COMMISSIONER OF INCOME TAX vs. SAUMIL B. KINARIWALA

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TAXAP/199/2005HC GujaratGJHC24033594200520 December 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI4 pages

AI SummaryAllowed

What did the High Court hold?

The High Court held that the genuineness of the assignee was not disputed by the revenue. The sole controversy was whether the assignment conferred an overriding title on the assignee, excluding the assignor. The Court referred to the Apex Court's decision in Commissioner of Income Tax vs. Sunil J. Kinariwala, which distinguished between a partner assigning their share and constituting a sub-partnership. The Apex Court held that an assignee becomes entitled to receive profits as an assignee, not as a sub-partner, and there was no diversion of income by overriding title. Since the deed of assignment in the present case was identical in material particulars to those in the cited case, the ratio of the Apex Court decision applied with full vigor. The genuineness of the assignee, though not disputed, did not operate as a distinguishing feature. Therefore, the Tribunal was not justified in deleting the addition. The question was answered in the negative. The addition of Rs. 1,43,768/- was upheld.

What were the facts?

This case involves an appeal by the Commissioner of Income Tax (Revenue) against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had deleted an addition of Rs. 1,43,768, which represented 2.52% of the share income from the firm M/s. Ramniklal Jivanlal Kinariwala & Co. This share income had been assigned to various bodies of individuals. The assessment year(s) are not explicitly stated, but the dispute arises from the ITAT's deletion of the addition. The procedural history indicates that the High Court framed a substantial question of law on October 10, 2005, and heard arguments from both the revenue and the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 1,43,768/- being 2.52% of share income from the firm of M/s. Ramniklal Jivanlal Kinariwala &Co. which had been assigned to various bodies of individuals? (Question of law) Assessee's Contentions: The assessee argued that once the genuineness of the assignee (body of individuals) was not found to be sham or bogus, the entity could not be treated as non-genuine for taxing purposes. Reliance was placed on the Apex Court decision in Commissioner of Wealth-Tax vs. Lov S. Kinariwala, (2003) 259 ITR 440. The assessee also referred to the ITAT's consolidated order dated December 13, 1996, in ITA Nos. 561 to 573/Ahd/1990, which recorded findings of fact that there was no tax evasion, the transaction was genuine, and the assignee was a genuine entity. Revenue's Contentions: The revenue contended that the controversy was concluded by the Apex Court's decision in Commissioner of Income Tax vs. Sunil J. Kinariwala, (2003) 259 ITR 10, and therefore, the question should be answered in favor of the revenue.

Which sections of the Income-tax Act were involved?

Section 29(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

TAXAP/199/20057/7JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 199 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== ============================================================== COMMISSIONER OF INCOME TAX - Appellant(s) Versus SAUMIL B. KINARIWALA - Opponent(s) ============================================================== Appearance : MR MANISH R BHATT for Appellant(s) : 1, MRS SWATI SOPARKAR for Opponent(s) : 1, ================================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 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 ? 5 Whether it is to be circulated to the civil judge ? CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI 1. 1. 2. Date : 20/12/2005

ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA)

On 10-10-2005, the Court framed the following substantial question of law. “Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in deleting the addition of Rs.1,43,768/- being 2.52 % of share income from the firm of M/s. Ramniklal Jivanlal Kinariwala &Co. which had been assigned to various bodies of individuals ?” of the appellant-revenue. As against that Mr.T.P. Hemani, appearing on behalf of the respondent-assessee placed reliance on a decision of the Apex Court in the case of Commissioner of Wealth-Tax vs. Lov S. Kinariwala, (2003) 259 ITR 440 to submit that once genuineness of the assignee, namely body of individuals was not found to be sham or bogus, for the purposes of taxing the income, such an entity could not be treated as non-genuine. He therefore submitted that in light of the aforesaid decision in Wealth-tax proceedings the appeal requires to be decided in favour of the assessee. In this context he has placed on record, with the permission of the Court, Tribunal's consolidated order dated 13th December, 1996 in ITA Nos.561 to 573/Ahd/1990 and cognate matters to contend that Tribunal has recorded findings of fact that there is no tax evasion by virtue of the assignment in question, there is a genuine transaction and the 3. 4. 5. 6. assignee is a genuine entity. Having heard the learned counsel it is apparent that, in the circumstances of the present case, the genuineness of the assignee is not disputed by appellant-revenue. person and a case where a partner constitutes a sub- partnership with his share in the main partnership. After referring to provisions of Section 29 (1) of the Indian Partnership Act, 1932, the Apex Court further held that the assignee became entitled to receive the assigned share of the profits from the firm, not as a sub-partner, but as an assignee because no sub partnership had come into existence. There was no diversion of income by overriding title. It is an accepted position between the parties that the deed of assignment is identical in all material particulars except for the change in the name, date and the percentage of the share to be assigned. In these circumstances, the ratio of the Apex Court decision applies with full vigour and the genuineness of the assignee, which is not in dispute, does not operate as a distinguishing feature. In fact, it is common ground between the parties that all along the assessee had been pressing into service the decision of this Court reported in (1995) 211 ITR 127, and the revenue was trying to distinguish the same. The assessee had at no point of time raised any contention to the effect that there is any distinction on facts recorded by this Court in its aforesaid decision and the facts of the present case. In these circumstances, applying the ratio of the Apex Court decision in case of Commissioner of Income Tax vs.Sunil J. Kinariwala (Supra ), the question is answered in the negative. It is held that the Tribunal was not justified in deleting the addition of

Rs.1,43,768/= being 2.52 % of share income from the firm of M/s. Ramniklal Jivanlal Kinariwala &Company which had been assigned to various bodies of individuals.

The appeal is accordingly allowed. There shall be no order as to costs.

( D.A.MEHTA,J. )

(HARSHA DEVANI, J.)

*mithabhai

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