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TMI Blog1989 (7) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... s completed vide order dated 26-9-1983. The order in this case was absolutely identical to that passed by the ITO in the case of Femina Fashion Group [IT Appeal No.1164 (Ahd.) of 1986]. 4. The Commissioner of Income-tax initiated proceedings under section 263 in both these cases and issued an identical notice on 3-9-1985. In this notice there was a proposal to set aside the assessments on the ground that the ITO who had passed the assessment orders had no jurisdiction to do so. Subsequently, however another notice was issued to both the assessees on 6-11-1985 in which the proposal was to set aside/revise the assessment on the ground that they were erroneous and prejudicial to the interests of revenue. In response to the first show cause notice it was stated on behalf of the assessees that the ITO passing the assessment order was within his jurisdiction in doing so and there was no reason to invoke the provisions of section 263. In response to the second show cause notice the following submissions were made by the appellants : Femina Fashion Group's case "I beg to refer to your above show cause notice and reply as follows. First of all, you had issued a show cause notice dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to this trust, which is genuine and there is not an iota of evidence to show that it was created with a view to avoid or evade the tax. 5. On the facts and circumstances of the case, it is submitted that provisions of section 263 have no application and the show cause notice issued is illegal and invalid." D.H. Advani Family Trust [ITA No. 1165 (Ahd.) of 1986] : "I beg to refer to your above show cause notice and reply as follows. First of all, you had issued a show cause notice dt. 3-9-1985 proposing to set aside the assessment on the ground that the assessing ITO had no jurisdiction. A reply dt. 12-9-85 was given to the said show cause notice. Now another show cause notice under reference is issued on the ground that the ITO has not investigated whether the firm continued to be in existence and whether the income of the trust requires to be assessed in the hands of somebody else. It is quite evident that somehow an action is proposed to be taken, which is not legal. 2. The show cause notice is based on incorrect facts and so it is not legally valid. Correct facts are as under : (i) Tailoring business was done by Smt. Vimla Dolatram Advani as proprietor up to 31-12-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Daulatram had been appointed trustees of the said trust. The beneficiaries were also found to be members of the same family. It was also observed that the capital of the business belonging to the erstwhile partners of the firm who were members of the Advani Family continued to remain with the trust and the total assets of the firm had been handed over to the trust by the partners of the erstwhile firm after the execution of the trust deed. According to the Commissioner this was a case where a running business had been acquired with a meagre sum of Rs. 500 and whose profits were to go back to the partners of the erstwhile firm and the members of their family. 7. In the case of D.H. Advani Family Trust also it was noticed by the Commissioner that the trust had been created by one Hasibai Khushiram Vajumal with a sum of Rs. 1000. The trustees being Smt. Lajvanti Daulatram and Vidhya Daulatram. The beneficiaries once again were the members of the same family. 8. Taking into account the aforesaid facts in both the cases the Commissioner was of the view that the ITO had passed the assessment orders and accepted the claim of the assessees without making any inquiries regarding the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be worth while to reproduce them again. In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai J. in Wood Polymer Ltd. In re and Bengal Hotels Limited, In re [1977] 47 Comp. Cas. 597 (Guj.) where the learned Judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax. It was neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to void taxation. It is upto the Court to take stock and determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of 'emerging' techniques of interpretation as was done in Ramsay, Burma Oil and Dawson to expose the devi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of jurisdiction." 10. The learned counsel for the assessee at the outset, took up a preliminary objection to the effect that the action u/s. 263 was barred by limitation. It was stated that in respect of Femina Fashion Group the assessment order was passed on 7-9-1983 whereas in the case of D.H. Advani Family Trust the date of the assessment order was 26-9-83. He also invited our attention to the fact that the CIT should have passed the orders u/s. 263 within two years of the aforesaid dates whereas the consolidated order of the C.I.T. was passed on 28-1-86. i.e. well after the period of two years. According to the learned counsel, the law had been amended with effect from 1-10-84 and the same was applicable to the assessments completed after that date whereas the assessments completed prior to that date were subject to the unamended law. It was accordingly submitted that the order u/s. 263 be quashed as being barred by limitation. 11. The learned D.R. on the other hand contended that the amendment was applicable to all pending assessments whether completed after 1-10-84 or prior to that date. He invited our attention to a decision of the Madras Bench of the Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on 9-3-1973 which was beyond the period of two years envisaged by section 275 as it was in force at the time when the default was committed, i.e. 14-3-1970, in the meantime, an amendment was made in that, a new provision was substituted by the Taxation Laws (Amendment) Act, 1970 with effect from 1-4-1971, according to which the time limit was extended, namely, two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated are completed. The Madras High Court observed that section 275 is in the nature of procedural provision and there is no question of any vested right according to any assessee by reason of the assessment being completed on any particular date and it is well settled that there is no vested right in any procedural matter. The Madras High Court held that the amended provisions of section 275 alone will apply so long as the period of limitation has not expired on 1-4-1971 when the amended provision was brought into force. The same view has been expressed by the Madras High Court in the earlier case of CWT v. Savithri (T.C.Nos. 165 to 167 of 1975 dated 17-12-1979) which relates to sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel once the basic and primary facts had been given to the ITO it was not for the assessee to tell him as to what investigation should be carried out or what inference should be drawn from those facts. On the merits of the case the learned counsel stated that the two trusts had been validly created and they in turn had taken over by proper and legal means the earlier businesses being carried on. According to him the trust deeds had also been properly executed and there was nothing on record to show that the fruits of the business had been enjoyed by somebody other than the beneficiaries. It was also the Counsel's argument that even if it was presumed to be a case of "tax planning" the same was permissible within the four corners of law. According to the learned counsel the decision in the case of McDowell Co. Ltd. did not apply and in any case this could not form part of the notice u/s. 263 issued by the C.I.T. since these provisions were not meant for applying the decisions of Higher Courts. He finally made an impassioned plea for the confirmation of the assessment orders and setting aside of the consolidated order of the C.I.T. u/s. 263. In support of his argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the assessees stated that the relevant details pertaining to the relationship of trustees, beneficiaries and the settlor had been given to the I.T.O. in both these cases. He also referred to the decision of the Bangalore Bench of the Tribunal in the case of West Coast Construction Co. v. ITO [1983] 3 ITD 116 for the submission that the powers u/s. 263 could not be invoked to consider the decision of a High Court. 17. We have examined the rival submissions and have also perused the consolidated order of the CIT as also the assesssment orders passed by the I.T.O. The paper book furnished by the assessees' counsel as also the authorities cited at the bar by the parties have been duly taken into account in disposing of these appeals. 18. It is apparent that the ITO in both these cases has shown undue haste in completing the assessments. In respect of Femina Fashion Group the return was filed on 27-4-1983 and the first hearing took place on 7-9-83 by means of a notice issued on 30-8-83 and served on the assessee on 1-9-83. On 7-9-83 itself the hearing was concluded and the assessment finalised since the date of the assessment order is also 7-9-83. In respect of D.H. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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