ACIT, New Delhi V. Shri R.C. Bawa, New Delhi

ITA 1287/DEL/2011

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3177 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 22-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST IMPUGNED DATED PASSED
• Keywords: Business income; Capital receipt
• Section: 143(3)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.:-1287/DEL/2011 ASSESSMENT YEAR: 2007-08 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 9.12.2010, PASSED BY LD. CIT(APPEALS) XXX, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 2007-08 ON FOLLOWING GROUNDS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN:- (I) DELETING THE ADDITION OF RS 2,00,00,000/- RIGHTLY MADE BY THE AO ON ACCOUNT OF ' PROFIT IN LIEU OF SALARY' U/S 17(3)(II) OF THE IT ACT, 1961; NOT CONSIDERING THE FACT THAT (A) THE TRUST WAS ESTABLISHED ACIT CIRCLE-46 (1), ROOM NO. 425A, 4 TH FLOOR, MAYUR BHAWAN NEW DELHI. VS. SHRI R.C. BAWA, W-10, GROUND FLOOR, GREATER KAILASH-1 NEW DELHI. PAN AAFPB7145J (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI SURENDER PAL, SR. DR REVENUE BY : SHRI ABHISHEK MATHUR, ADVOCATE DATE OF HEARING 1 0/12 /201 8 DATE OF PRONOUNCEMENT /02/2019 2 BY THE SETTLER/EMPLOYER COMPANY FOR THE WELFARE OF THE EMPLOYEES ONLY, (B) THE OBJECTIVES OF THE TRUST MAKE IT AMPLY CLEAR THAT THE SUM RECEIVED BY THE ASSESSEE IS NOTHING BUT A REWARD FOR EMPLOYMENT WITH THE EMPLOYER/SETTLER COMPANY AND (C) THAT THE CONNECTION OF THE ASSESSEE WITH THE TRUST WAS ONLY ON ACCOUNT OF HIS CONNECTION WITH THE EMPLOYER COMPANY; (II) HOLDING THAT THE TRUST IS A DISCRETIONARY TRUST WITHOUT CONSIDERING THE DISCUSSION MADE BY THE AO IN THE ASSESSMENT ORDER IN POINT NO. I OF SUB PARA 3.1 WHICH MAKES IT CLEAR THAT THE TRUST IS A SPECIFIC OR DETERMINATE TRUST AND NOT A DISCRETIONARY TRUST SINCE ALL THE BENEFICIARIES OF THE TRUST ARE SPECIALLY KNOWN AND DETERMINATE AND THE TRUST DEED NOWHERE MENTIONED THAT THE INCOME OF THE TRUST WAS TO BE DISTRIBUTED ON THE COMPLETE DISCRETION OF THE TRUSTEES; (III) NOT CONSIDERING THE FACT THAT THE AMOUNT OF RS 2,00,00,000/- IS TAXABLE IN THE HANDS OF THE ASSESSEE AS (A) IN THE RELEVANT COMPUTATION OF INCOME, THE TRUST HAS DECLARED INCOME IN THE INCOME & EXPENDITURE ACCOUNT POST DISTRIBUTION TO THE BENEFICIARIES AND HENCE THIS IS NOT A CASE OF DOUBLE TAXATION OR DOUBLE ASSESSMENT, (B) THE ASSESSEE IS THE RIGHT PERSON TO BE TAXED FOR THE SAID AMOUNT SINCE HIS SHARE IS DETERMINATE & (C) THE SAID INCOME OF THE ASSESSEE FALLS WITHIN THE SCOPE OF SECTION 5 OF THE ACT AND CHARGEABLE TO TAX U/S 4 OF THE IT ACT, 1961. 2. THE FACTS IN BRIEF ARE THAT ASSESSEE IS AN INDIVIDUAL DECLARING INCOME OF RS. 2,06,18,459/- ON 31.10.2007. HE WAS AN EMPLOYEE OF IL & FS LTD., WHICH HAD CREATED A TRUST, IL&FS EMPLOYEES WELFARE TRUST FOR THE WELFARE OF ITS EMPLOYEES, VIDE TRUST DEED EXECUTED ON 23 RD AUGUST, 1990, WHICH WAS AN IRREVOCABLE TRUST. ASSESSEE WAS ALSO ONE OF THE BENEFICIARIES OF THIS DISCRETIONARY TRUST. THE TRUST HAD 3 DISTRIBUTED SUM OF RS. 2 CRORES TO THE ASSESSEE AS A BENEFICIARY DURING THE FINANCIAL YEAR 2006-07. THE TRUST HAD ALSO PAID THE TAXES ON THE ENTIRE INCOME EARNED BY IT AND IT WAS STATED THAT, AFTER PAYMENT OF THE TAXES ON ITS INCOME, DISTRIBUTION WAS MADE TO THE BENEFICIARIES. THUS, IT WAS CLAIMED BY THE ASSESSEE, THAT ON SUCH RECEIPTS, HE IS NOT SUBJECTED TO INCOME TAX, BECAUSE ALREADY TAX HAS BEEN PAID BY THE TRUST AND THEREFORE, SUM OF RS. 2 CRORES WAS TREATED AS CAPITAL RECEIPT. CERTIFICATE ISSUED BY IL&FS TRUST WAS ALSO FILED WHICH READ AS UNDER: - IL&FS EMPLOYEES WELFARE TRUST (IEWT) IS A DISCRETIONARY TRUST, WHICH HAS FORMED UNDER A SCHEME INSTITUTE FOR THE WELFARE OF EMPLOYEES. THE FUNDAMENTAL OBJECTIVE OF THE IEWT IS TO UTILIZE THE TRUST FUNDS FOR THE BENEFIT OF THE EMPLOYEES OF IL & FS AND ITS SUBSIDIARIES/AFFILIATES, AS DEFINED UNDER THE TRUST DEED AND AMENDMENTS THERETO. DURING THE F.Y. 2006-07, THE IEWT HAS EARNED A PROFIT ON SALE OF THE SHARES HELD BY ITS. THE IEWT HAS FULLY DISCLOSED THIS INCOME IN ITS INCOME TAX RETURN, WHICH HAS BEEN FILED BY IT ON JULY 6, 2007 AND HAS DISCHARGED ITS TAX LIABILITY AT THE APPROPRIATE RATE AS PER THE INCOME TAX ACT, 1961 ON THE SAME. THE TRUST HAVING DISCHARGED ITS TAX LIABILITY, THE SAME INCOME WOULD NOT BE TAXABLE IN THE HANDS OF THE BENEFICIARIES AT THE TIME OF DISTRIBUTION. 3. LD. AO HELD THAT, ASSESSING AUTHORITY CAN ASSESS A REPRESENTATIVE ASSESSEE ON THE INCOME IN RESPECT OF WHICH HE WAS A REPRESENTATIVE ASSESSEE, BUT HE WAS NOT BOUND TO DO SO AND HE COULD ASSESS EITHER THE REPRESENTATIVE ASSESSEE OR THE PERSON REPRESENTED BY HIM IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CR NAGAPPA VS. CIT (1969) 73 ITR 626. HE ALSO TOOK NOTE OF INCOME TAX RETURN FILED BY THE TRUST FOR THE ASSTT. YEAR 2007-08, WHICH WAS AT RS. 1,41,19,02,958/- WHEREIN INCOME WAS SHOWN FROM LONG TERM 4 CAPITAL GAIN, SHORT TERM CAPITAL GAIN AND ALSO INCOME FROM BUSINESS. FURTHER, FROM THE PERUSAL OF COMPUTATION OF INCOME, HE NOTED THAT THE TRUST HAS DECLARED INCOME AS PER INCOME AND EXPENDITURE ACCOUNT OF RS. 52,97,85,170/- AND IT HAS BEEN DECLARED IN THE COMPUTATION THAT, THIS INCOME HAS BEEN ARRIVED AT AFTER DISTRIBUTION TO BENEFICIARIES. THUS, THERE IS NO CASE OF DOUBLE TAXATION. AFTER DETAILED DISCUSSION, HE HELD THAT THE RECEIPT IN THE CASE OF THE ASSESSEE IS TAXABLE U/S 17(3) (II) AND THERE IS NO EXEMPTION UNDER ANY SECTION THAT SUCH RECEIPT WILL NOT BE TAXED IN ANY PROVISION OF ACT. ACCORDINGLY, HE TAXED THE ENTIRE AMOUNT OF RS. 2 CRORES RECEIVED BY THE ASSESSEE. 4. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT IL&FS LTD. HAS CREATED A TRUST AND THE TRUST FUND WAS TO BE UTILISED FOR BENEFIT OF WELFARE OF ITS EMPLOYEES WHICH WAS DEFINED IN THE FOLLOWING MANNER: - I. HOUSING FACILITIES TO THE EMPLOYEES OF THE COMPANY OR SUBSIDIZING LOANS TAKEN BY EMPLOYEES FOR PURCHASE OF RESIDENTIAL PREMISES. II. RELIEF IN ANY DISTRESS CAUSED TO THE EMPLOYEES BY THE ELEMENTS OF NATURE OR OTHERWISE. III. MEDICAL RELIEF, HEALTH, EDUCATIONAL RELIEF INCLUDING GRANTS, IN- AID IN SUPPORT OF SCHOOLS, HOSPITALS, SANITORIAINS OR ANY OTHER INSTITUTIONS. IV. SCHOLARSHIPS TO EMPLOYEES AND THEIR DEPENDENTS. V. ANY OTHER WELFARE OBJECTS OR PURPOSES WHICH ARE CONDUCIVE TO BE BENEFICIAL TO THE EMPLOYEES OF THE COMPANY. PROVIDED ALWAYS THAT THE TRUST FUND SHALL BE UTILISED FOR THE BENEFIT OF THE EMPLOYEES ONLY. 4.1 IT WAS FURTHER SUBMITTED THAT TRUST IS A DISCRETIONARY TRUST AND THE SHARES OF BENEFICIARIES WERE UNDETERMINED, THEREFORE, TRUSTEE ALONE 5 WAS LIABLE TO BE TAXED U/S 164. EVEN IF ASSESSMENT IS TO BE MADE U/S 164 AT THE DISCRETION OF THE AO, THEN IN THAT CASE, IT HAS EITHER TO BE ASSESSED IN THE HANDS OF THE TRUST OR IN THE HANDS OF THE BENEFICIARY. SINCE IT HAS ALREADY BEEN ASSESSED AND TAXED IN THE HANDS OF THE TRUST, THEREFORE, SAME CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE. IT WAS CLARIFIED THAT, IN SO FAR AS THE OBSERVATION AND THE FINDING OF THE AO THAT TRUSTEES ENTIRE INCOME HAS NOT BEEN TAXED OR IT WAS DISTRIBUTION ONLY AMOUNT WAS OFFERED FOR TAX IS NOT CORRECT. AO HAD MISUNDERSTOOD THAT THE INCOME DECLARED BY THE TRUST WAS ONLY AFTER THE DISTRIBUTION OF ITS INCOME AMONGST THE BENEFICIARIES, BECAUSE ACCORDING TO THE AO, BUSINESS INCOME DECLARED WAS AFTER THE DISTRIBUTION TO THE BENEFICIARIES. ONE IMPORTANT FACT BROUGHT ON RECORD WAS THAT, THE AO IN THE CASE OF THE TRUST HAS MADE DISALLOWANCE OF EXPENSES CLAIMED UNDER THE HEAD DISTRIBUTION TO BENEFICIARIES AND THE INCOME COMPUTED IN THE CASE OF THE TRUST WAS AS UNDER :- PROFIT AND GAINS FROM BUSINESS OR PROFESSION :- INCOME AS PER INCOME & EXPENDITURE ACCOUNT (RS.) (AFTER THE DISTRIBUTION TO THE BENEFICIARIES): 52,97,85,170/- ADD: DISALLOWANCES LEGAL & PROFESSIONAL EXPENSES INCURRED ON I) SALE OF SHARES: 40,95,483/- II)INTEREST EXPENSES INCURRED ON STRATEGIC INVESTMENTS: 2,14,10,072/- III) STAFF WELFARE EXPENSES NOT ALLOWABLE (INCLUDING DISTRIBUTION TO BENEFICIARIES):61,90,66,059/- --------------------------- RS. 64,45,71,614/- 4.2. THEREAFTER ASSESSEE REFERRED TO VARIOUS JUDGEMENTS AND CBDT CIRCULAR INCORPORATED IN DETAIL IN THE IMPUGNED ORDER, THAT ONCE TAX 6 HAS BEEN PAID BY THE BENEFICIARIES OF THE TRUST, THEN THE TRUST CANNOT BE TAXED. 5. LD. CIT(A) AFTER CONSIDERING THE ENTIRE SUBMISSIONS OF THE ASSESSEE AND THE OBSERVATION AND THE FINDING OF THE AO, HELD THAT THE SUBMISSION MADE BY THE ASSESSEE ARE CORRECT, BECAUSE IN THE ASSESSMENT OF THE TRUST AND/OR BENEFICIARIES, THE INCOME IS TO BE ASSESSED EITHER AS A REPRESENTATIVE ASSESSEE REPRESENTING THE TRUST; OR IN THE HANDS OF THE BENEFICIARIES WHO RECEIVE THE DISTRIBUTION OF PROFIT OR RELEVANT INCOME. IN ORDER TO REBUT THE FINDING OF THE AO THAT IT IS THE TRUST WHO HAS ACTUALLY PAID THE TAXES EVEN ON THE AMOUNT DISTRIBUTED TO THE BENEFICIARIES, HAS RECORDED THE FOLLOWING FINDING OF FACTS: - THE AO FINDS THAT THE SUM RECEIVED BY THE ASSESSEE CONSTITUTES PART OF THE SPECIAL DISTRIBUTION IL&FS EMPLOYEES AND SENIOR PERSONNEL IN THE GROUP PURSUANT TO THE SALE OF EQUITY SHARES OF INDIAN LEASING & FINANCIAL SERVICES LTD. (ILFS) HELD BY THE EMPLOYEE WELFARE TRUST TO ABU DHABI INVESTMENT AUTHORITY, THE AO'S OBSERVATION IN PARA NO. X AT PAGE 9 IS AS UNDER: - 'THE FACTS REMAINS THAT THE ASSESSEE IS AN EMPLOYEE OF THE SETTLER COMPANY. ORDINARILY UNDER THE ACT, ANY SUCH BENEFIT FROM THE EMPLOYER TO THE EMPLOYEE WOULD CLEARLY HAVE BEEN CHARGEABLE TO TAX AS SALARY. FURTHER, HAD THE ASSESSEE DIRECTLY INVESTED IN THE INVESTMENT SECURITIES/INSTRUMENTS, HE WOULD HAVE BEEN CHARGEABLE TO TAX ON THE INCOME EARNED OUT OF SUCH INVESTMENT. INSTEAD, THROUGH THE DEVICE OF FORMATION OF THE TRUST BY THE EMPLOYER COMPANY, EXEMPTION HAS BEEN CLAIMED ON THE SUMS DISTRIBUTED TO THE EMPLOYEE-BENEFICIARIES BY THE TRUST ON THE INCOME EARNED FROM THE INVESTMENTS. AS IS CLEAR FROM THE OBJECTIVES OF THE TRUST DETAILED EARLIER, THE SCHEME HAS BEEN DEVISED IN RECOGNITION OF AND AS A REWARD FOR, THE CONTRIBUTION OF 7 THE ASSESSEE-EMPLOYEE TO THE PROFITS AND SUCCESS OF THE EMPLOYER COMPANY'S BUSINESS. SPECIFICALLY, THE SUM RECEIVED BY THE ASSESSEE CONSTITUTES PART OF THE SPECIAL DISTRIBUTION TO IL&FS EMPLOYEES AND SENIOR PERSONNEL IN THE GROUP PURSUANT TO THE SALE OF EQUITY SHARES OF IL&FS HELD BY THE EWT TO ABU DHABI INVESTMENT AUTHORITY. THUS, TRUST HAD OWNED EQUITY SHARES OF THE EMPLOYER COMPANY AND SOLD IT DURING THE A.Y.2007-08 TO THE ABU DHABI COMPANY AT A HIGHER PROFIT MARGIN. ILFS IS A LISTED COMPANY IN BOMBAY STOCK EXCHANGE. HOWEVER, SINCE EMPLOYER'S COMPANY'S SHARE CAPITALS MONEY IS SOLD TO FOREIGN COMPANY, THE EMPLOYEE WELFARE TRUST GAINED A LOT ON SALE OF SUCH SHARE AND EARNED HUGE CAPITAL GAIN ON SUCH SALE. THE TRUST HAD PAID THE TAXES U/S 164(1)(IV) ON SUCH LONG TERM CAPITAL GAINS, AND THEN PART OF PROFIT IS DISTRIBUTED TO BENEFICIARIES OF THE TRUST. SINCE THE TRUST HAD ALREADY PAID THE TAXES VIDE JCIT, R-19(3), MUMBAI'S ORDER DATED 18-11-2009 FOR A.Y.2007-08, WHERE THAT AO HAD ASSESSED THE INCOME OF TRUST AT RS.141,30,92,160/- WHERE LONG TERM CAPITAL GAIN IS RS.139,72,15,480/- (P.B. PAGE NO. 10), THE MAJOR PART OF INCOME IS ON BUSINESS/LONG TERM CAPITAL GAINS ON SALE OF SUCH SHARES OF EMPLOYER COMPANY HELD BY TRUST. THE TRUST IS FILING INCOME/EXPENDITURE STATEMENT IN ITS RETURN OF INCOME. SINCE, THE TRUST HAD ALREADY BEEN ASSESSED U/S 143(3) BY JCIT, RANGE 19(3), MUMBAI, THERE IS NO NEED TO TAX THE DISTRIBUTION OF PROFITS/DIVIDENDS TO THE BENEFICIARIES OF THE TRUST AGAIN, AS PER THE EXISTING LAW U/S 160 TO 166 OF I.T. ACT, 1961. THE APPELLANT BEING ONE OF BENEFICIARIES, GOT THE RECEIPT FROM TRUST AS NON TAXABLE RECEIPT, HENCE CAPITAL RECEIPT IN HIS HAND. 8 6. AFTER, REFERRING TO THE RATIO AND PRINCIPLE LAID DOWN IN THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KAMALINI KHATAU 209 ITR 101 (1994) , LD. CIT(A) HELD THAT ADDITION MADE BY THE AO CANNOT BE SUSTAINED. 7. BEFORE US, LD. COUNSEL SUBMITTED THAT THIS PRECISE ISSUE HAD COME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN RESPECT OF SIMILAR EMPLOYEES OF IL&FS, WHEREIN THE TRIBUNAL HAS DELETED IDENTICAL ADDITION. IN SUPPORT HE RELIED UPON THE FOLLOWING TWO DECISIONS: - I. ACIT VS MANU KOCHAR, ITAT, DELHI BENCH NEW DELHI IN ITA NO. 1651/DEL/2011 DATED 27.04.2017; II. ACIT VS. SANJAY SETHI, ITAT, C BENCH NEW DELHI IN ITA NO. 1652/DEL/2011 DATED 13.12.2017. 8. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT, FIRST OF ALL THERE IS A CATEGORICAL FINDING OF FACT BASED ON MATERIAL ON RECORD THAT TRUST HAS PAID THE TAXES IN TERMS OF SECTION 164 (II)(IV) AND THEREAFTER THE PROFIT HAS BEEN DISTRIBUTED TO THE BENEFICIARIES OF THE TRUST. THE PAYMENT OF TAXES BY THE TRUST IS BORNE OUT FROM THE ASSESSMENT ORDER OF THE TRUST PASSED VIDE ORDER DATED 18.11.2009 FOR THE SAME ASSESSMENT YEAR 2007-08, BY THE AO, WHEREIN INCOME HAS BEEN ASSESSED AT RS. 141,30,92,160/- INCLUDING LONG TERM CAPITAL GAIN OF RS. 1,39,72,15,480/- AND THEREAFTER DISTRIBUTION HAS BEEN MADE TO THE BENEFICIARIES. ONCE THE TRUST HAS BEEN ASSESSED U/S 143(3) TAXING THE ENTIRE AMOUNT DISTRIBUTED TO THE BENEFICIARY, THEN THERE IS NO NEED TO TAX THE DISTRIBUTION OF PROFITS/ DIVIDENDS PAID TO THE BENEFICIARIES OF THE TRUST ONCE AGAIN. THIS VIEW IS DULY SUPPORTED BY THE JUDGMENT OF 9 THE HONBLE SUPREME COURT IN THE CASE OF CIT VS KAMALINI KHATAU (SUPRA), THAT THE INCOME CAN BE ASSESSED AND TAXES HAVE TO BE PAID EITHER BY THE TRUST OR BY THE BENEFICIARIES. APART FROM THAT, WE FIND THAT THIS TRIBUNAL IN THE ABOVE TWO CASES BASED ON IDENTICAL FACTS HAVE CONFIRMED THE SIMILAR FINDINGS OF THE LD. CIT(A). ACCORDINGLY, WE DO NOT FIND ANY REASON AS TO WHY THIS AMOUNT SHOULD BE BACK ONCE AGAIN WHEN THE TRUST HAS ALREADY PAID TAXES. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST FEBRUARY, 2019. SD/- SD/- (PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21/02/2019 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI