Protective assessment cannot survive after substantive settlement; refund, interest and refusal of revision were upheld.

Protective assessments of the same income could not be retained once the substantive liability in the main trust's hands had been settled under the Kar Vivad Samadhan Scheme, 1998, because the duplicated tax demand could not survive and the tax paid on the beneficiary assessments became refundable. Interest on the refund followed as a compensatory incident of the delayed repayment. The rectification orders giving effect to that settled position were not erroneous or prejudicial to the Revenue, so revision under section 263 was not available. The refund, interest, and rejection of revision were therefore upheld in favour of the assessees.

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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, 1998 could again be sustained in the hands of the beneficiary trusts on a protective basis, and whether the refund granted on exclusion of such income was valid; (ii) whether interest on the refund was admissible; (iii) whether the Commissioner had jurisdiction to revise the rectification orders under section 263 of the Income-tax Act, 1961.

Issue (i): Whether income assessed substantively in the hands of the main trust and settled under the Kar Vivad Samadhan Scheme, 1998 could again be sustained in the hands of the beneficiary trusts on a protective basis, and whether the refund granted on exclusion of such income was valid.

Analysis: The substantive assessments in the hands of the main trust had been settled under the Scheme, while the beneficiary assessments were only protective. The Board's clarification on the Scheme recognised that protective demands do not survive once the substantive case is accepted and that redundant protective assessments are to be rectified in due course. The same income could not be taxed twice, and once the substantive liability stood concluded, nothing remained to be enforced against the protective assessments. The exclusion of the duplicated income from the beneficiaries' assessments was therefore a normal consequence, and the tax earlier paid by them on that income became refundable.

Conclusion: The protective assessments could not survive after settlement of the substantive assessments, and the refund granted to the assessees was valid and in their favour.

Issue (ii): Whether interest on the refund was admissible.

Analysis: Once the refund itself was legally due, interest followed as an incident of the delayed return of money. The delay was not attributable to any default by the assessees, and the refund arose because the duplicated income was removed from assessment. Interest being compensatory in nature, it attached to the refund amount.

Conclusion: Interest on the refund was rightly granted in favour of the assessees.

Issue (iii): Whether the Commissioner had jurisdiction to revise the rectification orders under section 263 of the Income-tax Act, 1961.

Analysis: The rectification orders were passed to give effect to the settled position under the Scheme and to remove income that could no longer be taxed in the beneficiaries' hands. Since the Assessing Officer had acted in accordance with the correct legal consequence of the Scheme and the Board's clarification, the orders were not erroneous and did not cause prejudice to the Revenue. In the absence of such error, the precondition for revision under section 263 was not satisfied.

Conclusion: The Commissioner lacked jurisdiction to revise the rectification orders, and the revision was bad in law.

Final Conclusion: The assessments in the beneficiaries' hands could not be sustained once the substantive liability in the main trust's hands had been settled, the refund with interest was proper, and the revision orders were unsustainable.

Ratio Decidendi: Where the same income has been finally settled in the hands of the assessee primarily liable on a substantive basis, a protective assessment of the same income cannot be retained, and any order restoring such duplicated tax liability is neither erroneous nor prejudicial for the purposes of revision.

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