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TMI Blog2025 (1) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership firms, adopted by the settlor for crediting the capital account of assessee in those firms and the taxability of the same in the hands of the firms and vice versa, which the AO has not done in this case. Therefore, it is a complete case of lack of enquiry. It is settled position of law that tax planning is permissible if it is done within the four corners of law but tax evasion is not permissible. Whether amount received is not taxable in terms of section 56(x) as the same has been received for the benefit of relative? - We don t find any infirmity in the view of the PCIT in as much as it is evident from the clauses of the trust deed that the benefits of the trust were not restricted to relatives only. The benefit of the amount received was not restricted to the family members and hence the view of the AO is not plausible view therefore the PCIT is correct in law in holding the order as prejudicial to the interest of revenue. What was received is not covered by the definition of term property as given in explanation(d) of section 56(2)(vii)? - whether interest in partnership firm is covered in the meaning of expression property ? - There are so many differences between ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of assessee that interest in partnership firm is out of the purview of section 56(2)(X). Whether amount was not received without consideration? - No merit in this contention in view of the fact that it is not merely a case of receipt of an amount, rather a case where on the same date the assessee has been given rights in the partnership firms and the erstwhile partner has been retired. In fact, assessee has been made owner of the partnership firms without paying any penny. In fact, it is a finding of fact that no actual money has been transferred to the account of the assessee rather shares of M/s Silver Niddle has been transferred and capital account of the assessee has been credited in the partnership firms by reconstituting the partnership firms. Amount received by the trust is received under fiduciary capacity and hence not taxable and trust via trustee does not have any right to enjoy the receipt as owner - We don t find any merit in these arguments, there are provisions under the Income Tax Act which are meant exclusively for the purpose of taxation of Private Discretionary trusts. For instance, section 165 specify the tax rates applicable to a trust section 164A provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g nil income. Thereafter, the case of the assessee was selected for scrutiny and assessment u/s 143(3) of the Act has been framed vide order dated 7.4.2021 accepting the returned income of the assessee. 2.1 In the back drops of above facts the assessee. The ld. PCIT called for the assessment records and examined the proceedings. The ld. CIT(A) after going through the case records and assessment records took a view that the order passed by the AO is erroneous and prejudicial to the interest of revenue. Accordingly, the ld. PCIT issued a notice u/s 263 of the Act on 13.3.2024 and called for the reply from the assessee. The assessee in response to the notice issued u/s 263 of the Act has filed its submissions on 18.3.2024. The submissions made by the assessee during the proceedings u/s 263 of the Act are reproduced hereunder for the sake of convenience: 3. Legal submission on applicability of section 263 of the Act (a) Revisionary proceedings under section 263- i can be initiated only if the order passed by learned AO is both erroneous, and prejudicial to the interest of the revenue. ii cannot be initiated on difference of opinion. iii is not permissible if issue examined by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted... The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income- tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not eamed by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. 3-4. Hon'ble Supreme Court in the case of Commissioner of Income-tax (Central), Ludhiana D. Max India Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the contention of the assessee that no expenditure is attributable to the exempt income during the relevant Assessment Year. Thus, while recording the aforesaid finding. the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and therefore, the Commissioner of Income-tax could not have set the Tribunal. 3.6. Further, in the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Sarvana Developers [(2016) 387 ITR 239 (Karnataka)] the proceedings under section 263 of the Act was set aside on the ground that the assessing officer had applied his mind and hence, there was no lack of enquiry The relevant extract of the said ruling is provided below 19. In the light of the Judgments discussed above, we are of the firm view that the twin test propounded by the Hon'ble Courts for invoking the provisions of Section 263 of the Act, are not satisfied in the present case. As discussed above, the CIT proceeded to initiate proceedings under Section 263 of the Act only on the ground that the Assessing Officer has not assigned any reasons for accepting the valuation of the work-in-progress declared by the Company. As per the materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,27,63,437 was examined. 3.14. The AO had duly issued a notice under section 143(2) of the Act and sought clarification on various issues, including the receipt of INR 669,27,63,437 by the Trust from the settlor. 3.15. The Trust had furnished the relevant details and documents to the learned AO, such as the trust deed, the settlement deed, the letter from the settlor, the ledger copies of capital account, bank statement, and the financial statements, partnership deeds, financial statements of partnership firms, to explain the source, nature of the receipt, and taxability, refer section 1 of the submission. 3.16. Therefore, it cannot be said that order passed by the learned AO is erroneous and prejudicial to the interest of revenue, without making inquiries or verification or allowing any relief without inquiring into the claim. The order was based on a possible and permissible view taken by the AO in accordance with the law and facts of the case. 3.17 Based on above, it is very well evident that enquiries were conducted. Responses capturing facts and legal proposition were furnished and learned AO has taken a conscious decision of not making any addition. It is therefore humbly sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub Mahindra v. CGT [1968] 70 ITR 1. It would be at once seen as a result of the above decision, by barely perusing the said definition in section 2(d) that the understanding of the term consideration cannot get confined to money alone. The term consideration is that which creates a contractual relationship between the promisor and promisee in regard to the performance of promise and in regard to which the parties to the agreement or contract get related to each other. It is more than elementary that the law in regard to consideration tells us that consideration may be relating to a party other than the promisor and promisee illustratively for the benefit of a minor. 4.4. From the above, essential features of consideration are: i. It must move from the promisee or any other person, which means it must be given or done by the person for whose benefit the promise is made, or by any third party at the request of the promisor, with the consent of the promisee. ii. It must be at the desire of the promisor, which means it must be given or done voluntarily and not under coercion, undue influence, fraud, misrepresentation or mistake. lii. It may be past, present or future, which means it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains; 160. (1) For the purposes of this Act, representative assessee means (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [ including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913).] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees; 161. (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.6, beneficiaries means. a. The Settlor b. The spouse of the settlor c. The children and remoter issue of the settlor d. Such other objects or persons as are added under clause 6 and beneficiaries shall be construed accordingly. 6. Power to add beneficiaries 6.1 The Trustee may, at any time during the Trust Period, declare that any person or class of persons (whether or not in existence or ascertained) or Charity shall be added to the class of Beneficiaries provided that no such person or class of persons or Charity may be or include any Excluded Person. 6.1 In view of the above clause, it is clear that other than relatives also can be included in the beneficiaries. Hence, trust is not created or established solely for the benefit of the relatives of the individual. 6.2 As per the IT Act, relatives means- 1. In case of an individual- 1. Spouse of the individual: 2. Brother or sister of the individual; 3. Brother or sister of the spouse of the individual; 4. Brother of sister of either of the parents of the individual; 5. Any lineal ascendant or descendant of the individual; 6. Any lineal ascendant or descendant of the spouse of the individual; 7. Spouse of the person referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uffers from legal defects such as being passed in violation of the provisions of the Act and is devoid of merits and is contrary to the facts on record and applicable law and as such liable to be quashed. 2. The Ld. PCIT has finalized the impugned order with improper conclusion without considering the information, arguments and evidence provided by the Appellant B. Validity of revisionary proceedings under section 263 of the Act 1. The impugned order passed by the Ld. PCIT is without jurisdiction as the twin conditions prescribed under section 263 of the Act ie., the order of the Ld. AO shall be 'erroneous' and prejudicial to the interest of revenue, are not satisfied. 2. The Ld. PCIT erred in concluding that the assessment order passed under section 143(3) r.w.s 143(3A) and 143(3B) of the Act for impugned AY is erroneous and prejudicial to the interest of revenue, without appreciating the material on record and submissions made by the Appellant. 3. The Ld. PCIT erred in passing the impugned order, on the allegation that the Ld. AO has completed the assessment without making necessary enquiries or verifying the taxability of receipt of INR 669,27,63,437, without appreciatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pression shares used in the definition of property as explanation (d) to section 56(2)(Vii) of the Act. 3.3 Counsel for the assessee next contended that even if it is presumed that it is covered in the definition of property then the amount received by the assessee cannot be said to be an amount received without consideration. Counsel for the assessee to support this contention has further contended that the trust has received an amount of Rs. 669.27 crores in Fiduciary capacity, which was overridden with an obligation to use that amount only for the benefits of the beneficiaries. Ld. Counsel for the assessee has vehemently referred to definition of Trust as given under Indian Trust Act and has also relied upon various judgements to buttress his arguments. 4. The ld. D.R. appearing on behalf of the revenue strongly argued that it is a case where an amount of Rs. 669.27 crores has been received by the assessee without any consideration and this contention of the assessee that the same was received in the fiduciary capacity for spending for the benefits of beneficiaries only is factually incorrect in as much as it is categorically mentioned in the trust deed that this amount can be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es unto the Trustee (acting on behalf of and in its capacity as trustee of the Trust) his entire Partnership Interest and the Unlisted Shares along with all attendant benefits and entitlements, including all amounts standing to the credit of Anand in the capital account, and all profits that are due or payable to Anand (including profits arising or relating to the period prior to execution of this Deed). Annexure-1 Details of Unlisted shares Sl.No. Name of the Company No. of equity shares 1. Silver Needle Hospitality (India) Pvt. Ltd. 175,490 preference shares 2. SilverNeedle Hospitality (India) Pvt. Ltd. 5,000 equity shares b) Trust was settled on 23.01.2018 with an amount of Rs 10000/- (Settlement deed is at Page Number-31 of the Paper Book) In this deed the definition of securities has been mentioned at Page Number- 36 Clause 1.32. The same is reproduced hereunder for the sake of reference- Clause 1.32 Securities means : a) Any stocks or shares issued by any Company ; b) Debentures (including debenture stock, loan stock, bonds, certificates of deposit and any other acknowledgement of indebtedness) issued by or on behalf of a government, local authority, public authority or Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee has received interest in partnership firms, which is not taxable under the provisions of income tax. Assessee referred to explanation (d) of section 56(2)(vii) for contending that interest in partnership is not covered under the definition of property . Assessee also referred to the provisions of section 56(2)(x) for arguing that even if the amount of Rs 669.27 Crore is covered in the definition of property the amount cannot be taxed as the same has been received from the benefit of relative of individual. This reply of the assessee is silent vis- -vis transfer of equity and preference shares of the Company (name mentioned somewhere above) i) The above facts are being mentioned to judge whether the AO has conducted adequate enquiries with respect to the issues on which the PCIT has declared the order as erroneous and prejudicial to the interest of revenue. ( this para will go at last ) 5. Perusal of the sequence of event would prove beyond doubt that in the final reply dated 08.02.2021, the assessee has made only submissions with respect to the non-taxability of interest in partnership firm, the assessee has no where mentioned any thing about the receipt of pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of lack of enquiry. It is settled position of law that tax planning is permissible if it is done within the four corners of law but tax evasion is not permissible. Further if apparent is not real then the courts have power to lift the veil and to see through the transaction as held by the Hon ble Apex Court in Vodafone case. In this case arrangement of affairs have been done in such a manner that one partner has been made retired and the retirement benefits have been devolved in the favor of third parties and family members. The ought to have examined the issue thread barely. 7. It is settled position of law ITAT has no power to enhance the income of an assessee, or to withdraw the benefit that has been granted by the AO. However, the ITAT has all the powers to examine the applicability of correct provisions before the matters coming to it for adjudication particularly in the light of admitted facts. Herein this case in fact we are not ultimately deciding the liability of the assessee u/s 45(4) rather deciding the assumption of jurisdiction by the PCIT for invoking the action of section 263. If the assessee is able to satisfy the AO regarding the non-applicability of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re it is pertinent to that legislature has not used the words of a company after the term shares , which means the expression shares as in explanation-2 of section 56(2)(vii) does not mean that the word share is only related to shares of corporate entities only. Securities a. Encompasses a broader range of financial instruments. b. Includes shares, bonds, debentures, mutual funds, and other investment products. c. Can be traded on various financial markets, including stock exchanges, bond markets, and over-the-counter (OTC) markets. Key differences - Between shares and Securities are as under:- Shares Security Scope Shares are a specific type of security While securities is a more general term Instrument types- Not of wider range it can be in equity and preferential shares Securities include a wider range of financial instruments beyond shares While shares are typically traded on stock exchanges. securities can be traded on various financial markets. To illustrate the difference I bought 100 shares of Apple stock. (Here, shares refers specifically to units of ownership in Apple.) The investment portfolio includes a mix of securities, such as stocks, bonds, and mutual funds. (Here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation(d) of section 56(2)(vii) denotes two different type of properties these properties are distinct and hence the term and used between them carries a meaning of or . There are so many judicial pronouncements wherein it has been held that and can be read as or when the interpretation requires so. The and/or doctrine is applied in following situations. a) Literal interpretation leads to absurdity : - If reading and literally leads to an absurd or un reasonable results, courts may interpret it as or . b) Contextual analysis supports it :-If the context of the statute, regulation, or contract suggests that and should be read as or , courts may apply the and/or doctrine. c) Legislative intent : If the legislative intent behind the statute or regulation is to provide alternative options, courts may interpret and as or . 11. In the present case the context in which the term shares and securities has been used it is abundantly clear that and should be read as or . Further literal interpretation in the present case is also giving an absurd meaning therefor we are of the firm opinion that the expression and used here should be read as or 12. Case laws where it has been held that terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification No. 2/2017-Central Tax (Rate), dated 28-6-2017. Thus supplying of purified drinking water to the general public in an unsealed container is not exempt from GST. [Para 19] g) In Ishwar Singh Bindra v. State of UP AIR 1968 SC 1450 the central question before a three judge Bench of this Court was the interpretation of Section 3(b)(i) of the 1940 Act. This Court held: - 11. Now if the expression substances is to be taken to mean something other than medicine as has been held in our previous decision it becomes difficult to understand how the word and as used in the definition of drug in Section 3(b)(i) between medicines and substances could have been intended to have been used conjunctively . It would be much more appropriate in the context to read it disjunctively. In Stroud's Judicial Dictionary, 3rd Edn. it is stated at p. 135 that and has generally a cumulative sense, requiring the fulfilment of all the conditions that it joins together, and herein it is the antithesis of or. Sometimes, however, even in such a connection, it is, by force of a contexts, read as or . Similarly, in Maxwell on Interpretation of Statutes, 11th Edn., it has been accepted that to carry out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of a partition suit . 14 Above judicial views clearly provide that interest in partnership firm falls in the category of shares and the same is covered by the provisions of explanation (d) of section 56(2)(vii). Therefore, we reject the contentions of the counsel for the assessee that interest in partnership firm is out of the purview of section 56(2)(X). 15. The next contention raised by the counsel for the assessee is that amount was not received without consideration. We don t find any merit in this contention in view of the fact that it is not merely a case of receipt of an amount, rather a case where on the same date the assessee has been given rights in the partnership firms and the erstwhile partner has been retired. In fact, assessee has been made owner of the partnership firms without paying any penny . In fact, it is a finding of fact that no actual money has been transferred to the account of the assessee rather shares of M/s Silver Niddle has been transferred and capital account of the assessee has been credited in the partnership firms by reconstituting the partnership firms. 16. Counsel for the assessee next contended two things A) the amount received by the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO is erroneous in so far as prejudicial to the interest of revenue. The AO has passed the order without making enquiries which should have been made by him. It is equally true that in final stage of assessment, the assessee has not disclosed the transferee of shares of private limited company along with interest in partnership firm in categorical terms. 20. Here we would like to make a reference to the decision of Hon ble Rajasthan High Court in the case of CIT Vs Every stone reported in 213 ITR 843 (Raj) wherein it has been held that non application of mind by the AO to the legal issues would justify action of section 263. 21. Before parting we would also like to observe that the detailed submissions made by the assessee, would itself shows that the present case was not an ordinary case and the AO ought to have conducted some more enquiries and then ought to have examined the applicability of other provisions of the act. However, nothing has been done by the AO. Therefore, it is a clear case of no enquiry by the AO and hence the PCIT is correct in holding the order of the AO as erroneous and prejudicial to the interest of revenue. 22. The appeal of the assessee stands dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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