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TMI Blog1989 (7) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the ITO in the case of Femina Fashion Group in ITA No. 1164/Ahd/1986. 4. The CIT initiated proceedings under s. 263 in both these cases and issued an identical notice on 3rd Sept., 1985. In this notice there was a proposal to set aside the assessment 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 6th Nov., 1985 in which the proposal was to set aside/revise the assessments 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 assessee that the ITO passing the assessment order was within his jurisdiction to do so and there was no reason to invoke the provisions of s. 263. In response to the second show cause notice the following submissions were made by the appellants: ITA 1164/Ahd/86 Femina Fashion Group "I bag to refer to your above show cause notice and reply as follows. First of all, you had issued a show cause notice dt. 3rd Sept., 1985 proposing to set aside the assessment on the ground that the assessing ITO had no jurisdiction. A reply dt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax. 5. On the facts and circumstances of the case, it is submitted that provisions of s. 263 have no application and the show cause notice issued is illegal and invalid." ITA No. 1165/Ahd/1986 D.H. Advani Family Trust "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. 3rd Sept., 1985 proposing to set aside the assessment on the ground that the assessing ITO had no jurisdiction. A reply dt. 12th Sept., 1985 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 was 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 evidence that somehow in 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 upto 31st Dec., 1983. It was assessed to Income-tax for the last 6 to 7 years. She sold off the 7 sewing machines to the trust for Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 CIT 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 CIT that the trust had been created by one Hasibai Khusiram Vajumal with a sum of Rs. 1,000 the trustees being Smt. Lajvanti Daulatram and Vidhya Daulatram. The beneficiaries once against were the members of the same family. 8. Taking into account the aforesaid facts in both the cases the CIT 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 relationship of the settlors of the trust vis-a-fis the trust members of the Advani Family. He was also of the view that the running business had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bengal Hotels Ltd., in re (1977) 47 Comp Cases 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 avoid taxation. It is upto the Court to take stock to 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 devices for what they really are and to refuse to give judicial benediction." 8. The assessee's contention that the notice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect that the action under s. 263 was barred by limitation. It was stated that in respect of Femina Group the assessment order was passed on 7th Sept., 1983 whereas in the case of D.H. Advani Family Trust the date of the assessment order was 26th Sept., 1983. He also invited our attention to the fact that the CIT should have passed the order under s. 263 within two years of the aforesaid date whereas the consolidated order of the CIT was passed on 28th Jan., 1986 viz., well after the period of two years. According to the learned counsel the law had been amended w.e.f. 1st Oct., 1984 and the same was applicable to assessment 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 under s. 263 be quashed as being barred by limitation. 11. The learned Departmental Representative on the other hand contended that the amendment was applicable to all pending assessments whether completed after 1st Oct., 1984 or prior to that date. He invited our attention to a decision of the Madras Bench of the Tribunal in the case of B. Vijaykumar vs. IAC (1987) 20 ITD 254 (Mad) wherein a similar sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of two years envisaged by s. 275 as it was in force at the time when the default was committed, i.e., 14th March, 1970, in the meantime, an amendment was made in that a new provision was substituted by the Taxation Laws (Amendment) Act, 1970 w.e.f. 1st April, 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 intiated are completed. The Madras High Court observed that s. 275 is in the nature of procedural provision and there is no question of any vested right accruing 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 s. 275 alone will apply so long as the period of limitation has not expired on 1st April, 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 vs. Savithri (T.C. Nos. 165 to 167 of 1975 dt. 17th Dec., 1979) which relates to similar amendment made to s. 18 of the Act b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business 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 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. did not apply and in any case this could not form part of the notice under s. 263 issued by the CIT since these provisions were not meant for applying the decision of High Courts. He finally made an impassioned plea for the confirmation of the assessment orders and setting aside of the consolidated order of the CIT under s. 263. In support of his arguments he placed reliance on the following authorities: (i) Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solidated order of the CIT be confirmed. 16. In reply, the learned counsel for the assessees stated that the relevant details pertaning to the relationship of trustees, beneficiaries and the settlor had been given to the ITO 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. vs. ITO (1983) 3 ITD 116 (Bang) for the submission that the powers under 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 assessment orders passed by the ITO. The paper book furnished by the assessee's 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 27th April, 1983 and the first hearing took place on 7th Sept., 1983, by means of a notice issued on 30th Aug., 1983 and served on the assessee on 1st Sept., 1983. On 7th Sept., 1983 itself the hearing w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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