SMITA TRUST V. COMMISSIONER OF INCOME-TAX

ITR/53/1997

AI Insights

The case involves Smita Trust, which was assessed for tax liabilities under Section 161(1A) of the Income-tax Act, 1961, for the Assessment Year 1987-88. The Assessing Officer treated the trust as a partner in a business and taxed its income at the maximum marginal rate. The trust contested this, claiming no income was received from the partnership as the firm had closed down. However, the Income Tax Appellate Tribunal found no evidence of the firm's closure and reversed the decision of the Commissioner (Appeals), leading to this reference to the High Court. The High Court, finding the issues academic due to lack of evidence of the firm's dissolution, left the questions unanswered and disposed of the reference without costs.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 738271 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 04-03-2008
• Assessment Year: misc
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MANISH BHATT
• Assessee Lawyers: N R DIVETIA; S N DIVATIA
• Keywords: Business income; Income Tax; Maximum Marginal Rate; Private trust; Partnership Share Income
• Section: 256(1); 161(1A)

Judgement Text

"ITR/53/1997 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No.53 of 1997 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MR.JUSTICE Z.K.SAIYED Sd/- =================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO =================================================== SMITA TRUST - Applicant(s) Versus COMMISSIONER OF INCOME-TAX - Respondent(s) =================================================== Appearance : MR NR DIVETIA for Applicant(s) : 1,MR SN DIVATIA for Applicant(s) : 1, MR MANISH R BHATT for Respondent(s) : 1, =================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE Z.K.SAIYED Date : 04/03/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) (1) The Income-tax Appellate Tribunal, Ahmedabad Bench “C” has referred the following two ITR/53/1997 2/4 JUDGMENT questions under Section 256(1) of the Income- tax Act, 1961 at the instance of the assessee: 1. Whether, on the facts and in circumstances of the case, the Tribunal was justified in law in holding that the assessee trust was liable to tax at the maximum marginal rate u/s. 161(1A) of the I.T. Act, 1961 ? 2. Whether, on the facts and in circumstances of the case, the Tribunal was justified in law in holding that the assessee trust was deriving “profit and gains of business” within the meaning of the provisions of section 161(1A) of the I.T. Act, 1961 ? (2) For the reasons that follow hereinafter, the reference is returned unanswered and hence, bare minimum facts are recorded. (3) The Assessing Officer invoked provisions of Section 161(1A) of the Act for Assessment Year 1987-88 holding that the assessee, a private trust, is carrying on business as a partner. The assessee contended that Section 161(1A) of the Act cannot be invoked because the assessee ITR/53/1997 3/4 JUDGMENT has shown partnership share income from the firm at NIL on the ground that the accounts have not been received from the partnership. The Assessing Officer has not accepted this contention by holding that unless and until the Trust ceases to be a partner or the firm discontinues the business, the entire income of the Trust has to be taxed as per the maximum marginal rate. (4) The assessee, in appeal before the Commissioner (Appeals) contended that during year under consideration, the firm was closed and hence, there was no business income earned by the assessee-Trust. The Commissioner (Appeals) accepted the said plea. In second appeal, the Tribunal came to the conclusion that there was no evidence to come to the conclusion that the firm, in which the assessee-Trust was a partner, stood dissolved, formally or informally, during the year under appeal. The Tribunal, therefore, reversed the order made by the first appellate authority. ITR/53/1997 4/4 JUDGMENT (5) In the aforesaid circumstances, the entire controversy brought before the Court is academic in nature. The case of the assessee is not that the assessee-Trust was not a partner in the partnership firm, but the contention is that the assessee has not received partnership share or that the firm had been closed down. The Tribunal has found, as a matter of fact, that there is no evidence in support of these contentions. (6) In the circumstances, the questions referred for the opinion of this Court are left unanswered and the reference stands disposed of accordingly. There shall be no order as to costs. Sd/- [ D.A. MEHTA, J ] Sd/- [Z.K. SAIYED, J ] *** Bhavesh* "