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TMI Blog2019 (8) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the order is based upon the interpretation which the CIT has given to the terms and conditions of the last will and testament of the assessee's father dated 30.10.2008. Thus, it is evident that the CIT has made a roving enquiry and substituted his view to that of the view taken by the AO who had done so after conducting an enquiry into the matter and after calling for all documents from the assessee, one of which is the last will and testament executed by the assessee's father. Therefore, we are of the clear view that this is not a case where the Commissioner could have invoked the power u/s 263. For all the above reasons, the Substantial Questions of Law 1 and 4 are answered in favour of the assessee. Interpretation of will - Exclusion of payment to charities by applying the principle of diversion of income by overriding title - HELD THAT:- The assessee at no point of time was entitled to receive the entire sale consideration. The sale was to be executed by the executor of the will who was directed to distribute the money to the respective organisations, defray the expenses, pay the property tax, deduct his professional fee and the remaining amount was dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected, all of which were through banking channels. Therefore CIT was perverse which ought not to have been affirmed by the Tribunal more so for the reason that there was no evidence with regard to the expenses like professional fee, etc. The Tribunal failed to note that the assessee had produced the copies of the receipts signed by the respective party before the AO who was satisfied with the same and in the absence of any fraud being alleged with regard to the authenticity of those documents, the CIT could not have revised the assessment by invoking Section 263. For the above reasons, the Substantial Question of law No.3 is answered in favour of the assessee. - Tax Case Appeal No.415 of 2019 - - - Dated:- 5-8-2019 - Mr. Justice T.S. Sivagnanam And Mrs. Justice V. Bhavani Subbaroyan For the Appellant : Mr.T.N.Seetharaman Assisted by Mr.R.Kumar For the Respondent : Mr.Karthick Ranganathan Senior Standing Counsel Mr.S.Rajesh Standing Counsel JUDGMENT T.S.SIVAGNANAM, J. This appeal filed by the assessee under Section 260A of the Income Tax Act, 1961 ('the Act' for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the executor will be entitled to a sum of ₹ 50,000/-. The balance amount was to be paid to the assessee and accordingly, the assessee received a sum of ₹ 8,19,50,000/-. The assessee filed his return of income on 13.07.2012 admitting total income of ₹ 6,22,63,973/- comprising of Long Term Capital Gains computed as ₹ 5,99,21,346/- arising on sale of the Bangalore property by adopting the sale consideration as ₹ 8,19,50,000/- and claiming a sum of ₹ 7,52,500/- as expenditure incurred in connection with the sale. The Assessing Officer completed the assessment by order dated 25.09.2014 under Section 143(3) of the Act considering the sale consideration as mentioned by the assessee in his return of income, namely, ₹ 8,11,97500/- (₹ 8,19,50,000 - ₹ 7,52,500/-). The Commissioner of Income tax (CIT), International Taxation, Chennai issued a show cause notice under Section 263 of the Act proposing to disallow the sum of ₹ 68,02,500/-, being the payment made to charitable institutions and the claim of the expenditure of ₹ 8,02,500/-. The assessee submitted their objections dated 18.03.2015, firstly on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 and 14.06.2016. After perusal of all the records placed by the assessee and after noting the submissions of the Chartered Accountant/authorized representative of the assessee, the assessment was completed and the stand taken by the assessee was accepted by the Assessing Officer. However, the plea raised by the assessee with regard to the cost of indexation benefit was not accepted and the Assessing Officer held that the assessee is allowed cost of indexation benefit only from the financial year 2011-12 as per Explanation (iii) in Section 48 of the Act. The Commissioner had issued show cause notice dated 12.03.2015 under Section 263 of the Act. In the show cause notice, the Commissioner states that the figures mentioned by the assessee were culled out from the records, thus there was no other independent material which formed the basis of the show cause notice. The CIT opined that the expenses claimed by the assessee towards payment to the charitable institutions and others were not incurred wholly and exclusively in connection with the transfer of Bangalore property and the same is not allowable. According to the CIT, the order passed by the Assessing Officer under Section 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly if on examination of the records of any proceedings under the Act, the Commissioner considers that an order passed by the Income Tax Officer is erroneous in so far as it is prejudicial to the interest of revenue. It was further held that this power is not arbitrary or uncharted power, it can be exercised only on fulfilment of the requirements laid down in Sub-section (1), that an order is erroneous in so far as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings called for by the Commissioner and if there are no materials on record, the basis on which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings will be illegal and without jurisdiction. It was further held that the Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries into the matters or orders which are already concluded as such an action will be against the well accepted policy of law that there must be a point of finality in all illegal proceedings, stale issues should not be reactivated beyond a particular stage. Section 263 of the Act d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll and dispose of his properties as stated by him in the will. The executor was entitled to a sum of ₹ 50,000/- as professional fee and all expenses for the due execution of the will from and out of the estate of the deceased testator. After setting out the details of his family and the property possessed by him, the testator states that he bequeaths the sale consideration received from the sale of the immovable property absolutely to the assessee, his second son. Then the testator proceeds to state that the executor of the will shall arrange to sell the property after a period of one year from the date of his demise so as to accommodate his wife for her stay and after she vacates the property, the executor shall sell the property as already mentioned and distribute the sale proceeds by effecting payments in favour of the four charitable institutions specifying the amount to be paid to each of them and defray the necessary expenses towards stamp duty, etc., fees to the executor and the remaining sale consideration be paid to the assessee who shall repatriate the said amount so received for the education of his children as per RBI rules. To gather the intention of the testator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 which order was erroneously confirmed by the Tribunal by the impugned order. 9.Mr.Karthik Rangathan, learned Senior Standing Counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of R.M.Arunachalam vs. Commissioner of Income Tax [(1997) 93 Taxman 423 (SC)] . In the said case, the question was whether the estate duty paid in respect of the estate of one 'R' and the estate of one 'V' to the extent of such duty related to the assets in question, could be claimed as a deduction as cost of acquisition or as cost of improvement. The question was answered against the assessee as the capital asset became the properties of the assessee under the will executed by 'U' i.e. under clause (ii) of sub-section (1) of Section 49; the capital assets became the property of 'U' under sub-clause (a) of clause (iii) of sub-section (1) of section 49 by succession after the death of her husband 'R' and by virtue of the explanation in sub-section (1) of Section 49 'R' had been treated as the previous owner of the assets by the ITO. On facts, it was found that the assessee admittedly became the full owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that what has to be seen is the nature of obligation by reason of which the income becomes payable to a person other than the one receiving it; where the obligation flows out of an antecedent and independent title it effectively slices away a part of the corpus of the right to receive the entire income and thus it would be a case of diversion. In the case of Commissioner of Income Tax vs. Imperial Chemical Industries (India) (P.) LTd. [(1969) 74 ITR 17] , it was held that where there is an obligation to apply an income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee, it is a case of diversion of the income. In the case of Sitaldas Tirathdas which decision was referred to by the Tribunal, it was held that where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. 12.In the preceding paragraphs, we have set down the factual position which clearly shows that the amounts were specifically earmarked by the test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was an inquiry, even adequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act merely because he has a different opinion in the matter and it is only in cases of lack of inquiry that such a course of action would be open. As mentioned by us in the preceding paragraphs, the assessee has responded to the notice issued under Section 142 of the Act and produced documents and records including their statement of total income wherein they had given the entire details including the receipts issued by the respective persons to whom payments were effected, all of which were through banking channels. Therefore, in our considered view the finding rendered by the CIT was perverse which ought not to have been affirmed by the Tribunal more so for the reason that there was no evidence with regard to the expenses like professional fee, etc. The Tribunal failed to note that the assessee had produced the copies of the receipts signed by the respective party before the Assessing Officer who was satisfied with the same and in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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