Protective assessment and section 263 limits: duplicated trust income could not be taxed again, and refund interest was upheld.

Income finally assessed substantively in the hands of the main trust and settled under the Kar Vivad Samadhan Scheme could not be assessed again protectively in the hands of beneficiary trusts, because the same income cannot be taxed twice and protective assessments fall away once the substantive assessment is concluded. The Assessing Officer had taken a legally permissible view in excluding duplicated income, so the Commissioner could not invoke section 263 merely because another view was possible; the order was neither erroneous nor prejudicial to the Revenue. Refund arising from exclusion of the duplicated income carried interest, as it followed consequential appellate and settlement relief rather than annulment of the assessment.

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Issues: (i) Whether income assessed substantively in the hands of the main trust and settled under the Kar Vivad Samadhan Scheme could again be assessed in the hands of beneficiary trusts on a protective basis. (ii) Whether the Commissioner could revise the Assessing Officer's order under section 263 of the Income-tax Act, 1961 in such circumstances. (iii) Whether refund arising on exclusion of the duplicated income carried interest.

Issue (i): Whether income assessed substantively in the hands of the main trust and settled under the Kar Vivad Samadhan Scheme could again be assessed in the hands of beneficiary trusts on a protective basis.

Analysis: The income had first been assessed substantively in the hands of the main trust and only protectively in the hands of the beneficiaries. Once the main trust settled the tax dispute and the assessment in the substantive case became final, the very same income could not survive for repeated assessment in the hands of the beneficiaries. The Court also relied on the settled principle that the same income cannot be taxed twice and noted the binding departmental circulars clarifying that protective assessments must fall away once the substantive assessment is concluded.

Conclusion: In favour of the assessees. The protective assessments in the hands of the beneficiaries could not be continued for the same income.

Issue (ii): Whether the Commissioner could revise the Assessing Officer's order under section 263 of the Income-tax Act, 1961 in such circumstances.

Analysis: The Assessing Officer had adopted one of the legally permissible views by excluding income that had already been brought to tax in the substantive assessment of the main trust. An order cannot be revised under section 263 merely because another view is possible. Since the existing High Court decision had already settled the controversy and the Assessing Officer's view was in line with that decision, the order was neither erroneous nor prejudicial to the interests of the Revenue.

Conclusion: In favour of the assessees. The revision under section 263 was held unsustainable.

Issue (iii): Whether refund arising on exclusion of the duplicated income carried interest.

Analysis: The refund did not arise from annulment of the assessment but from the consequential exclusion of income after appellate and settlement proceedings. In such a situation, interest on refund was held to be payable. The authorities cited by the Revenue on void assessments and returned income refunds were distinguished on facts.

Conclusion: In favour of the assessees. Interest on refund was upheld.

Final Conclusion: The repeated assessment of the same trust income was disallowed, the revisionary orders were invalidated, and the consequential refund with interest was sustained.

Ratio Decidendi: Once income has been finally assessed in the hands of the person lawfully chosen for substantive assessment, a protective assessment of the same income in another person's hands cannot survive, and an order adopting that position cannot be revised under section 263 merely because a different view is possible.

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