SMITA TRUST vs. COMMISSIONER OF INCOME-TAX

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ITR/53/1997HC GujaratGJHC24020217199704 March 2008Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MR. JUSTICE Z.K.SAIYED4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court noted that the controversy brought before it was academic in nature. The assessee's contention was not that the trust was not a partner, but that it had not received partnership share income or that the firm had been closed down. The Tribunal had found, as a matter of fact, that there was no evidence to support these contentions. Consequently, the Court decided to leave the questions referred for its opinion unanswered. The reference was disposed of accordingly. The Court did not decide the merits of the issues raised by the assessee and the revenue regarding the applicability of Section 161(1A) and the derivation of business profits.

What were the facts?

The assessee, Smita Trust, is a private trust. The Assessing Officer invoked Section 161(1A) of the Income-tax Act, 1961, for Assessment Year 1987-88, holding the trust liable to tax at the maximum marginal rate as it was a partner in a firm. The assessee argued that Section 161(1A) was not applicable as the partnership share income was shown as NIL due to non-receipt of accounts from the firm. The Assessing Officer rejected this, stating that the trust's entire income must be taxed at the maximum marginal rate until the trust ceases to be a partner or the firm discontinues business. The Commissioner (Appeals) accepted the assessee's plea that the firm was closed during the year, thus no business income was earned. The Tribunal, however, reversed this, finding no evidence of the firm's dissolution.

What were the issues?

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 under Section 161(1A) of the Income-tax 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 Section 161(1A) of the Income-tax Act, 1961? Assessee's Contentions: - Section 161(1A) cannot be invoked because the assessee has shown partnership share income from the firm at NIL on the ground that accounts have not been received from the partnership. - During the year under consideration, the firm was closed, and hence there was no business income earned by the assessee-Trust. Revenue's Contentions: - The Assessing Officer held 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. - The Tribunal found no evidence to conclude that the firm, in which the assessee-Trust was a partner, stood dissolved, formally or informally, during the year under appeal.

Which sections of the Income-tax Act were involved?

161(1A)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
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. [ D.A. MEHTA, J ] [Z.K. SAIYED, J ] *** Bhavesh*

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