B.D. FIBER ASSOCIATES, MUMBAI V. DCIT CIR 16(2), MUMBAI

ITA 4428/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1548 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 23-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S RANA; HARIGOVIND SINGH
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Business income; Maximum Marginal Rate

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI. BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO. 4428 & 4429/MUM/2009. ASSESSMENT YEARS: 2005-06 AND 2006-07. B.D. FIBER ASSOCIATES, DY. COMMISSIONER OF 32, ASHIANA, NEPEAN SEA ROAD, VS. INC OME TAX, CIRCLE-16(2), MUMBAI 4000007. MUMBAI. PAN : AAATB1773B APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL H. TALATI. RESPONDENT BY : SHRI HARI GOVIND SINGH, AND SHRI S.S. RANA. O R D E R PER J. SUDHAKAR REDDY, A.M. BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND DIRECTED AGAINST THE SEPARATE ORDERS OF THE CIT(APPEALS)-XVI , MUMBAI DATED 03- 06-2009 AND 04-06-2009 FOR THE ASSESSMENT YEARS 200 5-06 AND 2006-07 RESPECTIVELY. AS THE ISSUES ARISING IN BOTH THESE A PPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AN D DISPOSED OF BY WAY OF THIS COMMON ORDER. 2. FACTS IN BRIEF : THE ASSESSEE IS A SPECIFIC TRUST AND IS ASSESSED AS AN A.O.P. IT HAS 100 DISCRETIONARY TRUSTS AS ITS BENEFICIARI ES, EACH OF WHICH HAVE 1% SHARE IN THE INCOME OF THE ASSESSEE TRUST. FOR THE ASSESSMENT YEAR 2005-06 AS WELL AS FOR THE ASSESSMENT YEAR 2006-07, THE ASS ESSEE FILED NIL RETURNS 2 OF INCOME. DURING BOTH THE ASSESSMENT YEARS, THE AS SESSEE HAD RECEIVED INTEREST AND HAS ALSO PAID INTEREST. THE INTEREST I NCOME HAS BEEN DECLARED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES BY THE ASSESSEE. THE ASSESSEE APPENDED THE NOTE BELOW THE COMPUTATIO N OF TOTAL INCOME WHICH READS AS FOLLOWS : IT IS SUBMITTED THAT THE TRUST IS NOT HAVING ANY BUSINESS INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSIN ESS AND PROFESSION AND AS SUCH THE TRUST IS NOT LIABLE TO PAY TAX AT THE MAXIMUM MARGINAL RATE BUT AS THE INCOME IS DIVIDED IN THE HANDS OF ITS BENEFICIARIES AS PER THE LATEST ITAT BOMBAY ORDER IN THE CASE OF THE ASSESSEE IT WILL BE TAXED IN THE HANDS OF TH E BENEFICIARIES AND THERE WILL BE NO TAX LEVIABLE OR CHARGEABLE IN THE HANDS OF THE ASSESSEE TRUST. 3. THE AO OBSERVED THAT THE TRUST IS ASSESSED TO I NCOME-TAX FROM THE ASSESSMENT YEAR 1981-82 AND THAT IT WAS OR IGINALLY CARRYING ON THE BUSINESS OF TRADING IN DIFFERENT KIND OF FIBRES . DUE TO LOSSES, THE TRADING IN FIBRE WAS CLOSED AND FROM 01-04-1996 ON WARDS THE ASSESSEE HAS MAINLY INTEREST INCOME. THE CASE OF THE ASSESSE E IS EXPLAINED IN PAGE 6 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1 998-99 WHICH IS EXTRACTED FOR READY REFERENCE : IT IS STATED THAT THE ASSESSEE IS DETERMINATE TRU ST HAVING 100 BENEFICIARIES HAVING 1% DEFINITE SHARE IN THE BENEF ITS OF THE ASSESSEE TRUST. THE ASSESSEE TRUST, THEREFORE, ALLO CATES 1% BENEFIT TO EACH OF THE BENEFICIARY TRUST. IT IS STATED THAT AS ULTIMATE NO INCOME REMAINS WITH THE ASSESSEE TRUST AFTER ALLOCATING TH E SAME BETWEEN THE BENEFICIARIES IN THE DEFINITE AND DETERMINE SHA RES, THERE WILL BE NO TAX LIABILITY OF THE ASSESSEE TRUST. IT IS EXPLA INED THAT AFTER BENEFITS ARE ALLOCATED TO 100 BENEFICIARIES THEY SH ALL BE LIABLE FOR TAX ON THE INCOME ALLOCATED OR EARNED BY THEM. IT I S SUBMITTED THAT THESE BENEFICIARY TRUSTS ARE DISCRETIONARY TRUSTS, HENCE IT SHOULD HAVE BEEN TAXED AT THE MAXIMUM MARGINAL RATE OF TAX BUT THESE BENEFICIARY TRUSTS FALL WITHIN THE PROVISO (II) UND ER SEC. 164(1) OF THE INCOME TAX ACT, 1961 AND HENCE THE SAME IS REQU IRED TO BE TAXED 3 AT THE NORMAL RATE OF TAX. THESE BENEFICIARY TRUSTS HAVE DISCLOSED THEIR RESPECTIVE INCOME IN THEIR HANDS WHICH HAVE B EEN ACCEPTED BY THE DEPARTMENT. IT IS ALSO STATED THAT THE ASSESSEE TRUST HAS UTILISED SURPLUS FUNDS LYING IN THE ACCOUNT OF THE BENEFICIA RY TRUSTS FOR ADVANCING MONEY FOR EARNING INTEREST INCOME. 4. THE AO FOR BOTH THE ASSESSMENT YEARS HELD THAT THE INCOME IN QUESTION IS LIABLE TO BE TAXED AT THE MAXIMUM RA TE OF TAX AND UNDER THE HEAD INCOME FROM BUSINESS. HE FOLLOWED THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99. O N APPEAL, THE FIRST APPELLATE AUTHORITY UPHELD THE SAME. AGGRIEVED, THE ASSESSEE IS BEFORE US. 5. MR. SUNIL H. TALATI, LEARNED COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE CONCLUSIONS ARRIVED BY THE AO IN THE ASSESSMENT YEAR 1998-99 WAS FACTUALLY WRONG. HE FURTHER SUBMITS THA T BOTH THE CIT(APPEALS) AS WELL AS THE ITAT HAD COMMITTED AN E RROR IN UPHOLDING THE FINDINGS OF THE AO HE SUBMITS THAT THE ASSESSEE HAD PREFERRED A MISCELLANEOUS APPLICATION BEFORE THE TRIBUNAL AND T HOUGH THE TRIBUNAL RECALLED THE MATTER, IT AGAIN DECIDED THE ISSUE IN FAVOUR OF THE REVENUE, WHICH, AS PER MR. TALATI, IS AN ERRONEOUS ORDER. HE SUBMITS THAT THIS ORDER HAS BEEN CHALLENGED BEFORE THE BOMBAY HIGH COURT AN D THE SAME IS ADMITTED. MR. TALATI SUBMITTED THAT THOUGH THE EARL IER YEARS CASES ARE AGAINST HIM, THE PRINCIPLES OF RES JUDICATA DOES NO T APPLY AND IN THESE YEARS, AS THE ASSESSEE HAS ONLY CONTINUED WITH ITS OWN FUNDS AND OLD OUTSTANDING LOANS, THERE IS NO BUSINESS ACTIVITY FO R EARNING INTEREST. IT WAS SUBMITTED THAT THE INCOME FROM INTEREST DURING THIS YEAR HAS BEEN RECEIVED FROM VERY FEW PERSONS AND MONEY HAD BEEN A DVANCED ALSO TO THE SAME PERSONS. HE DREW THE ATTENTION OF THE BENCH TO THE BALANCE SHEET AND INCOME AND EXPENDITURE ACCOUNT AND TRIED TO DEMONST RATE THAT THE ASSESSEE TRUST DID NOT CARRY OUT ANY BUSINESS ACTIV ITY. 4 6. THE LEARNED SR. D.R. MR. HARI GOVIND SINGH, ON THE OTHER HAND, SUBMITTED THAT THE ENTIRE ISSUE HAS BEEN CONS IDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSME NT YEAR IN ITA NO. 3589/MUM/2003, E-BENCH ORDER DATED 26-09-2007 FOR T HE ASSESSMENT YEAR 1998-99 AND THAT THE FACTS BEING THE SAME, THE SAME DECISION SHOULD BE FOLLOWED. HE ALSO POINTED OUT THAT THE CIT(APPEA LS) ANALYSED THE BALANCE SHEET AT PARA 6 OF HIS ORDER AND CONCLUDED THAT THERE IS NO CHANGE IN FACTS. 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSA L OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS W ELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS : 8. ADMITTEDLY THE ISSUE AS TO WHETHER THE INTEREST INCOME EARNED BY THIS ASSESSEE TRUST, SHOULD BE ASSESSED U NDER THE HEAD INCOME FROM BUSINESS OR SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES, WAS CONSIDERED BY THE E-BENCH OF THE TRIB UNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99. AT PARA 1 0 OF THAT ORDER AT PAGES 5,6 AND 7, THE DECISION IN THE CASE OF J.K. H OLDINGS 77 TTJ (MUM) 649 HAS BEEN DISTINGUISHED AND IT IS CONCLUDED AS F OLLOWS : WE ALSO FIND THAT AS PER CLAUSE 5(5) OF THE TRUST DEED, THE TRUST IS ENTITLED TO DEPOSIT MONIES IN CURRENT OR O THER ACCOUNT OR ACCOUNT WITH ANY BANK OR ANY PRESENT FIRM OR COMPAN Y HENCE, THE ASSESSEE IS ENTITLED TO CARRY ON BORROWING OF MONEY AND ADVANCING OF LOAN AS BUSINESS ACTIVITY. AS STATED EARLIER THE RE IS NO BUSINESS ACTIVITY OTHER THAN THIS ACTIVITY FOR TWO YEARS INC LUDING THIS YEAR, HENCE IT IS LOGICAL TO DRAW AN INFERENCE THAT THE A SSESSEE HAS CARRIED ON THIS ACTIVITY AS ORGANIZED BUSINESS ACTIVITY IN TERMS OF ITS OBJECTS AND, THEREFORE, INTEREST INCOME IS LIABLE TO BE TRE ATED AS BUSINESS INCOME. ACCORDINGLY, THE PROVISIONS OF SECTION 161 (1A) ARE ATTRACTED. IN VIEW OF THE FOREGOING, WE HOLD THAT T HERE IS NO 5 INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, GRO UND NO. 3 OF THE ASSESSEE STANDS REJECTED. 9. MR. TALATI HAS LAID GREAT EMPHASIS ON HIS VIEW THAT THE ORDER OF THE TRIBUNAL IS ERRONEOUS. IT IS NOT WITHIN OUR JURISDICTION TO COMMENT ON THESE SUBMISSIONS. SUFFICE TO SAY THAT WE RESPEC TFULLY FOLLOW THE ORDER OF OUR COORDINATE BENCH AND APPLY THE PROPOSITIONS LAID DOWN THERE IN, TO THE FACTS OF YEARS. MR. TALATI HAS NOT DEMONSTRATED AS TO HOW THE FACTS OF THESE TWO YEARS ARE DIFFERENT FROM THE FACTS CONSID ERED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998-99. THE FIRST APPELLATE AU THORITY AT PARA 6 OF HIS ORDER RECORDED THAT THE ASSESSEE HAD WITHDRAWN ADVA NCE FROM SOME PARTIES AND IN TURN INCREASED ITS ADVANCES TO SOME OTHER EXISTING DEBTORS. HE FURTHER OBSERVED THAT THE BALANCE SHEET SHOWS, T HE REDUCTION IN THE BALANCES OF SUNDRY CREDITORS AND AT THE SAME TIME T HERE IS AN INCREASE IN THE BENEFICIARIES ACCOUNT, DEMONSTRATING THAT THE P ROFIT EARNED BY THE ASSESSEE IN THE PREVIOUS YEARS HAD NOT BEEN DISTURB ED TO THE BENEFICIARIES BUT WERE RETAINED IN THE BUSINESS. WE UPHOLD THESE FINDINGS AND DISMISS THE ASSESSEES APPEALS BY FOLLOWING THE COORDINATE BENCH ORDER IN THE EARLIER YEAR. 10. IN THE RESULT, THE ASSESSEES APPEALS ARE DISM ISSED. ORDER PRONOUNCED ON THIS 4 TH DAY OF JUNE, 2010. SD/- SD/- (D. MANMOHAN) (J. SUDHAKAR REDDY) VICE PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 4 TH JUNE, 2010. WAKODE 6 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, B-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.