COMMNR. OF WEALTH TAX, GUJARAT vs. LOV S. KINARIWALA

C.A. No.-001858-001858 - 2002Supreme Court11 December 20022 pages
For Petitioner: SUSHMA SURIFor Respondent: HARESH RAICHURA
AI SummaryDismissed

What were the facts?

The Revenue appealed against a Gujarat High Court order that declined to direct the Income Tax Appellate Tribunal (ITAT) to state a case for reference on a question of law. The dispute concerned the Wealth Tax assessment of the respondent-assessee for certain assessment years. The assessee, a beneficiary of a Trust, assigned their share income from a partnership firm to the Trust. This income, along with other Trust income, was distributed among beneficiaries, who then assigned their interests to Bodies of Individuals (B.O.Is.). The assessee claimed that the beneficial interest derived from the firm should be assessed as assets of the B.O.Is., not their own wealth. The Assessing Officer considered the creation of B.O.Is. and assignments as sham. The Commissioner (Appeals) and the ITAT reversed this finding, holding the transactions were not sham.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal. The Court held that if the creation of the B.O.Is. and the assignment of assets to them were found to be not sham and bogus, as determined by the Commissioner (Appeals) and the Tribunal, then the question sought to be referred by the Revenue would not arise. Therefore, the ITAT and the High Court were correct in rejecting the Revenue's application to state a case. While the High Court had relied on a previous Gujarat High Court judgment in Sunil J. Kinariwala, which was subsequently reversed by the Supreme Court, the Supreme Court found this reliance to be erroneous but ultimately inconsequential to the outcome. The Supreme Court distinguished the present case from the reversed judgment, noting that the former dealt with diversion of income by over-riding title, whereas the present case concerned whether the B.O.Is. and assignments were sham. The Court found no merit in the appeal, upholding the High Court's decision to reject the Revenue's application under Section 27(3) of the Wealth Tax Act.

What were the issues?

1. Whether the Appellate Tribunal was right in law and on facts in confirming the order passed by the Commissioner of Wealth-tax (Appeals) directing the Assessing Officer to exclude the value of the assets transferred to B.O.Is. from the wealth of the assessee, which the High Court held to be a question of fact arising from the record and not a question of law. Assessee's Contention: Not recorded in the judgment. Revenue's Contention: The Supreme Court should allow the appeal because the Gujarat High Court's judgement in Sunil J. Kinariwala v. Commissioner of Income Tax, which the High Court relied upon, has been reversed by the Supreme Court. The Revenue argued this reversal should lead to allowing their appeal.

Which sections of the Income-tax Act were involved?

Section 27(3),Section 27(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 2 CASE NO.: Appeal (civil) 1858 of 2002 PETITIONER: COMMISSIONER OF WEALTH TAX, GUJARAT RESPONDENT: LOV. S. KINARIWALA DATE OF JUDGMENT: 11/12/2002 BENCH: SYED SHAH MOHAMMED QUADRI & ARIJIT PASAYAT

JUDGMENT: JUDGMENT 2002 Supp(5) SCR 44 The following order of the Court was delivered: Civil Appeal No. 1858 of 2002: This appeal, by the Revenue, arises from the common order passed by the High Court of Gujarat on an application under Section 27(3) of the Wealth Tax Act declining to direct the Income Tax Appellate Tribunal (for short, ’the Tribunal’) to state the case and refer to it the following question of law: "Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Wealth-tax (Appeals) directing the Assessing Officer to exclude the value of the assets transferred to B.O.Is. from the wealth of the assessee?"

In the order under challenge, the High Court mentioned two grounds for rejection of the application under Section 27(3) of the Wealth Tax Act, namely, (1) the decision of the Tribunal is on the question of fact emanating from the record and no question of law arises

The order continues below.

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