COMMISSIONER OF INCOME-TAX vs. S. C. SHAH & OTHERS

To be referred to the Reporter or not? : NO

Whether Their Lordships wish to see the fair copy : NO of the judgement?

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals?

Whether, the Appellate Tribunal is right in law in holding that the assessee should be assessed in the status of body of individuals ?"

The Assessment Year is 1982-83 and the relevant accounting period is the year ended on 30-06-1981. The assessee filed its return of income in the status of Body of Individuals (BOI) and the Assessing Officer accepted the same while framing assessment under Section 143(3) on 29-02-1984. The Commissioner of Income Tax initiated revisional proceedings under Section 263 of the Act after issuing show cause notice to the assessee. The Commissioner did not accept the explanation tendered by the assessee and set aside the assessment order directing the Assessing Officer to adopt the status of the assessee as that of Association of Persons (AOP) and levy tax in accordance with law vide his order dated 27-03-1986.

The assessee challenged the order of the CIT made under Section 263 of the Act by way of an appeal before the Tribunal who, for the reasons stated in its order dated 21-06-1988, held that the CIT was in error in exercising jurisdiction under Section 263 of the Act and that the assessee was liable to be assessed in the status of BOI. The Tribunal for the purpose of upholding the contention of the assessee regarding its status relied on decision of this Court in the case of Commissioner of Income-tax, Gujarat III Vs. Harivadan Tribhovandas,

Mr.B.B.Naik, learned Standing Counsel appearing on behalf of the applicant - revenue, submitted that the Tribunal had erred in accepting the stand of the assessee. That as per declaration of the donor executed on 21-06-1981 the donees were only entitled to distribute amongst themselves the gifted property. The moment the donees came together to earn income from the gifted

Though served there is no appearance on behalf of the respondent - assessee.

The Commissioner can exercise jurisdiction under Section 263 of the Act provided the two prerequisite conditions stand satisfied - viz. (i) the order of the Assessing Officer sought to be revised is erroneous; (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - i.e. if the order of the Assessing Officer is erroneous but is not prejudicial to the Revenue, or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263 of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. These are the observations made by the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax, (2000) 243 ITR 83. The Supreme Court further goes on to interpret the phrase "prejudicial to the interests of the Revenue" and states that when an Income Tax Officer adopted one of the courses permissible in law or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the Assessment Order cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.

Applying the aforesaid tests, it is apparent that in the facts of the present case, it is not possible to state that the view adopted by the Assessing Officer is unsustainable in law in light of the decision of the Apex Court in the case of Meera and Company (supra). In case of Meera and Company (supra) the Apex Court was called upon to decide as to what would be the correct status of the assessee, whether BOI or AOP. One individual expired intestate living behind mother, widow and minor children. They inherited the business carried on by the deceased individual. After the mother relinquished her share the

In the present case, as can be seen from the facts on record, three individuals were jointly donated a sum by the donor under a declaration dated 21-06-1981. The said sum was invested by them and interest income returned in the status of BOI. Thus, the facts are similar to the situation which was prevalent before the Apex Court in the case of Meera and Company (supra). Applying the said ratio it is apparent that the Tribunal has correctly held the status of the assessee to be BOI.

In the result, question No.1, referred to the Court, is answered in the affirmative i.e. in favour of the assessee and against the Revenue. Similarly, question No.2 is also answered in the affirmative i.e. in favour of the assessee and against the Revenue. The Reference stands disposed of accordingly. There shall be no order as to costs. Sd/- Sd/- [ D.A.MEHTA,J ] [ H.N.DEVANI,J ]