1996 (7) TMI 99 - HC - Income Tax

Court sets aside tax revision cases, restores original assessment orders for family trusts. Trustees not liable for clubbed income.

The court allowed the tax revision cases, setting aside the proceedings initiated by the Deputy Commissioner under Section 34 of the Agricultural ... Income Tax, Partner In Firm Issues Involved:1. Applicability of Section 9(2)(a)(i) of the Agricultural Income-tax Act, 1950.2. Validity of the proceedings initiated under Section 34 of the Act due to delay.Issue-wise Detailed Analysis:1. Applicability of Section 9(2)(a)(i) of the Agricultural Income-tax Act, 1950:The primary issue was whether the petitioners, trustees of twelve family trusts, were liable to be assessed to agricultural income-tax under Section 9(2)(a)(i) of the Agricultural Income-tax Act, 1950, for the assessment years 1978-79 and 1979-80. The Deputy Commissioner had issued a notice proposing to revise the assessments on the grounds that the trustees had joined partnerships in their individual capacities, not as representatives of the trusts. The Deputy Commissioner argued that the partnership deeds did not specify that each partner represented a trust and that the capital for the firms was not derived from the trusts' funds.The court found that the trustees joined the partnerships as representatives of the family trusts, not in their individual capacities. The trust deeds authorized the trustees to enter into partnerships, and the partnership deeds indicated that the trustees acted in their representative capacities. The court emphasized that the properties involved remained trust properties and that the trustees were managing these properties on behalf of the trusts. Consequently, the income derived from these properties should be assessed in the hands of the trustees as representatives of the trusts, not as individuals.The court concluded that Section 9(2)(a)(i) of the Act, which includes the agricultural income of a wife arising from her membership in a firm where her husband is also a partner, did not apply in this case. The husband and wife were trustees of different family trusts, and the properties involved were trust properties. Therefore, the income derived by the trustees from the partnerships should not be clubbed together for assessment purposes.2. Validity of the Proceedings Initiated Under Section 34 of the Act Due to Delay:The second issue was whether the Deputy Commissioner exercised the power under Section 34 of the Act within a reasonable period. The court noted that while Section 34 does not provide a specific time limit for initiating suo motu revision, the power must be exercised within a reasonable time to avoid prejudice and hardship to the assessee. The court referred to previous judgments emphasizing that the revisional power should be exercised within a reasonable period, even if no time limit is prescribed by the statute.In this case, the original assessment orders for the years 1978-79 and 1979-80 were passed on March 30, 1984, and modified on October 1, 1986, pursuant to appellate orders. The Deputy Commissioner issued the notice for suo motu revision on November 8, 1990, more than six years after the original assessments. The court found that the notice did not disclose any circumstances justifying the delay in initiating the suo motu action. The absence of any explanation for the delay was deemed fatal to the Department's case.The court held that the suo motu revision initiated by the Deputy Commissioner was invalid due to the unreasonable delay and laches. Consequently, the impugned orders were quashed, and the original assessment orders for the years 1978-79 and 1979-80 were restored.Conclusion:The court allowed the tax revision cases, setting aside the proceedings initiated by the Deputy Commissioner under Section 34 of the Act and restoring the original assessment orders for the years 1978-79 and 1979-80. The court concluded that the trustees were liable to be assessed as representatives of the family trusts, and the income derived from the trust properties should not be clubbed together for assessment purposes. Additionally, the suo motu revision was deemed invalid due to the unreasonable delay in initiating the proceedings.