BHAVYA RPG TRUST,MEERUT vs. PR. CIT, GHAZIABAD

Per Dr. B. R. R. Kumar, Accountant Member:

The present appeals have been filed by the assessee against the orders of ld. PCIT, Ghaziabad dated 26.03.2021.

“1. That impugned order dated 26.3.2021 u/s 263 of the Act by the learned Principal Commissioner of Income Tax made on a non-existent person is illegal, invalid and void-ab-initio and therefore, nullity in the eyes of law.

1.1 That M/s Varnika RPG Trust was dissolved on 31.3.2016 under the trust, deed dated 16.3.2009 and thus the trust had ceased to exist on the date of impugned order and therefore both the order of assessment dated 28.12.2018 u/s 143(3) of the Act and even the impugned order dated 26.3.2021 u/s 263 of the Act are without jurisdiction and deserves to be quashed as such.

2.1 That the learned Pr. Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as

ITA Nos. 451, 452 & 453/Del/2021 3 Varnika, Bhavya & Dhruv RPG Trust much as prejudicial to the interest of revenue merely because the learned Commissioner of Income Tax had a different opinion and that too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible or unsustainable view.

2.2 That the learned Principal Commissioner of Income Tax has failed to appreciate that action u/s 263 of the Act is otherwise too inapplicable on the factual matrix of the facts of the instant case since admittedly, undisputedly and undeniably not a case of “lack of enquiry” or “lack of investigation” and perusal of the show cause notice itself would show that it has not been denied or disputed that all relevant information have been furnished/obtained in the course of assessment proceeding and therefore the invocation u/s 263 of the Act is not in accordance with law.

2.3 That the finding of the learned Principal Commissioner of Income Tax that the learned Assessing Officer accepted the version of the assessee without any enquiry or verification or even that AO has not applied his mind is factually incorrect, contrary to record and otherwise to perverse and without application of mind and therefore untenable.

2.4 That the learned Principal Commissioner of Income Tax has failed to appreciate that surmises, conjecture and suspicion could not be a basis much less a valid basis to invoke section 263 of the Act.

2.5 That the learned Principal Commission of Income Tax has illegally invoked section 263 of the Act without confronting the material/investigation report relied upon to appellant and therefore order so made in disregard of principles of natural justice is a vitiated order.

2.6 That various other adverse findings recorded in the notice u/s 263 of the Act and, also in impugned order are factually incorrect, vague, legally misconceived and untenable.

ITA Nos. 451, 452 & 453/Del/2021 4 Varnika, Bhavya & Dhruv RPG Trust 2.7 That while passing the order u/s 263 of the Act0 the learned Principal Commission of Income Tax cannot travel beyond the show cause notice and therefore findings and observation and also the material relied upon not referred in the show cause notice but made part of the order could neither in law and nor on fact the made a basis illegal assume jurisdiction u/s 263 of the Act.

2.8 That the learned Principal Commissioner of Income Tax has failed to appreciate that section 263 of the Act cannot be invoked to make deeper enquiry. In otherwords, allegation of proper enquiry or inadequate enquiry cannot be a valid basis to invoke section 263 of the Act.

3.1 That the learned Principal Commission of Income Tax has also erred both in law and, on facts in not directing to allow exemption of long term capital gain of Rs. 65,24,465/- in respect of sale of shares through recognized stock exchange u/s 10(38) of the Act.

3.2 That while making the aforesaid addition and denying the exemption learned Principal Commission of Income Tax has failed to appreciate that, appellant was owner of equity shares of a listed company which had been held by it for a period exceeding 12 months and the same were sold on recognized stock exchange after payment of STT, resulting into a long term capital gain and therefore the long term capital gain accrued to the assessee on transfer of long term ‘capital asset’ was not includible in total income of the assessee in view of section 10(38) of the Act.

ITA Nos. 451, 452 & 453/Del/2021 5 Varnika, Bhavya & Dhruv RPG Trust 3.3 That the learned Principal Commission of Income Tax has failed to appreciate the evidence tendered by the appellant to support the purchase and sale of shares and hence findings mechanically recorded on borrowed inference in disregard of evidence and based on irrelevant and extraneous considerations are misconceived and, misplaced.

3.4 That furthermore the learned Principal Commission of Income Tax has made the addition and denied exemption on mere speculation, generalized statements, theoretical assumptions and allegations and assertions, without there being any supporting evidence and is therefore not in accordance with law.”

ITA Nos. 451, 452 & 453/Del/2021 6 Varnika, Bhavya & Dhruv RPG Trust Point-1), details of the family trust with regard to the provisions of Section 12AA (Point-11) and the details of the share transactions on or before 04.09.2018. • Vide reply dated 29.08.2018, the assessee has attached copy of the Trust deed of the assessee Trust and the details of the share transactions. • Vide letter dated 24.10.2018, the Assessing Officer sought further clarification with regard to the Trust deed. The queries are as under:

“1. As per the trust deed, the trust got registered on 16- 03-2009 in the name of Varnika RPG Trust wherein the settler Ms. Rajbala Gupta and Ms. Benu Gupta created a trust for the sole benefit of her (their) minor granddaughter namely Varnika Gupta which reads as follows:

"the settler is desirous of creating a Trust for the sole benefit of her minor granddaughter namely Varnika Gupta and in order to effectuate the said desire, the settler has settled fixed sum of Rs. 5000/- mentioned hereinafter in this indenture to be held as Trust property, for the fulfillment of the object and purpose stated in this indenture.”

“that the total Trust funds along with all accretions thereto by way of income, contributions, gifts and/or otherwise shall be accumulated till attaining of the majority o f the

ITA Nos. 451, 452 & 453/Del/2021 7 Varnika, Bhavya & Dhruv RPG Trust beneficiary or 31.03.2015 and may be used for the purpose of higher education of the beneficiary, or to any other use she may later desire.”

(a) When the shares held in the name of the trust were transferred in the name of the trustee. As per the trust deed, the trust has liquidated on 31-03-2015.

(b) Please explain why you had preferred to file a return in the name of trust instead in the name of trustee as w.e.f. 01-04-2015 i.e. Financial Year 2015-16, Assessment Year 2016-17. The year under reference, there is no trust in existence and the entire trust property has been transferred to the trustee.

(c) Please provide the documentary evidence of change in share price at which the shares were sold.

(d) As per the trial balance, the following amount has been shown invested in the name of the trust i.e.

(i) Shares- Hotly Commercial (P) Ltd. Rs.4,00,000.00 (ii) Shares- Parkar Construction (P) Ltd. Rs.2,00,000.00 (iii) Shares- RPG Industrial Product (P) Ltd. Rs.22,96,000.00”

• Vide letter dated 10.11.2018, the assessee has replied to the above queries which is as under:

ITA Nos. 451, 452 & 453/Del/2021 8 Varnika, Bhavya & Dhruv RPG Trust To, The Income Tax Officer, Ward 2(4), Meerut.

Re: - M/s Varnika RPG Trust, A-2, Baghpat Road, Shambhu Nagar, Meerut (‘assessee’) Assessment Year: 2016-17 PAN No.: AABTV1326M

Assessment Proceedings U/s 143(3) of the Income Tax Act, 1961 (‘the Act’)

Dear Sir,

With reference to the captioned proceedings and notice dated 24.10.2018 issued u/s 142(1) of the Act, we, on behalf of and under the instructions of the assessee humbly submit as under:

With reference to your observations regarding the trust deed at serial numbers 1 and 2 of the above referred notice, we would like to draw your kind attention towards the point number 9 of the trust deed as given on page number 6 thereof, which reads as under:

“That all the trust property including accumulations in the form of yearly income and other editions and accretions to the trust property shall vest with the sole beneficiary namely Vernika Gupta after her attaining 18 years of age or 31.03.2015, whichever is later and subject to clause 11, mentioned hereinafter. Then the term of the trust may expire and all the trust property including all accretions

ITA Nos. 451, 452 & 453/Del/2021 9 Varnika, Bhavya & Dhruv RPG Trust upto the date of expiry of the term shall become the sole property of the beneficiary with all the rights of ownership, use, possession and disposition."

From the above clause it is clear that the term of the assessee trust were-to expire when the beneficiary attains the age of 18 years or on 31st of March 2015 whichever is later. The date of birth of the beneficiary of the assessee trust namely, Ms. Varnika Gupta, is 3rtl September 1997, therefore she has completed the age of 18 years on 3 September 2015 i.e. after 31 March 2015 and within the year under consideration. The beneficiary of the assessee trust namely, Ms. Varnika Gupta, is presently assessed to tax at PAN BWTPG7821F. Photocopy of her PAN card is enclosed herewith as Annexure 1 in support of her date of birth. Therefore, the observation of your good-self that the assessee trust stands liquidated on 31 March 2015 is inconsistent with the terms of the trust deed. The term of the assessee trust has expired during the year under reference. This is also supported by the fact that the year under consideration is the last year for which the assessee trust filed its ITR.

In response to the queries raised by your good-self at serial number 3 of the above referred notice we submit as under:-

a) From the above, it is clear that the assessee trust did not expire on 31.03,2015 hence the shares held in the name of the trust were transferred to its beneficiary after 03.09.2015, i.e. after the sale of the shares on which LTCG

ITA Nos. 451, 452 & 453/Del/2021 10 Varnika, Bhavya & Dhruv RPG Trust was earned. The sale of shares was made during the months of May and June, 2015.

b) The ITR for the relevant year has been filed in view of the fact that the assessee trust was continuing during the year in view of the clause 9 of the trust deed.

c) Photocopies of the contract notes as issued to the assessee trust by its broker regarding the sale of shares on which long-term capital gain has been earned are enclosed herewith as Annexure 2. The shares were sold online through Bombay stock exchange and sale rates thereof are verifiable from the contract notes enclosed herewith.

d) The fact that the assessee has made investment in share capital of 3 companies totaling Rs.28,96,000/- has already been accepted and stated by the assessee at serial number 7 of its reply dated 29 August 2018. Hence the same is an undisputed and admitted fact requiring no further clarification.

e) As explained earlier at serial number 7 of our reply dated 29th August 2018, it is again submitted that the amount of Rs.97,11,738/- has been given as unsecured loan to M/s RPG Industrial Product (P) Ltd. The confirmed copy of account of the assessee as appearing in the books of the said entity has already been filed as annexure 6 to our reply dated 29 August 2018. From the said confirmed copy of account all the details of the said loan are apparent.

ITA Nos. 451, 452 & 453/Del/2021 11 Varnika, Bhavya & Dhruv RPG Trust f) The assessee company has not sold any shares of any of the private limited companies hence the minutes of the same are not required to be filed. The exempt long term capital gain has been earned from the sale of listed shares on Bombay Stock Exchange only.

g) The statement made by your good-self that Ms. Vernika Gupta, attained majority on 31.03.2015, is factually incorrect as is evident from her PAN card enclosed herewith as annexure 1. The beneficiary of the assessee trust is not related to any of the directors of the companies whose shares have been sold during the relevant year. The list showing the name of the other companies and the relation of the beneficiary of the assessee trust with its directors is as under:

Name of company Relation with the directors Holy Commercial Pvt. Ltd. Grandmother of the beneficiary. Parker Construction Pvt. Ltd. No relation with any director. RPG Industrial Product (P) Ltd. Father of the beneficiary.

h) As stated herein above at serial number a), the beneficiary of the assessee trust did not attain maturity as on 31 March 2015. Hence no shares were transferred to her or any sale proceeds of the same were received in her bank account. This fact is also apparent from the bank statement of the assessee trust which has already been filed along-with our reply dated 29 August 2018, wherein the sale proceeds of the shares sold during the year were received.

ITA Nos. 451, 452 & 453/Del/2021 12 Varnika, Bhavya & Dhruv RPG Trust i) With reference to your good-selfs noting that there is a contradiction between the reply of the assessee given at serial number 4 of its letter dated 29 August 2018 and the trial balance as filed before your good-self, we humbly submit that your good-self has not rightly considered the contents of the trial balance/Profit & loss A/c and computation of income on the basis of which tax is paid.

The indirect expenses of Rs.5,34,807.58, have been booked to the debit of the P&L account as placed on record only for the accounting purpose and mainly consists of advance tax, TDS and self assessment Tax to the tune of Rs.5,40,082/- DMAT expenses of Rs.5,725.58 and bank charges of Rs.229/-. As per the accounting principles any expenditure with an allowable under the Income Tax Act, or not, is to be booked to the debit of the profit and loss account. The booking of expenditure to the debit of the P&L account does not necessarily mean that the same has been claimed by the assessee as allowable in its computation of income.

Now we would like to draw your kind attention towards the computation of income of the assessee as already placed on record (copy of the same is again enclosed herewith as Annexure 3 for your ready reference). From the said computation of income your good-self will notice that assessee has shown a gross total income of Rs.21,08,267/- in its computation whereas the taxable income credited to the profit and loss account is Rs.21,08,737/-, the difference of Rs.470/- (21,08,737-21,08,267) in both the

ITA Nos. 451, 452 & 453/Del/2021 13 Varnika, Bhavya & Dhruv RPG Trust incomes pertains to the amount of income tax refund which is not taxable under the income tax Act. This fact is apparent from the trial balance of the assessee trust already filed along-with our reply dated 29 August 2018. Further, the profit and loss account of the assessee trust also depicts an non-taxable income of Rs.65,24,465/-, which is again shown at the bottom of the computation of income under the head income claimed exempt.

From the above, it is clear that for the purpose of filing of the income tax return and calculating the tax payable by the assessee the indirect/taxable expenses of Rs.5,34,807.58 have not been taken into account. Hence, the earlier submission of the assessee that it has not claimed any expenditure in its computation of income is correct as per the facts of the case and the ITR & computation of income as filed before your good-self.

In view of the above, no adverse inference is required to be drawn on this issue as there is no inconsistency between the facts of the case and the assessee's reply.

j) The deemed contradiction in your query number 5 of the notice dated 27th August 2018 and the assessee's reply at point number 5 of its reply dated 29th August 2018 stands explained at Point no. i), hereinabove. At point number i) it has been explained in detail the difference between the amount debited in the P&L account and claim of expenditure made in the computation of income. From the said explanation it is clear that the assessee has not claimed any deduction of self-assessment tax as expenses

ITA Nos. 451, 452 & 453/Del/2021 14 Varnika, Bhavya & Dhruv RPG Trust in its computation of income hence there is no contradiction in the reply of the assessee and query raised by your good- self. In case your good-self finds any claim of such expenses as the assessee's ITR, the same may kindly be disallowed.

k) As submitted hereinabove, it is clear that the assessee trust was very well in existence during the year under reference. The long term capital gain was earned by the trust during the months of May and June, 2015 and the beneficiary was entitled to the funds of the trust after 03.09.2015, hence the on the date of earning of the LTCG the ownership for the shares was with the assessee trust only. Hence the details as sought by your good-self are irrelevant for the present case and are not required to be filed.

l) As submitted at various points hereinabove it is again submitted that the assessee trust was very well in existence during the year under reference and none of its assets/income were vested with its beneficiary hence the details as sought by your good-self are irrelevant for the present case and are not required to be filed.

m) The assumption on the basis of which your good-self has raised the present query is inconsistent with the facts and the trust deed of the assessee trust hence is not relevant in the present case. Further, we would like to summit that the commodity trading was carried on by the assessee trust through its broker namely M/s PK enterprises, and not by its beneficiary i.e. Ms. Varnika

ITA Nos. 451, 452 & 453/Del/2021 15 Varnika, Bhavya & Dhruv RPG Trust Gupta. Photocopy of the statement of account of the assessee as appearing in the books of its broker i.e. M/s P.K. Enterprises, is enclosed herewith as Annexure 4 in support of the same.

The fact that the interest income was earned by the assessee trust is also evident from the fact that TDS on the interest earned and declared by the assessee was deducted on its PAN and is duly reflected in its form 26AS, copy of which is enclosed herewith as Annexure 5.

Further, the observation of your good-self that commodity trading can mandate only be taken only on the recognized stock exchange is inconsistent with the law in force. Hence, we request your good-self to kindly intimate the assessee with the law under which your good-self has stated that commodity trading can only be done on the recognised stock exchange and the local market trading commonly known as ‘Teji Mandi’ is illegal in India. In addition to the above the sale and purchase bills of the commodity trading as done by the broker of the assessee trust on behalf of the assessee are enclosed herewith as Annexure 8 in support of the fact that the trading was done in the name of the assessee trust only.

n) During the relevant year the assessee has earned Long- term capital gain exempt u/s 10(38) of the Act of Rs.65,24,465/- on STT paid sale of listed equity shares of M/s CCL International Ltd. The details of the same are as under:

ITA Nos. 451, 452 & 453/Del/2021 16 Varnika, Bhavya & Dhruv RPG Trust The assessee had purchased 25,000 equity shares of M/s CCL International Ltd., for Rs.10,00,000/-, on 07.05.2013. Copy of the Bill of the same providing details of the seller is enclosed herewith as Annexure 7 along-with the confirmation from the seller of shares. The payment of the said purchase was made through proper banking channels. Copy of the relevant extract of the bank statement of the assessee showing the said payment is enclosed herewith as Annexure 8. The said equity shares were sold in dematerialized form on Bombay Stock Exchange, on various dates during the months of April 2015 to June 2015 i.e. during the year under consideration, for a total consideration of Rs.75,24,465/- on which it had earned a exempt long term capital gain of Rs.65,24,465/-. Copy of the statement of D-mat Account of the assessee maintained by it with M/s Kotak Securities Ltd. is enclosed herewith as Annexure 9. Further, the contract notes showing details of said sale transactions are enclosed hereinabove at Sl. No. c) as Annexure 2.

From the above documents the source and nature of exempt income of Rs.65,24,465/- stands explained and no adverse inference is called for on this issue.

We hope that your good-self will find the above in order. We request your good-self to kindly take the above on record.”

ITA Nos. 451, 452 & 453/Del/2021 17 Varnika, Bhavya & Dhruv RPG Trust and accretions to the trust property shall vest with the sole beneficiaries namely, Varnika Gupta after her attaining 18 years of age or whichever is later and subject to Clause 11 mentioned. When the term of the trust expires, all the trust property including all accretions up to the date of expiry of the term shall become the sole property of the beneficiaries with all the rights of ownership, use, possession and dispossession (Clause 9 at page no. 6 of the trust deed). Since, the date of birth of Varnika Gupta is 03.09.1997, she completed the age of 18 years on 03.09.2015. Hence, the trust was in existence during the Assessment Year 2016-17 but not after 03.09.2015.

The trust stands dissolved or extinguished from 31.03.2015. While the entire records are before the revenue authorities, the ld. PCIT issued a notice to Varnika RPG Trust on 15.03.2021 which effectively culminating in issuing of a notice to a non- existing and expired trust.

“QUESTION NO. 2 - The answer to this question turns on the construction of section 77 of the Indian Trusts Act. That provision reads as under:

"A trust is extinguished— (a) when its purpose is completely fulfilled ; or

ITA Nos. 451, 452 & 453/Del/2021 18 Varnika, Bhavya & Dhruv RPG Trust (b) when its purpose becomes unlawful; or (c) when the fulfilment of its purpose becomes impossible by destruction of the trust property or otherwise ; or (d) when the trust, being revocable, is expressly revoked."

Now, in the instant case, Smt. Usha Devi had transferred her beneficiary's interest in the trust property to the educational trust on 18-12-1973. Such transfer, as we have observed, is not hit by the proviso to section 58 of the Indian Trusts Act. Section 8 of the Indian Trusts Act, which provides that the subject-matter of a trust must not be merely beneficial interest under a subsisting trust, is attracted only when the trust, which is created, is a private trust. That provision is not attracted in the case of an educational trust as the provisions of the Indian Trusts Act are not applicable to educational trusts. No provision of law was brought to our notice, which invalidated the transfer of Smt. Usha Devi's interest in the trust property in favour of the educational trust. As regards transfer of an interest by a remainderman, it is not hit by section 6(a) of the Transfer of Property Act, as that provision is attracted only in the case of a bare or naked possibility and not in the case of a possibility coupled with an interest such as that of a remainderman. The interest of remainderman, in the instant case, could however, be validly transferred only after obtaining permission from the Court under section 8 of the Hindu Minority &Guardianship Act, 1956, as the remaindermen were minors at the material time. The requisite permission was accordingly obtained by the guardians of the minor remaindermen from the District Court, Indore. The ITO had no jurisdiction to decide as to whether the District Judge should or should not have granted such permission. The remainderman's interest in the trust property was thus validly transferred by the deed, dated 30-3-1974. In view of these two deeds, dated 18-12- 1973 and 30-3-1974, it must be held that the beneficiary interest in the trust property of the assessee-trust was validly transferred to

ITA Nos. 451, 452 & 453/Del/2021 19 Varnika, Bhavya & Dhruv RPG Trust the educational trust and, in these circumstances, the fulfilment of the purpose of the assessee-trust, which was to pay the net residue of the rents, profits, interest and other income of the trust property to Smt. Usha Devi during her lifetime and on her death to transfer and hand over the trust property in the manner specified, to her children, became impossible. Section 77 of the Indian Trusts Act provides that a trust is extinguished when the fulfilment of its purpose becomes impossible by destruction of the trust property or otherwise. The expression 'otherwise' would cover a case where the trust property is not available for fulfilment of its purpose because all the beneficiaries under a trust have validly transferred their interest. In these circumstances, the assessee-trust must be held to have been extinguished and the Tribunal was not justified in holding that the assessee-trust was not extinguished within the meaning of section 77 of the Indian Trusts Act. Our answer to Question No. 2 is in the negative and against the revenue.”

ITA Nos. 451, 452 & 453/Del/2021 20 Varnika, Bhavya & Dhruv RPG Trust amalgamated with M/s Maruti Suzuki India Limited by the order of Hon’ble High Court w.e.f. 1st April 2012 vide order dated 29th January 2013. The AO was informed on 2nd April 2013. AO still issued notice to the erstwhile company, Suzuki Powertrain India Limited and below it mentioned now known as M/s. Maruti Suzuki India Ltd. and final assessment order was passed in the name of “M/s. Suzuki Powertrain India Limited (amalgamated with Maruti Suzuki India Limited).

Sd/- Sd/- (Amit Shukla) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 09/09/2021 *Subodh Kumar, Sr. PS*