Trust has a gesture of goodwill. This would undisputedly constitute a fresh tangible material enabling the Assessing Officer to form an opinion that income escaped assessment. Furthermore, there is nothing on record to show that in the original assessment proceedings, the Assessing Officer has raised this issue of taxability of this item and formed an opinion in favour of the assessee. Therefore, it cannot be said that it is case of mere change of opinion as no such opinion was formed in original assessment proceedings. The proposition of law laid down by Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT has no application to the facts of the present case. Thus, the ground of appeal No. 2 raised by the assessee stands dismissed. Tax contribution of donation made by Ranstand Holdings, NV, Netherlands to Sornammal Educational Trust, Chennai as part of compensation paid to the assessee for breach of share purchase agreement - HELD THAT - From the reading of the above clause, it is clear that goodwill is not part and parcel of compensation paid to the assessee and his wife by Ranstand Holdings, NV, Netherlands and it is separate and distinct transaction and voluntary payment. The fact that contribution was approved by the Government of India under Foreign Contribution Act confirming the position. It prima facie proves that it is a voluntary contribution. Further, the mere fact that assessee and his wife are trustees in the trust does not ipso facto prove that they are beneficiaries of this fund nor there is no material on record brought by the Assessing Officer to say that the money was diverted to the trust by the assessee and his wife. There was no tangible material brought on record by the Assessing Officer to establish collusion in the transaction. Therefore what is apparent should be believed unless and until the contrary is proved in the light of the judgment in the case of Sumathi Dayal vs. CIT 1995 (3) TMI 3 - SUPREME COURT . AO was not justified in treating the contribution paid to the trust as a part of compensation and bringing to tax in the hands of the assessee and his wife. Thus, ground of appeal No.3 filed by the assessee stands allowed.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147.
2. Taxability of the donation made by M/s. Ranstand Holdings, NV, Netherlands to Sornammal Educational Trust.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 147:

The appellant contested the reopening of the assessment under Section 147, arguing that all material facts had been fully and truly disclosed during the original assessment under Section 143(3). The appellant claimed that the reassessment was initiated due to a mere change of opinion without any new tangible material, thus rendering the proceedings invalid.

The Tribunal examined the reasons recorded by the Assessing Officer (AO) for issuing the reassessment notice. The AO had discovered during the assessment proceedings of Ms. Hemalatha Rajan for the assessment year 2010-2011 that M/s. Ranstand Holdings, NV, Netherlands paid ?6,40,09,975/- to Sornammal Educational Trust, where the appellant is a trustee. The AO concluded that this payment was part of the total compensation agreed upon in the MOU dated 20.08.2008.

The Tribunal noted that the original assessment was completed under Section 143(3) on 27.12.2011, and the MOU was part of the record. However, there was no discussion about the donation's taxability in the original assessment order. The Tribunal cited case law indicating that reassessment is valid if the AO had not applied his mind to the information during the original proceedings. The Tribunal concluded that the reassessment was based on fresh tangible material and was not a mere change of opinion. Thus, the reassessment proceedings were deemed valid, and Ground No. 2 raised by the assessee was dismissed.

2. Taxability of the donation made by M/s. Ranstand Holdings, NV, Netherlands to Sornammal Educational Trust:

The appellant argued that the donation was a voluntary payment made as a goodwill gesture and was approved by the Government of India under the Foreign Contribution Act. The appellant contended that the donation should not be treated as income in their hands.

The Tribunal noted that the donation was made to create goodwill and improve relationships, as stated in the MOU. The Tribunal observed that the donation was distinct from the compensation paid to the appellant and his wife. The fact that the donation was approved by the Government of India supported the appellant's claim that it was a voluntary contribution. The Tribunal found no evidence that the donation was diverted to the trust by the appellant and his wife for their benefit.

The Tribunal concluded that the AO was not justified in treating the donation as part of the compensation and bringing it to tax in the hands of the appellant and his wife. Thus, Ground No. 3 raised by the assessee was allowed.

Conclusion:

The appeals filed by the assessees were partly allowed. The reassessment proceedings under Section 147 were deemed valid, but the donation made by M/s. Ranstand Holdings, NV, Netherlands to Sornammal Educational Trust was not taxable in the hands of the appellant and his wife. The order was pronounced on 17th October 2019, at Chennai.