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

CIVIL APPEAL No. 1858/2002Supreme Court2002 INSC 53211 December 2002Bench: 2 JudgesAuthor: S.S.M. QUADRI, ARIJIT PASAYAT3 pages
AI SummaryDismissed

What were the facts?

The Revenue appealed against an order of the Gujarat High Court which declined to direct the Income Tax Appellate Tribunal (Tribunal) to state and refer a question of law. The assessee, a beneficiary of a Trust, assigned his share of income from a partnership firm to the Trust. This income, along with other Trust income, was distributed to beneficiaries, including the assessee. The beneficiaries then assigned their interests to a Body of Individuals (BOI) and claimed that the beneficial interest from the firm should be assessed as an asset of the BOI, not the assessee. The Assessing Officer rejected this claim, deeming the creation of the BOI and the assignment as a sham and bogus transaction. The Commissioner (Appeals) reversed this finding, and the Tribunal upheld the Commissioner's decision.

What did the Supreme Court hold?

The Supreme Court held that the appeal by the Revenue had no merit and was dismissed. The Court reasoned that the High Court had correctly rejected the Revenue's application under Section 27(3) of the Wealth Tax Act because the Tribunal's decision was based on a question of fact. Specifically, the finding that the creation of the BOI and the assignment of assets was not a sham or bogus activity was a factual determination. Once this fact was established, the question of law sought to be referred by the Revenue did not arise. The Court acknowledged that the High Court had erroneously relied on the judgment in Sunil J. Kinariwala v. Commissioner of Income Tax, which was subsequently reversed by the Supreme Court. However, the Court clarified that the facts in that case were distinguishable from the present case, as the earlier case dealt with diversion of income by overriding title, whereas the present case concerned whether the BOI and the assignment were sham and bogus. Despite the erroneous reliance on the previous judgment, the Supreme Court affirmed that the High Court was right in rejecting the application based on the factual findings of the Commissioner (Appeals) and the Tribunal.

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 BOIs from the wealth of the assessee, under Section 27(1) of the Wealth Tax Act, 1957. The Revenue contended that the Supreme Court had reversed the Gujarat High Court's judgment in Sunil J. Kinariwala v. Commissioner of Income Tax, and therefore, this appeal should be allowed. The Revenue argued that the High Court's reliance on this reversed judgment made a difference to the outcome. The assessee argued that once it was found as a fact that the creation of the BOI and the assignment of assets was not a sham or bogus activity, the question sought to be referred by the Revenue would not arise. Therefore, both the Tribunal and the High Court were correct in rejecting the Revenue's application.

Which sections of the Income-tax Act were involved?

Section 27(1),Section 27(3)

AI-generated summary — verify with the full judgment below

A COMMISSIONER OF WEAL TH TAX, GUJARAT v. LOV. S. KINARIWALA DECEMBER 11, 2002 B [SYED SHAH MOHAMMED QUADRI AND ARIJIT PASAYAT, JJ.] Wealth Tax Act, 1957: s.27 (I) and 27(3)-Assessee, a beneficiary of Trust assigned to the trust C his share of income received from pa1:tnership firm-The same alongwith other income distributed to assessee-Assessee assigned his interest in favour of Body of Individuals (80/s) and claimed that it should be assessed as asset of 80/s-Claim rejected by Assessing Officer holding that creation of BO/s and assignment was a sham and bogus-Commissioner (Appeals) reversed D the findings and his decision affirmed by Tribunal-High Court declined to direct the Tribunal to state and refer the question holding that decision of Tribunal was on the question of fact and no question of law arose-Held, once it is found as a fact that creation of 80/s and assignment of interest was not sham and bogus activity, the question sought to be referred woulq not arise and Tribunal u/s. 27(1) and High Court u/s. 27(3) were right in rejecting E the application of Revenue.

Sunil J. Kinariwala v. Commissioner of Income Tax, (1955) 211 l.T.R 127 and Commissioner

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