VAIBHAVI DISCRETIONARY FAMILY TRUST,MUMBAI vs. ITO 12(2)(1), MUMBAI

आदेश / O R D E R

Per Bench:

“1.In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in the points of law and facts. 2.In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in 3 Vaibhavi & Others holding that appellant is not entitled to interest on refund of Rs. 1,360/-. 3.In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in holding that appellant is not eligible for interest on interest.”

Vaibhavi Discretionary Family Trust Mumbai:

3.1. The brief facts are that the assessee is a beneficiary of K. Kachradas Patel Specific Family Trust deriving @ 0.5% immediate beneficiary, as per Schedule-I attached to and forming part of the Trust Deed of the said Trust. The Assessee filed Return of Income for Accounting Year 1984- 85, corresponding to Asst. Year 1986-87, declaring beneficiary share and interest income from the said Trust. Ld. First Income-tax Officer A-1, Ward Mumbai vide Assessment Order dated 30-03-87 u/s.143(3) of I.T. Act made protective assessment of the said income.

4 Vaibhavi & Others Substantive assessment of income was made in the case of K. Kachradas Patel Specific Family Trust. The issue of protective and substantive assessment was carried out before further appellate authorities. However, K. Kachradas Patel Specific Family Trust declared said income, in its case, under K.V.S.S. and paid due taxes thereon. The certificate under K.V.S.S. was issued. The ld. Assessing Officer, vide his order u/s 155(2),dt. 20-09-2000, deleted the income, which was protectively assessed in the case of the assessee since substantive assessment thereof made in the case of K. Kachradas Patel Specific Family Trust. The Id. Assessing Officer granted refund of taxes as under: Total Taxes paid Rs. 500/- Less: Refund of A.Y. 84-85 adjusted Rs. 860/- R.O. issued Rs. 1,360/- The application u/s. 154 was made to Ld. Assessing Officer, inter-alia requesting as under: a) Interest on refund of Rs. 1,360 till 28-11-2000. b) Compensatory interest. The Id. Assessing Officer, vide order u/s.154/155 of I.T. Act dated 05-12-12 rejected the claim of the assessee Ld. CIT(A)- 23, Mumbai vide his order dated 17.06.2014 confirmed the order of the Assessing Officer.

3.2. Being aggrieved, the assessee filed an appeal before the Tribunal. During the course of hearing both the parties

5 Vaibhavi & Others submitted that identical issues have been deliberate upon decided by the Tribunal in the other group case in favour of the assessee. It was further submitted that all the aforesaid appeals contain identical facts and issues. In view of these submissions and facts, these appeals were heard as covered with the judgment of the Tribunal in other group cases dated 24.11.2015 Ranchod Discretionary Family Trust and Others in ITA No.4712-4722/Mum/2014. The relevant portion of the aforesaid order of the Tribunal is reproduced below:

3.During the course of hearing before us, Authorised Representative(AR)and the Departmental Representative(DR)agreed that identical issue has been deliberated upon and decided by the Tribunal in other group cases, following the order of the Special Bench, that the Hon’ble Gujarat High Court had upheld the order of the Special Bench on 26.06.2008 in IT appeal Nos.1514 to 1795of 2006(Punitaben K. Patel OSFDT and 284 other cases),Nos. 573-618 and1216-1233of 2007 (Manjulaben Pramodbhai & Ors)and Nos.182,204 of 2002, No.27-30 of 2004(Janak Pramodbhai Patel & Ors). Dismissing the appeals filed by the Revenue, the Hon’ble High Court observed as under : “As regards grant of interest on refund, we find that Tribunal was justified in holding that refund should be granted with interest. We are in full agreement with the order of the Special Bench of the Tribunal. We repeat that Revenue should not drag the respondents to unnecessary avoidable litigation” We find that while deciding 31 appeals filed by the other trusts, on Rs.25.3.2015,the “F” Bench of the Tribunal had held as under :- 3.3.It is undisputed fact that in view of the substantial assessability of the income in the hands of the main Trust no income is assessable in the hands of these assessees. Thus, it is the case of the assessee that whatever tax is refunded to the assessee, the assessee is entitled to get

6 Vaibhavi & Others interest on the said refund under the provisions of section 244(1A) of the Act. It is the case of the assessee that on similar facts and circumstances in the cases of other beneficiaries there is decision of Special Bench, which is dated 7/7/2006, copy of which is filed at pages 33 to 63 of the paper book and it was decided by the Special Bench that the beneficiaries are entitled to get the interest. The Special Bench while deciding this issue in favour of the assessee has considered the provisions of KVSS 1998 and after considering those provisions it was held that interest was rightly granted to the assessee. In the cases before Special Bench initially such interest was granted by the AO which was withdrawn by the CIT u/s.263 and it was held that interest was rightly granted by the AO. Reference was made to the following observations of the Special Bench. 27.We heard both sides in detail and considered the matter in the light of the earlier orders of the different benches of the Tribunal on the subject and the plethora of materials placed before us along with assessment, appeal and revision orders. 28.the first issue that came up for consideration is whether the dispute regarding the issue involved in these appeals were continued to exist at that point, of time. We find that this question is quite academic. The Main Trusts have sought settlement of their substantive assessments under KVSS which have been accepted and acted upon by the department. That itself showed that the controversy continued and existed at that point of time and there is no doubt that the issue was pending before the High Court in Reference jurisdiction. Therefore, to make the matter clear ,we state that the Commissioner of Income-tax was not correct in holding that such a controversy did not exist. 29.We further find that the answer to the controversy cropped up in these cases is available in the relevant instructions issued by the CBDJ in the context of Kar Vivad Samadhan Scheme, 1998.We have already seen the relevant question and answer to the question. The CBDT has stated in unequivocal terms that declarations are to be made in respect of substantive assessments. The Board has clarified that the protective demand is not subject to 7 Vaibhavi & Others recovery unless it is finally upheld. The Board has further explained that once the declaration in a substantive case or year is accepted, the tax arrear in protective case / year would no longer be valid and will be rectified by suitable orders in the normal course. In the present case substantive assessments have been made by the department in the hands of Main Trusts. Protective assessments have been made in the case of beneficial trusts. Main Trusts have settled the dispute under KVSS. They have paid the tax under KVSS in respect of the assessment completed in their hands on substantive basis. Therefore, in the light of the circular, the corresponding protective assessments made in the hands of beneficial trusts would fade away and the demand raised in those protective assessment would no longer be valid. When the assessment is not subsisting and the demand is not valid, the amount paid by the assessee along with the return subject to protective assessment becomes refundable to the assessee. Therefore, we are of the considered opinion that the assessing officer has rightly accepted the prayers of the assessees and passed appropriate orders excluding the incomes which have already been considered in the hands of the Main Trusts under KVSS. Therefore, obviously, the assessing officer is justified in following the consequential procedure and making refund to the assessees.

8 Vaibhavi & Others words, the Kar Vivad Samadhan Scheme, 1998 does not empower the income-tax department to tax the same income more than once. This must be made very clear.

31.What are the simple facts available in these cases? The incomes of the main Trust have been distributed to the beneficiary trusts. The beneficiary trusts have filed returns in their individual hands. This position was not accepted by the Revenue. Therefore, substantive assessments have been made in the hands of Main Trusts. In abundant precaution protective assessments have been made in the hands of the respective beneficiary trusts. Suppose the proposition made out by the department was acceptable to the assessee and the substantive assessments made in the hands of the Main Trusts have been accepted by the assessee, what would be the Position of the corresponding protective assessments made in the hands of the beneficiary trusts? The protective assessments would have become invalid as a result of which the Revenue would refund the amount of tax if any paid by the beneficiary trusts while filing the returns of income in their individual capacities. There cannot be any dispute on this proposition. Is it possible to hold that the above position would be disturbed only because of the intervention of KVSS. The Main Trusts have settled their substantive assessments under KVSS which for all practical purposes is equivalent to finally settling the substantive assessments in their hands. The final outcome of the whole process is not different from the substantive assessments having been accepted by the assessees as such or having been settled under an available scheme known as Kar Vivad Samadhan Scheme, 1995. In either case the protective assessments become invalid whereby no demand can be enforced against those protective assessments. The consequence is that if the assessees have paid any amount of tax along with their returns considered for protective assessments, such taxes have to be refunded to them. 32.We do not find much force on the reliance placed by the learned standing counsel on the decision of the Gujarat High Court in the case of Saurashtra Cement & Chemical

9 Vaibhavi & Others Industries vs. ITO 194 ITR 659. In that case there was no assessment at all and the question of refund was considered in that perspective which is quite different from the present case. The income involved in the substantive assessment as well as in the protective assessments are one and the same. The income has been assessed substantively in the hands of the Main Trusts and the demand subsequently settled under KVSS. It is quite unnecessary to repeat that the income has already been assessed in the hands of the Main Trusts. Therefore, nothing remains thereafter to be assessed in the hands of the beneficiary trusts, as far as the income of Main Trust is concerned. Moreover, a case of assessment can be contemplated in the present cases because the stand taken by the assessees is that the, income of the Main Trusts has to be assessed in the hands of the individual beneficiary trusts. It is on the basis of that proposition that the returns were filed by the beneficiary trusts. While returns were filed by the beneficiary trusts in their individual capacities they are in fact offering income for taxation. Section 140A provides that when an assessee files a return of income and where tax is due as per the said return, the tax shall be paid by the assessee before filing the return of income and the proof of such payment of tax proof of such payment of tax shall be accompanied alongwith the return of income. This is called self- assessment. When an assessee files a return with positive income and remits tax thereon u/s 140A, in fact, an assessment is being contemplated even though it is a “self- assessment”. Later on, when it is found that the income covered by the said return is not taxable the tax paid by the assessee in pursuance of that return has to be returned by the Revenue. Therefore, refund of tax is a must in this case. The proposition made by the CIT against the refund of tax is not proper. 33.Regarding the grant of interest also, the position is very clear. As already observed in the above paragraph, the refund of tax in the present case is a mandate of law. When such a refund is called for, interest has to be paid as interest is compensatory in nature. It always moves with the principle amount.

10 Vaibhavi & Others 34.There is no substance in the argument of the Revenue that the delay n the refund was caused because of the conduct of the assessees. In fact, the assessee was questioning the proposition of the Revenue to assess the income in the hands of the Main Trusts. That is why the beneficiary trusts have filed their individual returns of income disclosing the benefits received from the main trusts also. But when KVSS was pronounced by the Government of India, it was for the assessees to decide whether to take benefit out of that or not. Therefore, it is only when KVSS was promulgated, the assessee had an occasion to make a move and settle the dispute. So also the proceedings were locked up in different appellate forums. Therefore, there is no merit in the argument of the Revenue that the delay was caused by the conduct of the assessees.

11 Vaibhavi & Others 3.6.Thus, it was pleaded by Ld. AR that in view of above submissions the necessary relief should be granted to the assessee. In this manner ground No.2 and 3 were argued by Ld. AR.

4.So far as it relates to Ground No.4, it was submitted by AR that since Revenue has deprived the assessee for long time for granting the interest or refund without any just cause, assessee should also be held entitled for receiving interest on interest.

5.On the other hand, after narrating the facts, it was submitted by Ld. DR that AO has rightfully denied interest to the assessee and referring to the order passed by Ld. CIT(A) it was submitted by Ld. DR that it has been clearly held by Ld. CIT(A) that according to the facts of the case it cannot be said that refund is due to the assessee as a result of any amount having not been paid in pursuance of any order of assessment since, in order under section 143(3) only protective assessment was made by the AO, with the undisputed position of the AO being that income on which the tax was paid by the assessee did not belong to it and hence, the assessee was not liable to the demand on the income of the main Trust. Since the assessee has disclosed the income as its own and had paid the tax on its own volition, and in order to protect interest of Revenue the AO only made the protective assessment. No enforceable demand was created on the assessee. According to well settled position of law, in protective assessment demand is only contingent demand and not legally enforceable and thus, in reality assessee did not pay tax in pursuance of any order of assessment. Ld. DR further referred to the decision of Hon’ble Supreme Court in the case of Modi Industries Ltd. vs. CIT, 216 ITR 759 referred to in para-6.2.3 of order of Ld. CIT(A) pleaded that the meaning of regular assessment in section 214, would be that a tax payer is entitled to claim interest on the excess amount advance tax paid only with reference to assessed tax determined on regular assessment and further no interest can be claimed under section 214 beyond the date of regular assessment. In this manner Ld.

12 Vaibhavi & Others DR pleaded that interest has rightly been denied by Ld. CIT(A).

6.So far as it relates to ground No.4, it was submitted by Ld. DR that according to decision of Hon’ble Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals, 358 ITR 291 (SC)w.e.f. 1/4/1989 the interest which can be granted to the assessee on refund as per section 244A would be the interest provided in that section and no other interest on such statutory interest can be provided. Thus, it was pleaded by Ld. DR that there is no provision according to which assessee can be granted interest on interest.

7.We have heard both the parties and their contentions have carefully been considered. In the present cases assessees are common to the assessees with regard to whom, earlier Special Bench had decided the issue that assessee is entitled to interest on the refund. Special Bench order was on the merits of the issue as well as on the validity or otherwise of section 263 of the Act which was invoked by the CIT to deny these assesses benefit of interest which was already granted by the AO. Special Bench has decided this issue in favour of the assessee and relevant observation of Special Bench have already been reproduced above.

7.1.The Revenue challenged the aforementioned order of Special Bench before Hon’ble Gujarat High Court and Gujarat High Court has not only upheld the decision of Special Bench on the issue regarding grant of interest but Hon’ble High Court has also directed Revenue authorities that they should not drag the assesseess to unnecessary avoidable litigation. In spite of such a warning given by the Court to the Revenue, the Department again in the present cases has dragged these assessees in litigation for non-granting of the interest. The relevant observations of their Lordships of Gujarat High Court have already been reproduced. It is made clear that the facts of the present cases and those which were decided by the Special Bench and Hon’ble Gujarat High Court are pari-materia and this fact was not disputed by the Revenue. The AO has 13 Vaibhavi & Others adopted a view which is contrary to the decision of Special Bench and the decision of the Hon’ble Gujarat High Court and as he has again made the disallowance by rejecting the rectification application of the assessee. Thus, the conduct of the AO is against the decision rendered by Special Bench. Similarly, Ld. CIT(A) has disregarded the Special Bench by simply holding that the same would not be applicable. According to Ld. CIT(A) the said order was in respect of section 244A.We don’t find any justification in such disregard shown by Ld. CIT(A). Therefore, in the facts & circumstances of the case, such conduct of the Revenue is neither according to the accepted position of law settled by the higher judicial forums nor it is appreciable for the reason that Hon’ble Gujarat High Court has already directed the Revenue not to drag the assessee in unnecessary avoidable litigation.

7.2.The issue regarding grant of interest to the assessees is clearly covered by the decision of the Special Bench as well as Hon’ble Gujarat High Court which have not been contended to be reversed or modified. Therefore, we direct the Revenue to grant the interest to the assessee and Ground No.2 & 3 are allowed.”

7.3.Before parting with Ground Nos. 2 & 3 of the assessee’s appeal, we may mention here that it is a proper case where cost can be imposed on the Department in favour of the assessee for not following the directions of Hon’ble Gujarat High Court (supra), but keeping in view that no such request was made by Ld. AR, we restrain ourselves to award such cost. 8.Now coming to Ground No.4, this issue has now been settled by Hon’ble Supreme Court by the decision relied upon by Ld. DR.Therefore, we hold that assessee is not entitled to interest on interest. 9.In the result, appeals filed by these assessees are partly allowed in the manner aforesaid. 4.We further find that on 7.9.2015,the Tribunal had decided 35 appeals of the same group wherein identical grounds were raised in ITA 6090 – 6124/Mum/2013 AY 84-85. In that matter the order of the Tribunal dated

14 Vaibhavi & Others 25/3/2015 was followed. Respectfully following the above, we hold that the conduct of the Assessing Officer(AO)is against the decision of the Special Bench and Hon'ble Gujarat High Court, that the issue regarding grant of interest to the assessee is covered by the Hon’ble Court. Therefore, AO is directed to grant interest to the assessee. Ground Nos. 2 -4 are allowed in favour of the assessee. Following the order of the Tribunal dated.25.03.2015(supra),we decide Ground No.5 against the assessee. 5.Follwing the above order for ITA/4712/Mum/2014,we allow all the other appeals in favour of the assessee-trusts in part.”

3.3. It is noted by us that the facts and issues involved in the appeals before us are identical with the issues decided by the tribunal. In view of the same the AO is directed to grant interest to the assessee in terms of aforesaid order of the Tribunal. He shall follow the aforesaid order of the Tribunal in all these appeals before us and with respect to all of the Grounds.

Order pronounced in the open court on 12th February, 2016.