TaxTMI 
TaxTMI 
2025 (1) TMI 239
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.... u/s 143(3) of the Act has been framed vide order dated 7.4.2021 accepting the returned income of the assessee. 2.1 In the back drops of above facts the assessee. The ld. PCIT called for the assessment records and examined the proceedings. The ld. CIT(A) after going through the case records and assessment records took a view that the order passed by the AO is erroneous and prejudicial to the interest of revenue. Accordingly, the ld. PCIT issued a notice u/s 263 of the Act on 13.3.2024 and called for the reply from the assessee. The assessee in response to the notice issued u/s 263 of the Act has filed its submissions on 18.3.2024. The submissions made by the assessee during the proceedings u/s 263 of the Act are reproduced hereunder for the sake of convenience: 3. Legal submission on applicability of section 263 of the Act (a) Revisionary proceedings under section 263- i can be initiated only if the order passed by learned AO is both erroneous, and prejudicial to the interest of the revenue. ii cannot be initiated on difference of opinion. iii is not permissible if issue examined by the learned AO even if order is silent. iv ....
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....ch, and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted... The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income- tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not eamed by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. 3-4. Hon'ble Supreme Court in the case of Commissioner of Income-tax (....
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....ll the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that no expenditure is attributable to the exempt income during the relevant Assessment Year. Thus, while recording the aforesaid finding. the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and therefore, the Commissioner of Income-tax could not have set the Tribunal." 3.6. Further, in the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Sarvana Developers [(2016) 387 ITR 239 (Karnataka)] the proceedings under section 263 of the Act was set aside on the ground that the assessing officer had applied his mind and hence, there was no "lack of enquiry" The relevant extract of the said ruling is provided below "19. In the light of the Judgments discussed above, we are of the firm view that the twin test propounded by the Hon'ble Courts for invoking the provisions of Section 263 of the Act, are not satisfied in the present case. As discussed above, the CIT proceeded to initiate proceedings under Section 263 of the Act only on the ground that the Assessing Officer has not assigned any reason....
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....rder is silent. 3.13. As your good self would also agree, in the present case, based on the factual matrix as provided in Section 1 of the submission the issue of receipt of INR 669,27,63,437 was examined. 3.14. The AO had duly issued a notice under section 143(2) of the Act and sought clarification on various issues, including the receipt of INR 669,27,63,437 by the Trust from the settlor. 3.15. The Trust had furnished the relevant details and documents to the learned AO, such as the trust deed, the settlement deed, the letter from the settlor, the ledger copies of capital account, bank statement, and the financial statements, partnership deeds, financial statements of partnership firms, to explain the source, nature of the receipt, and taxability, refer section 1 of the submission. 3.16. Therefore, it cannot be said that order passed by the learned AO is erroneous and prejudicial to the interest of revenue, without making inquiries or verification or allowing any relief without inquiring into the claim. The order was based on a possible and permissible view taken by the AO in accordance with the law and facts of the case. 3.17 Based on....
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.... Indian Contract Act, 1872. In this connection, by the Full Bench, this court in CGT v. Nirmala (C.K. )(Smt.) [1995] 215 ITR 156, has ruled that the word "consideration" as found in the definition of the term "git" in the Gift-tax Act would carry the meaning assigned to it in section 2(d) of the Indian Contract Act, 1872. This was following the decision of the Bombay High Court in Keshub Mahindra v. CGT [1968] 70 ITR 1. It would be at once seen as a result of the above decision, by barely perusing the said definition in section 2(d) that the understanding of the term "consideration" cannot get confined to money alone. The term "consideration" is that which creates a contractual relationship between the promisor and promisee in regard to the performance of promise and in regard to which the parties to the agreement or contract get related to each other. It is more than elementary that the law in regard to consideration tells us that consideration may be relating to a party other than the promisor and promisee illustratively for the benefit of a minor." 4.4. From the above, essential features of consideration are: i. It must move from the promisee or any ot....
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....160 read with section 161. Relevant extract of the sections are reproduced as under "2. In this Act, unless the context otherwise requires- (31) "person" includes (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vi) every artificial juridical person, not falling within any of the preceding sub clauses. Explanation- For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains; 160. (1) For the purposes of this Act, "representative assessee" means (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [ including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1....
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....blished for the benefit of the relative of the individual. 2.2 After considering the submissions of the assessee, ld. PCIT was of the view that the AO has failed to conduct any enquiries due to which the order of the AO is erroneous and prejudicial to the interest of revenue. The relevant observations of the PCIT are as under: - "6. In the present case, the assessment was concluded without making any modification to the return of income. However, it is seen from the trust deed at Trust has not only been created or established solely for the benefit of the relative of the individual but also other persons can be added as per clause 6. The relevant clauses of 1.6 and 6 are reproduced as under: Clause 1.6, beneficiaries means. a. The Settlor b. The spouse of the settlor c. The children and remoter issue of the settlor d. Such other objects or persons as are added under clause 6 and beneficiaries shall be construed accordingly. 6. Power to add beneficiaries 6.1 The Trustee may, at any time during the Trust Period, declare that any person or class of persons (whether or not in existence or ascertained) or Charity....
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....st created or established solely for the benefit of relative of the individual (X of proviso four of 56(2)(x)). 8. As discussed in above para 6, it is clear that the trust has not been created or established solely for the benefit of relative of the individual. Hence, an amount of Rs. 669,27,63,437/- received by the trust should have been brought to tax under the head "Income from other sources" as provided in section 56(2)(x)(a) of the IT Act." 2.3 Aggrieved with the order of ld. PCIT, the assessee has come up in appeal before us and has raised following grounds of appeal: The grounds mentioned herein by the Appellant are independent and without prejudice to one another Grounds of appeal A. General Ground 1. The Learned Principal Commissioner of Income Tax, Bengaluru - 2 ('Ld. PCIT) has erred in passing an order of revision under section 263 of the Income-tax Act, 1961 (the Act) which suffers from legal defects such as being passed in violation of the provisions of the Act and is devoid of merits and is contrary to the facts on record and applicable law and as such liable to be quashed. 2. The Ld. PCIT has finalized the ....
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....or the family members covered in the definition of relative. c) The money received by the trust is not without consideration as the same has been received in fiduciary capacity. d) The property which is transferred by the settlor is out of the purview of the expression "shares and Securities" e) Trust via trustees does not have any right to enjoy the receipt as owner. f) Provisions of section 56(2)(x) are not applicable for genuine transactions. 3.1 So far assumption of jurisdiction is concerned the counsel for the assessee has submitted that he would like to argue the case on merits instead of legal issue. Therefore, we deem it not do adjudicate this ground and the same has been dismissed as not pressed. 3.2 The counsel for the assessee next contended that even if it is presumed that the case of the assessee falls in the rigors of section 56(2)(x) of the Act, then as per the definition of "property" as given in section 56(2)(x) of the Act, the interest in partnership firm are not covered in that definition. Ld. Counsel next contended that expression "shares" used in the definition of "property" as explanation (d) to section 56(2)(Vii) of t....
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....and is a partner in Vriddhi Partners, Unnati Partners, Tatva Partners, Nadathur Technologies and Group LifeSrping, being partnership firms (collectively referred to as the "Partnerships"). Anand, out of his natural love and affection for the beneficiaries and for the purposes of providing for the beneficiaries, is desirous of transferring his entire share and interest in the partnerships along with all attendant benefits and entitlements thereto (including amounts outstanding to his capital and current account in the Partnerships and all profits that may be due or payable to him by the Partnerships even if they are relating to a period prior to this Deed) ("Partnership Interest") and the Unlisted shares in favour of the Trustee acting on behalf of and it its capacity as trustee of the Trust." "IT IS HEREBY AGREED AS FOLLOWS: 1. In consideration of the premises and in order to effectuate the desire of Anand as set out in the indenture of the Trust dated 28th January 2018 and diverse other good causes and consideration and in consideration of the love and affection which Anand has towards the beneficiaries of the Trust, Anand hereby grants, transfers, conveys, assig....
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....tnership firm and equity / preference shares in Companies. e) After the receipt of the above reply the AO has issued further questionnaire dated 25.11.2020( Page Number- 136-138 of PB). In this questionnaire the AO has basically following things. a. Nature investment made, source of investment, amount of investment etc. b. Ledger copy of capital account. c. Amount of Capital introduced. d. Explanation regarding source of investment. e. Explanation regarding utilization of investment. etc f) In response to the above questionnaire the assessee vide his reply dated 08.12.2020 has replied vis-à-vis source of capital that the assessee trust has received an amount of 669.27 Crore in shape of preference shares having value of around 1.79 Cr, equity shares having value of Rs 1.79 cr and rest is interest of settlor, in various partnership firms of which firms the assessee has been made partner. Break of amount Rs 669.27 Crore is at Page number 139 of the PB) g) Thereafter, the AO issued another questionnaire dated 11.01.2021 and asked the assessee to justify the nontaxability interest/property/shares received by ....
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....stribution of the assets valued at Rs. 17.34 crores to the partners and that during the years, some new partners came to be inducted by introduction of small amounts of capital ranging between Rs. 2.5 to 4.5 lakhs and the said newly inducted partners had huge credits to their capital accounts immediately after joining the partnership, which amount was available to the partners for withdrawal and in fact some of the partners withdrew the amount credited in their capital accounts. Therefore, the assets so revalued and the credit into the capital accounts of the respective partners can be said to be "transfer" and which fall in the category of "OTHERWISE" and therefore, the provision of Section 45(4) inserted by Finance Act, 1987 w.e.f. 01.04.1988 shall be applicable. Law has also been amended after the arrival of the Supreme Court judgement. In the present case since the assessee has been introduced as partner in the partnership firms, and that too without any capital contribution, capital account of the assessee has been credited with an amount of Rs 669.27Crore, as evident from the above facts. Therefore, it was the abundant duty of the AO to examine the valuation of shares of part....
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........................................................... ............................................................................................................... 6.1 The Trustee may, at any time during the Trust Period, declare that any person or class of persons (whether or not in existence or ascertained) or Charity shall be added to the class of Beneficiaries provided that no such person or class of persons or Charity may be or include any Excluded person." 8. Therefore it is abundantly clear that the benefit of the amount received was not restricted to the family members and hence the view of the AO is not plausible view therefore the PCIT is correct in law in holding the order as prejudicial to the interest of revenue. 9. Second contention of the Ld Counsel for the assessee is that what was received is not covered by the definition of term "property" as given in explanation(d) of section 56(2)(vii). So far as the submissions made by the counsel of the assessee before the AO during assessment proceedings on 08.2.2021 is seen, it is clear that these submissions are not addressing the fact that in the present case the assessee has not only received t....
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.... on the type of security, such as low-risk government bonds or high-risk junk bonds Typically offer potential for long-term capital appreciation and dividends Can offer varying return expectations, such as fixed income from bonds or potential for capital appreciation from shares Typically traded on stock exchanges, with prices determined by market forces. Securities: Can be traded on various platforms, including stock exchanges, bond markets, and over-the-counter (OTC) markets. Shares have narrower scope Securities have wider scope Beside these above differences there are so many differences between expression share and securities therefore one cannot say that they are synonyms. These additional differences highlight the complexities and nuances of shares and securities, and demonstrate the importance of understanding the specific characteristics of each. 11. Hon'ble Bombay High Court while dealing with an appeal in the case of Dahiben Umedbhai Patel And Others vs Norman James Hamilton And Others reported in [1985]57COMPCAS700(BOM) while interpretating the expression "security" has held that as per the definition of security given in Section 2(h) of the Regu....
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....mally disjunctive. The word "and" is required to be given its literal meaning. It is only if the use of word "and" conjunctively produces unintelligible or absurd result, then the Court has the power to read the word 'or' as 'and' and vice versa to give effect to the intention of the legislature. The interpretation has to depend on the text and the context. The words normally are be read in their ordinary, natural and grammatical meaning. The word 'or' as 'and' and 'and' as 'or' in a statute are read unless the same is obliged to do so. Reading of the word 'or' as 'and' and 'and' as 'or' is not to be resorted to unless some other part of the same statute or the clear intention of it requires to be done. " b) Jindal Stainless Ltd. v. State of Haryana (2017) 12 SCC 1/[2016] 75 taxmann.com 137 (SC), c) Barun Kumar Vs State of Jharkhand- (2022) SCC online SC 1093 (para 11) d) Akshaibar Lal (Dr.) v. Vice-Chancellor, Banaras Hindu University (1961) 3 SCR 386. e) Remsons Industries Ltd. v. National Stock Exchange of India Ltd:- reported in 168 Taxman. 458:- Similar view has ....
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....rm falls in the category of "shares" as used in explanation (d) of section 56(2)(vii). What is "interest in partnership firm" has been decided by so many judicial pronouncements wherein this expression has been interpreted of expression. We have already noted somewhere else that term shares as used in explanation-2 of section 56(2)(vii) is not restricted to the shares of companies only, rather it is wide enough to mean a part or portion of something. For instance, "sharing" refers to dividing or giving out portions of something among several people.. 13. Merely because some expression is missing we cannot restrict the meaning of a word. It is settled position of law that that words should not be overly restricted; their meaning can be shaped by the context in which they are used. Legal texts, contracts, or laws often define words, but if a specific definition is not provided, courts or authorities may interpret the word according to its common usage or the broader context. Therefore we have to take the common meaning of word "share". Further below mentioned judgments would show that interest in partnership firm is nothing rather shares of partnership firm a) Shares of a....
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.... these arguments, there are provisions under the Income Tax Act which are meant exclusively for the purpose of taxation of Private Discretionary trusts. For instance, section 165 specify the tax rates applicable to a trust section 164A provides charge of tax in case of oral trust etc. Further Hon'ble Bombay High Court in the case of CIT Vs Veenu Suresh Trust 221 ITR 649(Mad) "Even though the assessment of income is in the hands of the trust, it had to be made in the same manner and to the same extent as it would have been made in the hands of the beneficiaries". The income of the private discretionary is taxable at maximum marginal rates. If there is specific law, then the provisions of specific law would override the general provisions of law. Otherwise the provisions of Income Tax Act, providing maximum marginal rate for taxing the Income of Trust, would become redundant. 17 Provisions of section 56(2)(X) are not applicable to genuine transactions: -Assessee has made detailed submissions in Para 58 of its written submissions and has also relied on various decisions. In the facts of the present case, two important facts which are missing in other cases are that the assessee in ....